The legal structure of a real estate deal is crucial in determining how a sponsor gets paid. In a multifamily private placement deal, the property is typically owned by a legal entity, such as a limited liability company (LLC) or limited partnership (LP), which is explicitly created to acquire, own, and operate the property. [1]
Here, we’ll examine how sponsors are compensated in multifamily real estate, including the equity participation, ownership, and fee structures.
OWNERSHIP STRUCTURE
Ownership structures are usually divided into two classes: the general partners (GPs) and the limited partners (LPs). The general partners are the sponsors who actively participate in the deal. In contrast, the limited partners provide capital but have limited to no involvement in day-to-day management. As the name implies, investors also have limited liability in the deal. This structure allows for clear roles and responsibilities and a separation of liability between the sponsor and the limited partners. [1]
As the GP, the sponsor takes a more active role in the investment process. They raise capital by partnering with investors for the deal and executing the business plan and investment strategy. They are also responsible for giving investors their initial capital back, along with any profits, at the end of the deal. Therefore, GPs/sponsors take on the most risk and liability for the deal. In exchange, they get additional fees and a (potentially) more significant ROI should the property perform well. [1][2] This is called a promote. A performance-based promote structure aligns the sponsor’s incentives with the deal’s success, offering the potential for a higher ROI but only if the property performs well in exchange for their active role and greater risk.
EQUITY PARTICIPATION
The waterfall and promote structure in multifamily real estate represents a payment model for distributing profits from an investment. According to Janover Inc., the sponsor “will receive a disproportionate share of the profits, known as a promote, as long as the project hits certain profitability benchmarks.” [3] The term “waterfall” refers to the tiered system by which cash flow and profits are distributed to the parties in an investment (i.e., investors, LPs, GPs) in a specific sequence. By outlining how profits and cash flow are sequentially distributed upon the sale of a property, sponsors reinforce the transparent stewardship of capital ethos and ensure all stakeholders receive returns on their investment.
So, imagine a waterfall where the water (profits) flows down through different tiers. Each tier represents a different investment stage and a specific payout structure or milestone. Typically, the first tier/milestone means a return of capital to investors, followed by paying a preferred return to investors. Subsequent tiers often involve splitting profits between the GP and investors based on pre-defined ratios or performance return hurdles, which are typically defined by an asset’s internal rate of return (IRR). [3][4] The following is an interpretation of a waterfall structure in practice informed by Janover:
Say a sponsor invested 5% equity in a $1 million property ($50,000), and an investor invested 95% ($950,000). A typical waterfall structure might include a 9% preferred return to the investors. Once the LPs have received their original capital and a 9% return, any remaining profits are split. For example, the sponsor gets 20% of the profits, and the investors receive 80%. [3] This structure incentivizes the sponsor to maximize performance because they earn more only after delivering strong returns to investors. In actual deals, waterfall structures can be more complex, sometimes with multiple hurdles, catch-up provisions, or different return thresholds. But this gives you the basic idea of how they work and why they’re designed to align the sponsor’s success with investor success.
Generally, LPs are not legally or financially liable for anything involved with the private placement deal. They are not responsible for debt, liability, or any other obligations, as they only risk losing their initial investment should anything go wrong. Compare this with the amount of risk you would have to take if you purchased and ran an entire apartment community alone. [1] Passive investors can also benefit from tax advantages available to the sponsor, which flow through to LPs via K-1 reporting.
In addition to the promote, GPs/sponsors may also earn money through equity ownership in the project, which can range from 10% to 70%, depending on the deal and how much the sponsor personally invested. [5][6]
FEE STRUCTURES
Acquisition fees
This fee compensates the general partner for the time required to identify and perform due diligence on an acquisition. They take charge of the whole thing from start to finish. [5][6]
The acquisition fee can be 1% to 5% of the purchase price. The fee can be above 5% or less than 1%, but these are much less common. For example, if a sponsor’s acquisition fee was 2%, and the real estate property was $1 million, the sponsor would be paid a one-time acquisition fee of $20,000. [5]
Asset management fees
The asset management fee is another way general partners earn from multifamily private placement deals, and it is paid to oversee the property’s operations and manage the business plan. It can be collected in two ways: it may be charged as a percentage of income; in this case, the standard is 2%, or as a cost per apartment unit per year. [5][6]
Construction fees
Regarding the importance of partnerships, developers typically handle construction in a multifamily investment deal. They will partner with a sponsor and its investors who provide equity. [7]
Sponsors can then charge a fee for managing the relationship with the developer, ranging from 2% to 8% of the total development or construction cost. [8]
Disposition fees
The disposition fee, which is sometimes referred to as an “exit” fee, is paid to a sponsor for marketing efforts and executing the sale of a property. It typically ranges from 0.5% to 2% of the sales price. [9] Since the disposition fee is usually tied to the property’s performance, it is in a sponsor’s best interest to obtain a competitive offer and deliver the highest possible returns to its investors.
Equity raise fees
Equity raise fees, or fundraising fees, represent a percentage of the total equity raised in a deal (typically 1% to 3%) paid to a sponsor for their success in raising capital, driving sales, and securing investors. [10] This fee is usually paid at the close of a sale, after equity has been raised, to compensate sponsors for the resources they have invested in the deal.
Note that the fees mentioned above are not immutable and are subject to the deal structure and the sponsor’s discretion. They vary based on the sponsor, the complexity of the deal, and the market. A well-structured fee model should balance fair compensation for the sponsor while considering investor returns.
WORK WITH BAM CAPITAL FOR MULTIFAMILY REAL ESTATE INVESTING
BAM Capital is a vertically integrated owner/operator that partners with accredited investors who want to enjoy passive income and all the other benefits of multifamily private placement. As the private equity arm of The BAM Companies, BAM Capital has been focusing on buying the most profitable assets and staying disciplined in its investment thesis. BAM Capital’s investment strategy aims to create forced appreciation while mitigating investor risk. To date, the brand has successfully managed over $1.7 billion in assets across ~9,000 apartment units.
Remember that no investment is risk-free. Before making financial decisions, consult your investment advisor and schedule a call with a BAM Capital investment team member.
Disclaimer: All investments carry risk, including potential loss of capital. This content is for informational purposes only and is not financial, legal, or investment advice, nor an offer or solicitation to buy or sell any security. Consult an independent advisor for personalized guidance and contact BAM Capital for details on current offerings. BAM Capital and its representatives are not fiduciaries or investment advisors. The information provided is general and may not reflect individual financial goals. Any financial terms, projections, or forward-looking statements contained herein are hypothetical in nature and should not be interpreted as guarantees of future performance or safety. Such statements reflect Bam Capital’s opinion and are subject to market fluctuations, economic conditions, and investment risks. Past performance does not predict future results. BAM Capital and its affiliates do not guarantee the accuracy or completeness of this information. Bam Capital offers investment opportunities under Rule 506(c) of Regulation D exclusively for accredited investors as defined by the SEC. Verification of accredited investor status is required prior to participating in any investment.
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SOURCES:
[1]: BAM Capital. (2025). “Who owns the property in a syndication?” https://www.bamcapital.com/who-owns-the-property-in-a-syndication/
[2]: Multifamily Refinance. (2023). “Multifamily Syndication: The Complete Guide.” https://multifamilyrefinance.com/apartment-investing-blog/multifamily-syndication#anchor-links
[3]: Janover Inc. (2022). “Waterfall and Promote Structures in Commercial Real Estate.” https://www.commercialrealestate.loans/commercial-real-estate-glossary/waterfall-and-promote-structures/
[4]: Google Generative AI. (2025). “What is waterfall in multifamily real estate?” https://www.google.com/search?q=what+is+waterfall+in+multifamily+real+estate
[5]: BAM Capital. (2025). “Understanding the structure of multifamily syndication investing.” https://bamcapital.com/structure-of-multifamily-syndication-investing/
[6]: Best Ever Commercial Real Estate. (2017). “3 Primary Ways an Apartment Syndicator Makes Money on a Deal.” https://www.bestevercre.com/blog/3-primary-ways-apartment-syndicator-makes-money-deal
[7]: Summit Design + Build. (n.d.). “Multifamily Construction Costs: An Investor Guide.” https://summitdb.com/multifamily-construction-costs-an-investor-guide/#:~:text=Soft%20costs%20include%20legal%20fees,The%20duties%20of%20contractors%20include:
[8]: High Peaks Capital. (n.d.). “Real Estate Syndication Sponsor Fees.” https://highpeakscapital.com/real-estate-syndication-sponsor-fees/#:~:text=To%20compensate%20sponsors%20for%20managing,to%208%25%20in%20development%20fees.
[9]: Smartland. (2022). “Understanding Multifamily Real Estate Sponsor Fees.” https://smartland.com/resources/understanding-multifamily-real-estate-sponsor-fees/#:~:text=In%20situations%20like%20these%2C%20the,1.0%25%20of%20the%20sales%20price.
[10]: Forecast, Inc. (n.d.). “The Hidden Costs of Fundraising: Navigating Capital Raising Fees.” https://www.forecastr.co/blog/capital-raising-fees#:~:text=A%20success%20fee%20for%20raising,and%20complexity%20of%20the%20transaction.
