Top Mistakes LPs & Family Offices Make & How To Avoid Them When Choosing a GP for Multifamily and Land Development Projects

4 hours ago
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Selecting the right general partner (GP) can make or break an investment in multifamily or land development projects. Limited partners (LPs), family offices, institutional investors, and trust companies often face challenges when evaluating GPs. Mistakes in this process can lead to missed opportunities, unexpected risks, and poor returns. This post highlights the most common errors made by private investors and family offices and offers practical advice to avoid them.

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Eye-level view of a modern multifamily housing project under construction — Careful evaluation of multifamily projects is critical for LPs and family offices

LPs & Family Offices Are Overlooking the GP’s Track Record and Experience

One of the biggest mistakes limited partners make is not thoroughly vetting the GP’s history. A GP’s past performance in multifamily or land development projects reveals their ability to manage risks, control costs, and deliver returns.

Look for consistent success in similar projects, not just isolated wins.
Check for experience in the specific market where the project is located.
Ask for references from previous LPs or family offices who invested with the GP.
Beware of GPs who inflate their track record or provide vague details.

For example, a family office once invested in a land development project without verifying the GP’s experience in zoning and permitting processes. This oversight caused costly delays and reduced returns.

Ignoring Alignment of Interests

LPs and institutional investors sometimes fail to confirm that the GP’s interests align with theirs. A GP who invests their own capital alongside LPs demonstrates confidence and commitment.

Confirm the GP has meaningful skin in the game.
Understand the GP’s fee structure and how it impacts their incentives.
Avoid GPs who prioritize fees over project success or who take excessive control without accountability.

Trust companies managing family wealth should insist on clear alignment to protect their clients’ capital and ensure the GP works toward shared goals.

Neglecting Due Diligence on Financial and Legal Aspects

Due diligence goes beyond reviewing the GP’s resume. LPs often make the mistake of skipping detailed financial and legal reviews.

Review the GP’s financial statements and audit reports.
Verify the GP’s legal compliance history, including any past litigation or regulatory issues.
Understand the partnership agreement terms, especially around distributions, decision-making, and exit strategies.

Private investors who overlook these details risk unexpected liabilities or unfavorable terms that reduce their returns.

Underestimating Market and Project Risks

Family offices and institutional investors sometimes focus too much on the GP and not enough on the project’s market fundamentals.

Analyze local market trends, demand-supply dynamics, and economic indicators.
Assess the project’s location, zoning, and infrastructure access.
Evaluate environmental and construction risks.

For instance, an LP invested in a multifamily project in a declining neighborhood without proper market analysis, resulting in low occupancy and poor cash flow.

Failing to Establish Clear Communication and Reporting Expectations

Limited partners often assume the GP will provide timely and transparent updates, but this is not always the case.

Set clear expectations for reporting frequency and content.
Request access to project management tools or dashboards if available.
Ensure the GP commits to transparency about challenges and changes.

Institutional investors benefit from regular, detailed updates to monitor performance and make informed decisions.

High angle view of a land development site with construction equipment and planning documents — Thorough project and market analysis helps LPs avoid costly mistakes

Overlooking the Importance of Exit Strategy Clarity

Many LPs and family offices neglect to clarify the GP’s exit strategy before investing.

Understand the expected hold period and exit options.
Confirm how the GP plans to maximize value at exit.
Review any penalties or restrictions on early withdrawal.

A private investor once faced a locked-in investment for years longer than expected because the exit strategy was not clearly defined upfront.

Relying Solely on Past Relationships

Trust companies and family offices sometimes rely too heavily on existing relationships with GPs without fresh evaluation.

Even trusted GPs should be re-assessed for each new project.
Market conditions and GP capabilities can change over time.
Use independent advisors or consultants to provide objective analysis.

This approach helps avoid complacency and uncovers potential red flags.

Summary and Next Steps

Choosing the right GP requires careful, detailed evaluation. Limited partners, family offices, institutional investors, and private investors must avoid common pitfalls such as ignoring track records, failing to align interests, skipping due diligence, underestimating risks, and neglecting communication and exit clarity.

To improve your selection process: