When a vote never reaches the master fund through two layers of promote

The 50 cents on the dollar dilution rate is the whole loss here. Everything else was friction that could have been priced going in. That clause turned a cash flow shortfall on the investor's end into a permanent transfer of ownership to the manager, and the manager was the only person who knew whether to fund the call.

Genuinely asking, what's a feeder? I thought all syndications were one entity that owns the building.

@megan_doyle15 a feeder or SPV is a second partnership that sits between an investor and the deal. The investor owns units in it, and it owns an LP interest in the deal partnership. This structure is common when someone with a following raises a few million from small investors to fill one large LP slot the sponsor won't split up.

Two sets of docs, two sets of fees, and a person in the middle who decides for the LP. It's hard to see why anyone signs the second version when the first exists.

@tylerbrooks9 because the direct position often isn't available at $25k or $50k. A sponsor may want a $500k minimum for that slot, while a feeder gets an investor in at 50. That access is real and it costs 1 and 10 plus admin, which some investors will pay happily. The dilution mechanic is a separate question from whether the access is worth paying for.

Take a vehicle that raised around $840,000 and charges $5,000 a year of admin. That's roughly 60 basis points a year for bookkeeping and K-1 prep across a small pool of investors. Not outrageous by itself, but stacked on the 1% and the 10% it's a lot of drag on a deal that only did 1.25x.

I'm reading this twice like everything else. So the question to ask is whether the thing I'm buying owns the building or owns a piece of another partnership that owns the building. Is there a word for that on the paperwork I'd recognize?

@kevin_lombard look at the recitals on the first page of the operating agreement. If it says the company was formed to acquire and hold an interest in another named LLC or LP, that is a feeder. If it says formed to acquire the real property at whatever description, that is the deal entity.

I'll take the other side a bit. Co-GP and feeder structures aren't a scam and the disclosure here sounds like it was actually complete. @raj_mehta14 read the SPV docs, skimmed the master docs, and couldn't fund a $9,000 call on a $60,000 position. The fee stack cost maybe two or three points a year. The dilution cost more, and the trigger was reserves, not structure.

@samantha_ruiz the reserves point is fair. But a $9,000 call at a moment the manager chose, with a 50 cent conversion sitting there ready, is a clause designed to produce that outcome. I can hold both of those thoughts without dropping either.

Do sponsors even like these feeder structures? Fourteen small investors behind one signature looks like a headache someone eventually pays for, whether in time or in fees.

The clause to hunt for in a feeder is how the manager is required to vote the underlying interest. Three versions show up. Full discretion, which is what @raj_mehta14 got. Pass-through, where the manager must poll members and vote the master interest in proportion to their responses. Or a threshold version, where discretion applies except for listed major decisions like a sale, refinance, or a capital call. Pass-through is administratively annoying and it is the one to want. Also read the dilution section as a formula and actually run it. "Valued at 50% of the contributed amount" sounds procedural until you multiply it by your unit count and see what percentage of the vehicle you just gave away.

So the practical version for a passive investor is this: if there is a middle entity, assume a capital call can arrive and hold cash for it. Is there a rule of thumb on how much?

The usual practice, @priya_n21, is to hold 10 to 20 percent of the committed amount aside for exactly this. There is no single right number, but that is the range experienced LPs tend to cite.

The 1.06x after 4.5 years while everyone above you got 1.25x is a brutal way to learn where you sat in the stack.

I'm at the stage of choosing between platforms and direct sponsor relationships, and I hadn't understood that some platform offerings are structurally this. @raj_mehta14 did the offering materials describe it as a feeder anywhere in the marketing, or only in the docs?

From what you have laid out, the master's capital call in year three is the interesting signal. Deals call capital when a lender wants a paydown, a rate cap needs replacing, or reserves have run dry. If the SPV manager knew which of those it was, he had better information than his own members when he set the funding window.

Feeder operating agreements with almost exactly this stack turn up regularly, and the voting clause alone is reason enough to pass on many of them. The item worth adding to @dmitri_248's list is information rights. In a typical feeder document, members are entitled to the SPV's annual K-1 and whatever reports the manager chooses to forward. There is no right to receive the master's quarterly reports, the rent roll, or the lender correspondence. So the manager's discretion to vote sits on top of an information gap he controls. That combination is what makes the dilution clause dangerous rather than merely harsh, because a member cannot independently judge whether funding a call is a good idea. @samantha_ruiz, agreed that the fees were disclosed and the reserves failure is real. The disagreement is with calling the structure incidental. A direct LP facing the same call has the master's reporting, the same lender letters as every other LP, and a dilution mechanic sitting in one document. @raj_mehta14 had a manager between him and all of it. On a $60,000 check the fee drag was survivable. The information asymmetry was not. One question for @raj_mehta14. Did the SPV agreement give the manager a right to fund the shortfall himself, or did it require an offer to the other members first? Those are different documents, and the second one at least spreads the upside.

The lesson of this thread is that the first question for any sponsor or syndicator is "what entity am I a member of and what does it own." Cheaper than the alternative.