Holland Beckett: The value of Limited Partnerships in commercial property investment

PMG is committed to providing our investors with efficient and effective investment structures. As a fund manager of choice, we aim to structure each of our funds to maximise benefits for our investors.

Some of PMG Funds’ (PMG) wholesale funds are structured as limited partnerships (LPs). The LP structure enables us to simplify how we manage operational aspects of the investment, while allowing investors to play a more passive role while rental income flows through.

We recently invited Holland Beckett partner Ken Hawkes and solicitor Ruby Bell to share their expertise on LPs for commercial property investments.

An LP is a business structure with at least one general partner (GP) that assumes unlimited personal liability, so the investors don't have to. For PMG's LPs, investors pool their money together to purchase and/or develop property by contributing capital and becoming limited partners. Investors have limited liability and leave management to a fund manager and a property manager. The GP usually has no economic interest in the LP which is entirely held by the investor limited partners.

In PMG’s fund structures, the LP will enter into a management agreement with a fund manager that will administer the LP. This agreement clearly sets out the powers and fees of the fund manager, which gives investors transparency to how their money is being used and the fees that are charged.

So what's so great about LPs?

• Limited risk - investors only risk the money they have contributed to the LP. Every investment comes with inherent risk and the LP/GP structure is a shield to that risk. If something drastic happens and creditor and/or solvency claims start to appear, investors don't have to worry about being personally liable.

• Their purpose (in PMG's case) is real estate - the investment is simple - through the purchase of commercial property, investors receive net income.

• Tax simplicity - LP’s are look-through for tax. The only tax accounting required is on the investor's personal income. This means there is no double taxation or other complexities like those related to distributions from a company.

• Private - unlike registered companies where shareholder registers are public, an LP’s register is not public. The only public part is the GP company (registered with the Companies Office) which shows PMG as the owner of the GP. PMG's name is the only thing the public will see in relation to the fund. So LPs are a great thing if you don't want the world to see your investments.

• PMG gets to do all the work - and you, as an investor, get to sit back, relax and receive the returns! The management agreement also creates incentive for the manager to do a good job - and make investors returns - some of the fees are awarded purely on success of the property fund, meaning that manager and investor interests are aligned.

If you have any questions about how LPs work or would like further explanation on the legal side of things, please contact Holland Beckett's corporate and finance team at corporateandfinance@hobec.co.nz or visit their website: https://hobec.co.nz/expertise/corporate-finance/

Written by Ken Hawkes and Ruby Bell

Disclaimer: The information in this blog is general and current as of July 2024. It is not intended as regulated financial advice under the Financial Markets Conduct Act 2013 and does not consider your specific circumstances. PMG does not provide financial advice. Please consult a licensed financial advisor before making investment decisions.