Can somebody explain pari-passu to me? How it relates to GP/LP deal structure
I’m looking at a deal right now where the GP will be investing para pursue to the investors(LP).  I’m having a hard time understanding this based on google searches.  Can somebody explain what this means in a real estate structured deal?  Their OM states, “ manager capital of 10% of the equity requirement will participate pari-passu with the investors members.”
[{"id": "iyeaiwr", "text": "It\u2019s essentially the same as pro rata based on what you\u2019ve said. If there\u2019s a waterfall involved, the GP is pari-passu up until reaching a hurdle. In the OM is there anything about preferred equity or how the distributions are handled? If it\u2019s truly pari-passu then LPs wouldn\u2019t have first right to distributions, meaning both LP and GP have equal claim to the distributions versus giving the LPs preferred equity into the deal.", "replies": [{"id": "iyftqpi", "text": "This guy waterfalls", "replies": [], "depth": 2}], "depth": 1}, {"id": "iyehyk3", "text": "It means each dollar earned will be distributed in line with the percentage owned with no priority to a particular party. So if it\u2019s 90%/10% and you make a dollar it is distributed $0.90 and $0.10", "replies": [], "depth": 1}, {"id": "iyepimn", "text": "Pari passu is more about classes of investors - so manager and members are treated as part of the same class - ie no class is favored over the other \n\nPro rata has to do with sharing the pie and the percentages", "replies": [{"id": "iyfuznl", "text": "My experience agrees with this:\nPari passu means that distributable cash will be sent to each party simultaneously. The alternative is that a certain party/parties will have a priority (e.g.  give to partner 1 until requirement is satisfied and then if any distributable cash remains it goes to partner 2). Of course if there is enough distributable cash to satisfy both partners\u2026the end result is the same. \n\nPro rata - is often confused with the above. As stated it means (typically) in accordance with their share. \n\nSo, a pref return can be distributed to partners pro rata to their equity shares and pari passu in accordance with available proceeds. OR prorata to their equity shares First to partner 1 and Second to partner 2. \n\nJust adding context but prozute said it best.", "replies": [], "depth": 2}], "depth": 1}, {"id": "iyfpf0s", "text": "This is likely the GP in investment on the LP side of the deal. Means that their capital input on the LP side will be treated the same as the rest of the LP capital. \n\nGPs place funds into deals as an act of good faith and that capital will have the same risk, preferred return, and claims as the LP capital participating.", "replies": [], "depth": 1}, {"id": "iykshex", "text": "Pari passu translates from Latin to on equal footing", "replies": [], "depth": 1}]