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Incentive Problems and General Partner Compensation in Limited Partnership Real Estate Investments
Author(s) -
Hamill James R.
Publication year - 1993
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00604
Subject(s) - incentive , web syndication , compensation (psychology) , real estate , reputation , business , finance , cash , agency (philosophy) , investment (military) , general partnership , principal–agent problem , cash flow , estate , economics , microeconomics , actuarial science , venture capital , corporate governance , epistemology , sociology , politics , political science , psychology , social science , philosophy , psychoanalysis , law
When a general partner raises capital for a real estate syndication, prospective investors should price‐protect against incentives of the general partner to misrepresent project cash flows. In this study, I evaluate the structure of the general partner's compensation and specific project characteristics to determine if compensation structure can mitigate agency costs. Results indicate that front‐end compensation is higher for the high reputation general partner and that the compensation structure varies with the degree of management expertise required and the financial risks of the investment.