A sponsor has the option to purchase the limited partner interest rather than purchase the real estate. This opportunity and purchase price formula may be detailed in the limited partnership agreement or may be discussed during the purchase proposal process.
After purchasing the limited partner’s interest, the sponsor gains 100 percent control of the limited partnership. As a result, the limited partnership is not terminated in the same way it is when an underlying project is purchased.
We urge sponsors to seek legal counsel regarding the decision to purchase the limited partner interest versus the real estate. Here are some of the issues to consider.