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.
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James Hamill (1993) studied this question.
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