How a GP/LP Structure Works for a Toronto Multiplex Deal

Take a fourplex build in Toronto's inner suburbs. Land plus construction on a build like this runs about $2,000,000, an approximate figure that will move once real quotes come in, and a lender carries roughly 70% of that on conventional multi-unit debt. That leaves a gap of about $600,000 that has to come from somewhere other than the bank. A GP/LP structure is how that gap gets filled: the GP (general partner, usually the developer) puts up land, guarantees, and time; the LP (limited partner, the outside investor) puts up the missing cash; and a limited partnership agreement spells out who gets paid first, who gets the upside, and who has the final say on the big decisions before ground breaks. For the mechanics of the partnership itself, TESA's pillar piece, How GP/LP Partnerships Work in Canadian Real Estate Investing, covers the roles in general terms. This piece stays on one deal, from the equity gap through to the split.

The Gap Senior Debt Won't Cover

Toronto permits duplexes, triplexes, and fourplexes as-of-right on most residential lots citywide, subject to the zoning by-law standards for that lot (toronto.ca). That's the deal type most GPs are actually raising for: not a twelve-unit apartment building, a fourplex on a single lot.

On a conventional (CMHC-uninsured) multi-unit loan, lenders commonly underwrite between roughly 65% and 75% loan-to-value or loan-to-cost, with a debt coverage ratio (DCR, the ratio of net operating income to debt payments) in the 1.20x to 1.30x range. That's market convention, not a government-set rule, so treat it as approximate and confirm it with the specific lender on the deal.

Run the fourplex at $2,000,000 in total project cost and a lender carrying 70% gets you $1,400,000 in debt. That leaves $600,000 that has to come from equity: the GP's own contribution plus whatever an LP puts in. That $600,000 is the entire reason a GP/LP structure exists on a deal this size. It isn't there to raise a fund; it's there to close one gap on one property.

The Math Changes If the Lot Can Get to Five or Six Units

Outside the former City of Toronto and East York district, and outside Ward 23 (Scarborough North), four units is the as-of-right ceiling; a fifth or sixth unit isn't currently permitted as-of-right anywhere else in the city (toronto.ca notice). Inside those two areas, Official Plan Amendment 818 and Zoning By-law 654-2025, adopted by City Council in June 2025, permit a detached five or six unit building, the "houseplex," as-of-right (toronto.ca notice; CBC News).

That jump from four units to five or six changes two numbers on the pro forma. First, CMHC's MLI Select mortgage loan insurance program, which requires a minimum of five units, can finance new construction up to 95% loan-to-cost, scaled to a points system scored across affordability, energy efficiency, and accessibility (CMHC, MLI Select; CMHC, multi-unit insurance overview). Push senior debt from 70% to something closer to 90-95% and the equity gap on that same $2,000,000 project shrinks from $600,000 toward $100,000 to $200,000. Confirm the live points table and the actual LTC a lender will underwrite before modelling a specific deal; it moves with the score, not a flat percentage.

Second, a 2025 amendment to Toronto Municipal Code Chapter 415 reduced the development charge to $0 for the second through sixth residential unit in a development of up to six units. Council subsequently removed the amendment's original sunset clause, so the $0 charge is now a permanent feature of the fee schedule, not a temporary window (toronto.ca, Chapter 415; STOREYS). That's a direct carrying-cost saving on units two through six versus the pre-2025 fee schedule, and it applies whether the equity comes from a GP/LP raise or the GP's own cash.

What the GP Actually Puts In

On a syndication-sized deal, the GP's contribution is mostly cash alongside the LPs. On a multiplex, it's usually the opposite: the GP is cash-light and contributes in kind.

The land counts as equity in the capital stack if the GP already owns it or has it under contract, contributed at cost or at appraised value. A personal guarantee on the construction loan is a real, bank-recognized contribution too, even though no cash changes hands for it, and most lenders require one regardless of who's on title. Then there's carry: the GP fronting predevelopment costs, survey, zoning review, drawings, before any LP money arrives. That should be tracked and either reimbursed at closing or credited toward the GP's equity position.

A development or project management fee is defensible when it's tied to work the GP is actually doing: pulling permits, managing the build, coordinating trades. It's not defensible when it's a flat draw with no deliverable behind it; that's the fastest way to lose an LP's trust on a deal this size, where the LP can see every line of the budget.

What the LP Is Buying

An LP writing a cheque for $300,000 to $450,000 on a single fourplex isn't buying a diversified fund position; they're buying a claim on one specific project. In return, they should get three things. A preferred return: a set annual return, commonly in the mid-single digits to around 8%, paid before the GP shares in profit. A defined promote structure: the GP's share of profit above the preferred return, once it's earned. And a stated timeline to exit, whether that's a sale, a refinance and hold, or a fixed hold period with a buyout option.

The preferred return matters more on a multiplex than on a large syndication because there's no portfolio to smooth over a bad year. One slow lease-up or one delayed permit hits the whole return, so the pref and the exit terms need to reflect that concentration, not a template copied from a twelve-building fund deck.

A Worked Split on the Fourplex Budget

Using the $2,000,000 project above: $1,400,000 in senior debt, $600,000 in equity. Assume the GP contributes $150,000 (contributed land plus a cash portion, 25% of the equity stack) and the LP contributes $450,000 (75% of the equity stack). The numbers below are an illustrative structure, not a formula; every deal's split depends on what the GP is actually bringing and how much risk the LP is carrying.

Distribution tier	What gets paid	Split
1. Return of capital	Each partner's invested capital, returned pro rata	LP 75% / GP 25%
2. Preferred return	Cumulative annual return on invested capital before any profit share	LP 75% / GP 25%
3. GP catch-up	Profit above the preferred return, to the GP only, until the GP holds an agreed share of total profit	100% to GP
4. Residual profit	Remaining profit after catch-up	LP 70% / GP 30%

The catch-up tier is what makes a multiplex split fair to a cash-light GP: it lets sweat equity and guarantees earn a real promote once the LP has been paid its capital and its preferred return, without handing the GP a disproportionate share from dollar one.

Why a Single-Property LP, Not a Fund

Most Toronto multiplex deals use a single-property limited partnership or a co-ownership agreement, not a pooled fund, because the raise is for one asset with one budget and one exit, and a fund structure adds cost and disclosure obligations that don't pay for themselves at this size.

A private Ontario limited partnership raising equity this way typically relies on a prospectus exemption under National Instrument 45-106 rather than filing a full prospectus: most commonly the accredited investor exemption or the offering memorandum exemption (OSC, exempt market; OSC, NI 45-106). An individual qualifies as an accredited investor in one of three ways: net financial assets over $1,000,000 before tax; individual net income over $200,000 (or $300,000 combined with a spouse) in each of the last two years, with a reasonable expectation of the same this year; or net assets over $5,000,000 alone or with a spouse (OSC, NI 45-106 consolidation; BCSC, Companion Policy 45-106CP). An entity, including a limited partnership, can itself qualify as an accredited investor with at least $5,000,000 in net assets per its most recent financial statements, which matters when a family-office LP or a fund-of-one is the equity source (OSC, NI 45-106). If the offering memorandum exemption is used instead, the issuer has to deliver a compliant disclosure document and meet added disclosure rules for real estate or collective investment vehicle issuers. It also has to file a report of exempt distribution with the OSC after closing.

The limit that comes with staying single-property: no cross-collateralizing this deal's equity against a future one, and no pooling small cheques into one vehicle unless the GP is prepared to run a fund with fund-level compliance. For a one-property raise, that's usually the right trade.

LP Protections That Matter at This Scale

A reporting cadence should be set in writing before the raise closes: monthly during construction, quarterly once the building is leased. Major-decision consent protects the LP without requiring them to run the project day to day: the LP has to approve anything above a defined dollar threshold, a change in scope, or a refinance. The partnership agreement should also spell out refinance and exit rights: what triggers a sale or refinance decision, and who has the final call if the GP and LP disagree on timing.

None of this is exotic. It's the difference between a partnership agreement and a handshake, and on a $600,000 raise between two or three people who know each other, the handshake is exactly where these deals tend to go wrong.

Where These Deals Actually Break

An undercapitalized GP who has contributed land but no cash reserve gets caught when a change order or a permit delay hits mid-build and there's no buffer; the LP ends up funding cost overruns that were never priced into the split. A deal with no defined exit leaves the LP holding an illiquid position with no stated date or trigger for getting paid out, which turns a two-year hold into an open-ended one. A verbal split with no operating agreement is the most common failure of all on deals this size: two people agree on a percentage over a phone call, the project takes longer and costs more than planned, and there's no document that says how the extra cost or the extra time gets allocated.

Every one of those is fixable before the raise closes. None of them is fixable after money has moved and the framing crew is on site.

How TESA Structures and Papers a GP/LP Raise

TESA runs the feasibility study and prices the construction budget first, so the equity gap in the pro forma is based on real numbers rather than a guess. TESA Development files the permits and manages the build. TESA SKLTN prices the superstructure package. TESA Capital structures the equity side of the raise, meaning the split, the waterfall, and the entity, and coordinates with licensed lenders and mortgage brokers on the debt side rather than arranging that financing directly. That end-to-end structure is the point of running the raise through one group instead of stitching together a broker, a lawyer, and a builder separately for a single fourplex: fewer places for the numbers in the deck to stop matching the numbers on site.