A capital call is the right of a manager of a real estate partnership or fund to request capital from investors. Capital calls are usually addressed in the partnership or subscription documents. Some capital calls are planned, while others are unexpected. Unforeseen capital calls are less common, but sometimes necessary.
Examples that will trigger a capital call include renovations that exceed budget, unanticipated repairs or capital projects, and/or a recessionary environment that stymies demand and leads to insufficient revenue to cover property expenses. When additional capital is needed, the manager will issue a notice to each investor that explains why, as well as specific guidelines for how the capital call will be handled. In the event a capital partner opts not to participate (or funds less than one’s pro rata share), the original partnership agreement governs how a partnership will handle the situation. This may include dilution of a partner’s ownership interest, or other punitive measures.Back to Glossary