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Real Estate Investing: What Is a Capital Call?

Capital calls are an essential tool for commercial real estate investing funds.

Are you seeking ways to expedite your real estate investing progress and maximize your returns?

Capital calls are essential to help active investors access capital to take advantage of timely opportunities. In this article, we explore what capital calls are, how capital calls work, why they’re essential to active real estate investing, and how you can use them to your advantage.

Let’s get into it!

What is a Capital Call?

In the simplest terms, a capital call is a process used by some private equity firms, real estate fund managers, and active investors (also known as “general partners,” “GPs,” and “sponsors”) to collect capital from passive investors (also known as “limited partners” or “LPs”) when the fund needs money.

How Does a Capital Call Work?

A capital call is a “drawdown” mechanism which means LPs commit to providing a specific amount of capital to the real estate fund over a certain period. The fund manager(s) can call that capital due whenever needed.

Capital calls are a drawdown mechanism because an LP investing in a private equity fund typically consents to pay a portion of their investment upfront and reserves the remainder to be used later.

Here are vital real estate investing definitions new investors need to know about capital calls.

Committed capital is the amount the LPs commit to investing in a particular real estate fund. If a GP raises a $20 million fund, it doesn’t indicate that it has $20 million in the bank account. Instead, it implies that the fund’s LPs have agreed to contribute $20M.

Only a portion is contributed at the beginning when an LP establishes the amount of committed capital they will invest. The first contribution is commonly referred to as the initial drawdown. This initial drawdown has no predetermined amount; it can differ significantly depending on GP preferences, fund requirements, and agreements reached with the LPs.

Paid-in capital is the amount of money the LPs have put into the fund to date. The difference between committed capital and paid-in capital is called uncalled capital—the remaining balance held or the amount that LPs still “owe” the fund.

In short, capital calls are how GPs collect uncalled capital and convert it into paid-in capital.

What’s the Purpose of a Capital Call?

The purpose of a capital call is to collect uncalled capital from the fund’s investors to support new investment opportunities, cover expenses, or serve as a short term loan.

Why are Capital Calls Important?

Capital calls play an essential role in real estate investing because they empower real estate funds to secure substantial amounts of capital and access it efficiently on an “as needed basis” to take advantage of timely opportunities and maximize investor returns.

How Are Capital Calls Structured?

There’s no specific protocol on how to structure a capital call notice. However, common elements you can typically expect to see in a capital call include the following:

  • The project that will be funded with the capital

  • The amount of money being called, displayed in a dollar amount, and/or the percentage of committed capital

  • The amount of paid-in capital to date

  • The deadline for when the called capital must be received

  • Wiring and banking details of where to send the money

What’s an Example of a Capital Call?

Let’s say an LP agrees to invest $300k into a real estate fund with a three-year drawdown period. This doesn’t mean the LP needs to invest the full $300k of capital contributions at the beginning of the investment period. Instead, the LP can expect to invest $300k over three years.

Let’s say the GP makes a call request for investment capital with an initial drawdown of 15% at the beginning of the period. The LP must pay $45,000 to start, leaving $255,000 of uncalled capital for the remainder of the three years.

  • INITIAL CAPITAL CALL/PAID-IN CAPITAL: $45k (15% of commitment)
  • UNCALLED CAPITAL: $255k ($300k minus $45k)

Six months later, the GP sends a capital call notice for 25% of the committed capital call amount, meaning the LP needs to send $75k by the notice’s deadline in alignment with the capital call agreement. Most funds have a due date of ten days from the delivery date of the notice. The LP wires the $75k to the fund, and now the status of the capital call notices looks like this:

  • PAID-IN CAPITAL: $120k (40% of commitment paid in two drawdowns: $45k and $75k)
  • UNCALLED CAPITAL: $180k ($300k minus $120k)
  • TIME REMAINING: 2.5 years

Twelve months later, the GP has a new investment opportunity that fits the fund’s criteria and sends a third capital call to the LP for 30% of the committed capital (or $90k). The LP wires the money to the fund, and now the status of the capital is:

  • PAID-IN CAPITAL: $210k (70% of commitment paid in three drawdowns: $45k, $75k, and $90k)
  • UNCALLED CAPITAL: $90k ($300k minus $210k)
  • TIME REMAINING: 1.5 years

Six months later, the GP sends a fourth capital call to the LP for 10% of the committed capital (or $30k). Now the status of the capital is:

  • PAID-IN CAPITAL: $240k (80% of commitment paid in four drawdowns: $45k, $75k, $90k, and $30k)
  • UNCALLED CAPITAL: $60k ($300k minus $240k)
  • TIME REMAINING: 1 year

Eight months later, the GP sends a fifth and final capital call to the LP for the remaining balance of 20% of the committed capital (or $60k).

  • PAID-IN CAPITAL: $300k (100% of commitment paid in five drawdowns: $45k, $75k, $90k, $30k, and $60k)
  • UNCALLED CAPITAL: $0 ($300k minus $300k)
  • TIME REMAINING: four months

At this point, the LP has fulfilled their commitment to the fund. At the end of the initial period, the LP and GP can establish a new agreement to continue investing together if they wish.

Legal obligations for a capital call vary depending on the fund and its investors’ specific agreement(s).

Generally, both parties must honor the terms and conditions of their contract, including any deadlines associated with providing or receiving capital calls. Additionally, all funds received via capital calls must be used according to the agreed-upon purpose specified in the agreement.

Here are some examples of the legal obligations of each party:

First, GPs must give LPs adequate notice before making a capital call. The notice needs to include the purpose of the capital call, the number of funds required, and the due date for the contributions.

Second, the GP must ensure that fund requests follow the partnership agreement’s terms. The GP must use the funds for the purposes specified in the partnership agreement and ensure that the LPs’ contributions are not misused.

Third, the GP must keep detailed records of all capital calls. These records must be accessible to the LPs upon request.

Fourth, the GP must adhere to regulations governing private equity capital calls in their jurisdictions.

Fifth, the GP must always act in good faith and the best interests of the LPs. The GP must exercise reasonable care and skill in managing the limited partnership agreement and protecting the LPs’ interests.

Suppose an LP agrees to invest using capital calls under the conditions of the fund’s limited partnership agreement. In that case, they must provide funds when called by the stated deadline, or they may face potential penalties outlined in the contract.

Frequently Asked Questions About Capital Calls

When are capital calls issued?

Simply speaking, GPs issue a capital call when they need additional funds. Common triggers to issue a capital call include:

  • New investment opportunities.

  • Shortfalls in financing commitments from lenders.

  • Unexpected need to pay expenses.

  • Unanticipated costs due to construction delays or change orders.

What are the main benefits of capital calls?

The main benefit of capital calls is that they provide the fund with liquidity, flexibility in capital commitments, and continuous funding. By “locking in” committed capital and only accessing it when needed, real estate funds can minimize “cash drag.”

What’s a cash drag?

When accounting for the effects of inflation, holding cash usually has poor or even negative real returns. Because of this, most real estate funds keep emergency funds in cash but try to avoid holding additional cash so they don’t lose money from cash drag.

What happens if an investor doesn’t comply with the capital call?

Depending on the capital call agreement, GPs can request the release of the total commitment or declare forfeiture or default.

Are capital calls also used for private equity funds?

Yes, private fund managers in the financial industry also use capital calls for alternative investments. This means private equity, venture capital, and mutual funds can utilize capital calls to raise additional capital for an investment deal or alternative investments.


Capital calls are essential for real estate funds to access capital. Understanding how they work can help GPs and LPs manage their investments. A capital call is a funding request made by the GPs to the LPs of a real estate investment fund for money to cover expenses associated with a project. Investors who understand capital calls can make informed investment decisions and avoid pitfalls. Learn more about real estate investing for beginners.

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