Trending Content - Real Estate Forum
| +69 | Is anybody just going to leave the industry? | 26 | 19m |
| +25 | Multifamily firms collpasing in Dallas whose next? | 8 | 21h |
| +22 | CRE Recruiting for a Career - crazy? | 4 | 14m |
| +17 | Exits from REPE | 10 | 57m |
| +15 | NYC Real Estate Job Market | 5 | 19h |
| +14 | Q3/Q4 CRE Job Market Optimism (or lack thereof) | 5 | 12h |
| +12 | Launching a Development Platform in Greece | 2 | 5d |
| +8 | Hard Money Lenders? | 1 | 5d |
| +1 | Thoughts About Starting CRE Broker Journey at Horvath & Tremblay or CBRE? | 3 | 2d |
| LIHTC Exits???? | 2 | 4d |
Career Resources
Did a lot of 3-tier, as well as 5-tier waterfall modeling early in my career. Are they pari passu distributions ? Typically there's a hurdle 1, and there's a hurdle 2 (after hurdle 1 is satisfied), lastly the Developer's share of cash flows shoot up after hurdle 2 is met.
Are you still in the PE/Water Fall Modeling game? If so what are you seeing for hurdle 1 Prefs and hurdle 2 Prefs (generally speaking)? 8% then 12% followed by a 40/60 residual split or something? I know this varies but lets say 2%/98% distributions to sponsor/investor respectively, Value-Add opportunity in major CBD.
Reading your thoughts would be helpful
Hey @cre123" I replied with the structure below.
I ended up modeling it out as I described below. However, since its a rare structure, I imagine that this will be a 'bespoke' JV Waterfall.
In 2008, CBRE Global Investors (then called CB Richard Ellis Investors) had a PE fund called "Strategic Partners Opportunity Fund 5". Their projected returns and their "fee scoreboard" were as follows:
Equity Goal: $1 Bil Net Return Goal: 20% Fees: 1.5 Management (flat) Pref for LPs: 10% GP/LP Split Until GP Captures 20% of profits: 20/80 to 13% and then 40/60 to 20% (where the GP makes the bulk of their money) IRR at which GP captures 20% of profits: 23%
Given the the fact that today's rates are considerably lower than they were in the better years of '08, I'd assume we can pretty much cut these returns by 30% each (at least).
Thoughts?
I just want to say that I think I might learn something every time @cre123" posts in a thread. Keep it up man.
An example of the big dogs having more leverage on the little guys (relatively speaking of course):
GP: Morgan Stanley Fund: Real Estate Fund 7 Global Equity Goal: $10 Bil Net Return Goal: 17% Fees: 1-2% management an 0.25-1% acquisition Preferred Return for LP's: 9% GP/LP Split until GP captures 20% of profits: 60/40 IRR at which GP captures 20% of Profits: 13.5%
Typically its a two tier structure, developer (sponsor) and equity investor. You start with a basic pref, could be 8%-10%. Then your hurdles come into play. Now when you say you have 3 partners, do you mean their will be 3 different structures, because that sounds like an absolute nightmare to figure out.
Yes, there are 3 partners. Which is making it a nightmare to figure out. Especially since it's my first waterfall. sigh
To lay it out
It's a 3 Partner, 2-tier waterfall (which I believe is a highly unusual structure).
Partner 1 (GP) - Equity Contribute is 5% Partner 2 (GP/LP) - Equity Contribute is 30% Partner 3 (LP) - Equity Contribute is 65%
Tier 1 Pref Hurdle Rate is 8%. Capital is returned first and then 8% is returned parri passu. (Also unusual from my understanding)
Partner 1 (GP) - Equity Contribute is 5% Partner 2 (GP/LP) - Equity Contribute is 30% Partner 3 (LP) - Equity Contribute is 65%
Tier 2 - Partner 1 Promote is 20%, Partner 2 Promote is %5. Partner 1 (GP) - 5 + 20 Partner 2 (GP/LP) - 30 + 5 Partner 3 (LP) - 40
Aut voluptatem qui omnis quo. Occaecati ut fuga vero vitae inventore. Alias mollitia doloremque totam in. Et quia ut est facilis.
Ut non necessitatibus aut ut. Eos temporibus harum eligendi dignissimos autem velit et. Quo accusantium perspiciatis deserunt. Esse et aut fuga nobis in numquam. Consequatur ullam voluptatem nobis. Nemo aut debitis et eius sit tenetur assumenda consequatur.
Eos omnis et rerum odio rem debitis. Dolorum quia aut alias ut dolorem. Quos voluptatem alias id suscipit in suscipit.
Fugit necessitatibus odio natus quasi at placeat consectetur. Eligendi eos et iusto provident ut. Illo exercitationem voluptatem et est reiciendis. Ab voluptatem qui expedita qui quibusdam reprehenderit sequi.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...