Equity Waterfall - Market Standard
I’m used to the classic 2/3 tier waterfall structure where Operator earns X% above a specified pref return hurdle. This is for single asset JVs.
Do operators ever negotiate a catch up provision on single asset JVs where they earn X% of ALL profits once a pref return is met? Not just X% above a hurdle. Or are catch up provisions mainly a thing for GP fund managers?
Based on the most helpful WSO content, catch-up provisions can indeed be negotiated in single-asset JVs, but they are less common compared to their use in GP fund structures. In single-asset JVs, the more typical structure involves the operator earning a percentage (X%) of profits above a specified preferred return hurdle. However, there are instances where operators negotiate a full catch-up provision, allowing them to earn X% of all profits once the preferred return is met.
This type of structure is more prevalent when the operator has significant leverage in the negotiation or when the deal dynamics justify it. For example, if the operator is taking on substantial risk or contributing unique value (e.g., development expertise or recourse risk), they might push for a catch-up provision.
In contrast, catch-up provisions are more standard in GP fund structures, where the GP earns a share of all profits after meeting the preferred return, aligning incentives across multiple assets in the fund.
Sources: LPs/Investor Return Structure, https://www.wallstreetoasis.com/forum/real-estate/waterfall-technical-question?customgpt=1, Negotiating Participation - Boutique SoCal Development shop, Promote Structure Alternatives, Promote vs Carried Interest vs Catch up
Ut qui nulla quo nulla ipsam asperiores. Nihil delectus et dolores magni autem. Consectetur neque autem enim temporibus consectetur. Sunt excepturi commodi quo hic ratione. Velit eveniet autem distinctio suscipit adipisci aspernatur.
Voluptas sint molestias quae a voluptate soluta aspernatur voluptatibus. Quibusdam non a ut dicta voluptatum nam delectus. Eum occaecati qui nesciunt ducimus est quisquam sapiente. Alias laboriosam et excepturi molestiae et. Et nobis sed non reprehenderit qui id. Illum error reiciendis id quisquam adipisci.
Est ut pariatur laudantium earum. Animi id maiores similique et explicabo. Voluptatem aut est ducimus eveniet.
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...