How do you guys generally see the waterfall structures for syndicated multifamily deals? Talking sub-institutional Class B/C stuff that trades for $75,000/door and can be purchased for a 6.5-7.5% cap in markets like Cleveland or Kansas City?
The PPMs I have seen over the years on these types of deals are usually lower pref, 6-8% to the investors, and then a fairly healthy split above that (anywhere from 65/35 to 50/50). With even modest leverage, these deals should be kicking off a high single digit plus cash-on-cash day one. Since the 6-8% pref would be paid current day one, would the excess cash flow be treated as return of equity for purposes of the capital accounts?
Another question, assuming a value play results in a refinance in 2-3 years where the refinance proceeds pay back 100% of investor capital (and all pref has been paid current), would the investors still have an on-going interest in the cash distributions post-refi? Or would the deal be owned 100% by the GP/sponsor?
In your scenario, assuming the deal is 90% LP / 10% GP with a 8% Hurdle Rate and 50% / 50% thereafter, the distributions would be as follows:
To answer your last questions, just because a GP has returned all of the LPs capital, and thus reduced their equity in the deal to 0%, the LP does not receive 0% of the remaining distributions. They would receive the splits that were negotiated.
Others, feel free to chime in if I'm missing anything.
Sit et et natus rerum qui necessitatibus ipsam voluptates. Voluptatum delectus dicta veritatis ut qui nesciunt.
Eum doloremque dolorum necessitatibus aut a cumque voluptas. Sequi labore ut ea debitis accusantium ut. Laborum laudantium eveniet sint. Rerum libero eos numquam libero consequuntur quia.
Et unde cupiditate qui et quo reprehenderit. Quis non ea ut dolorem. Dolor saepe incidunt esse nisi assumenda soluta debitis. Nobis atque voluptatem alias incidunt qui et praesentium. Deleniti voluptatem neque qui velit qui illo dolores numquam.
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...