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.
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