Can anyone tell me if the attached waterfall seems to be working properly? $100 Venmo for whoever can recreate it horizontally. I think it should be: 10% IRR for pref equity Remaining cash flow split between: 8% pref. for LP/GP 20% GP promote (but model shows 10%+20%=30%) This could also be saying that operating cash flow is treated differently than capital even cash, can’t tell
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Based on the most helpful WSO content, here are some insights on waterfall structures that might help you determine if your waterfall is working properly:
Preferred Return (Pref) and IRR Hurdles:
GP Promote:
Typical Waterfall Structure:
Example from Knowledge Base:
Considerations:
If your waterfall structure follows these principles and the calculations are accurate, it should be working properly. If you need more specific advice, providing detailed numbers and scenarios would help in giving a more precise evaluation.
Sources: https://www.wallstreetoasis.com/forum/real-estate/waterfallpromote-nuance?customgpt=1, Best way to learn Real Estate Waterfalls?, When does the promote split actually occur?, https://www.wallstreetoasis.com/forum/real-estate/waterfall-technical-question?customgpt=1,
The vertical waterfall is making my brain hurt, but you have an equity contribution in September 2027 during your refi which is likely an error in the underlying cash flows.
Also, I could easily be reading this wrong, but does your LP hurdle not start accruing until you pay off the preferred equity provider?
Where do you see the contribution in the refi month? I don't see that for some reason?
Also, I think you're reading the second part right, I need to confirm that with the OA.
Any chance you want to give a shot at making a horizontal version of this?????
Lol
K69 on the preferred equity tab.
Ok I see. Is that the only issue you see? What about the fact that the Saltzberg IRR seems to not be correct. They should have some GP return right?
A couple of notes
1. You have Pref and LP funding pro rata at the same time. In most cases it will be all of one funding source at a time and then the other.
2. Vertical Columns, complex formulas/calculations in the cells, and several layers of what appear to be redundant columns make this fairly difficult troubleshoot.
3. I don't see any splits/promote in current iteration. Also, 20% Promote is GP cash flow of 28%, LP 72%. It is 20% + GP Pro Rata Share of Remaining Balance in your example 10% x Remaining 80% = 20% + 8%. LP gets 90% of remaining 80%
4. It is a personal preference, but I would actually calculate/structure the Pref as a Mezz debt piece. Set it up in the model an as standard loan amortization table, funding adds to loan balance, have interest expense (10%) accruing and calculated on the previous ending balance, when the project begins operations all positive cashflow gets applied as a payment to the pref with the max payment being the Pref's current balance. Keeps the cash available for distribution to equity investors a little cleaner and easier to follow.
A video that might help you out
Makes sense.
Agreed, but this is how I inherited it! Any chance you'd be willing to help convert this to horizontal?
You're right. It looks like anything above the pref. is just split 10% to GP, 20% to GP, then 70% to LP, not a true promote, correct?
Would doing this change how the accrued pref is being treated on the LP waterfall? (columns AQ, AS, AU)
Seems like this video isn't helpful to me because it's teaching about an IRR based waterfall, am I missing something?
Does it seem like the Saltzberg GP/LP return is incorrect? When you change $1m of GP equity for Saltzberg to $0, the IRR (cell Q26) doesn't change. It's also only slightly greater than the LP IRR, so feels like it's missing some of its GP level return?
What is the deal with the $2,368 extra in cell S69 on the LP waterfall tab?
Thank you!!
1. Makes sense.
2. Agreed, but this is how I inherited it! Any chance you'd be willing to help convert this to horizontal?
3. You're right. It looks like anything above the pref. is just split 10% to GP, 20% to GP, then 70% to LP, not a true promote, correct?
4. Would doing this change how the accrued pref is being treated on the LP waterfall? (columns AQ, AS, AU)
5. Seems like this video isn't helpful to me because it's teaching about an IRR based waterfall, am I missing something?
6. Does it seem like the Saltzberg GP/LP return is incorrect? When you change $1m of GP equity for Saltzberg to $0, the IRR (cell Q26) doesn't change. It's also only slightly greater than the LP IRR, so feels like it's missing some of its GP level return?
7. What is the deal with the $2,368 extra in cell S69 on the LP waterfall tab?
Thank you!!
What's your email - I did it horizontally
[email protected]
Thank you so much!
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