I recently saw a post in regards to carried interest in the PE forum, and wanted to know about carried interest in the Development and Acquisition side of real estate.
I believe that carried interest would typically begin at the Director/VP mark at REPE funds or development shops and it would be a portion of their own equity thrown into each deal. Would this mean they essentially cash flow monthly/annually and it would begin once the deal has closed?
Are acquisition guys at REPE shops and those at development shops typically the only ones who garner carried interest in their deals?
For those who do have carry in deals, what's the typical percent or whole dollar amount?
I'll start off by saying this varies drastically from one shop to the next. Generally speaking, it is easier to grab a piece of the carry at smaller shops. More institutionalized/corporate firms will grant carry at director/vp levels and typically as part of compensation structure - not ownership of partnership interests.
I'm an associate at a REPE shop in NYC. Investment team is made up of less than 15 professionals. I get allocated carried interest in the form of restricted securities on every deal I work on - regardless of whether I invest or not. This is far from par but I get 5% of the carry.
If project hurdles have been hit, any distributions made thereafter (generally quarterly) will include carry.
Carried interest positions held by firm members typically don't generate any benefit until some sort sale or terminal event. Carried interest rolls through the GP and is a portion of realized profits. It is taxed at the capital gains rate and not an individuals income tax rate - the key benefit is that the individual pays a lower tax rate. Carried interest can be viewed as an incentive alignment meaning executives don't profit until investors do - and I've seen fund managers get as much as 5-10% of the total carried interest generated by the project/fund.
Love to hear some good discussion on this for the RE arena. Does anyone have any examples of breakdown in numbers for say a mid size fund of $300-500m? What total total typical carry would the GP expect to realize from a fund that size in RE? Of that, what is typical breakdown in disbursement to partners/participants in carry?
My shop is fully-integrated design/build. On the development side, full carry is realized at the VP level and is 10% plus 5-10% of all fees/profits generated by other departments involved in the project (construction, cap markets, project management, developer fee, etc.) All star managers and directors can receive carry, but at a lower % than each member of the team above them.
Bump: Can anyone receiving carried interest or having anecdotal knowledge of it give us a "real life" example of what it looks like on a numerical basis (together with timing of distribution - be it annual or event based).
I have not received any carried interest, however, I am the person who calculates waterfall distributions at my company.
Simple 5.00% of carried interest example is as follows:
Post waterfall, LP investors earn 31% IRR, and the general partner nets $555k in promote. If carried interest is 5.00%, then $555k x 5.0% = $27,750 payment.
The above scenario assumes the "Carried Interest" is a percentage of the general partner promote. The waterfall can be more complex (could have multiple hurdle, GP or LP catchup tier, etc.) and the person receiving carried interest MAY also invest their own $$ into the deal. This all depends on the firm, deal structure, etc.
Second UT_Ameris on that. Great breakdown, G&S. Much obliged
Dolorem ut ut soluta quidem quos. Veritatis illo voluptatem illo accusantium. Ea laudantium asperiores quia voluptas et facere. Et velit atque inventore omnis vel ad. Voluptatem esse quae a sit rerum quo omnis sed. Voluptatem id assumenda quisquam porro hic.
Consequatur doloribus ut consequatur dicta architecto. Nulla error doloremque corrupti deleniti qui. Voluptates et consequuntur dolore at fugit harum. Aliquid nostrum voluptas voluptate quas.
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...