Help with a Waterfall Structure

TXRE33's picture
TXRE33 - Certified Professional
Rank: Senior Monkey | banana points 94

Quick waterfall scenario that I'm having some trouble with, though I'm sure it's not that difficult.

Currently putting together a waterfall with the following structure:
9% accrual, non-compounding pref return on initial investment, then:
70% to LP up to 15% IRR,
60% to LP up to 20% IRR,
50/50 thereafter

The way I have modeled it previously (and more simply) is to pay out the accrued pref, return investment and then promote the remaining proceeds equally.

I am struggling on how to promote the remaining cash flow at the thresholds provided above, as I've already paid back contributions. How would you guys recommend structuring the promote assuming the pref and initial investment are repaid first?

Am I making this more complicated than I should? Would really appreciate any insight here.


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Comments (5)

Mar 13, 2019

Are the IRR hurdes to the LP or project-level? Also, this is a CF split - the LP is not being promoted, right? Is it a 90/10% equity split?

Mar 13, 2019

The hurdles are project level. The split is 25/75 sponsor/LP.
20MM initial investment, returning 60MM at an exit in year 4.

The LP is not being promoted, just the sponsor. LP will receive the accruing pref, so 540,000 (135,000 x 4) in this example, followed by their return of capital. From there, I would like to promote the remaining profits as mentioned above.

Mar 13, 2019

In each monthly period for CF split IRR incentive calc for each hurdle:

Beginning Balance
+ Hurdle Accrue for Period (Beg. Bal * ((1+IRR)^(1/12)-1)
+ Period Contributions (Developer + LP)
+ Prior Distribution for Period (Return of Capital + Pref Distributed in Period)
+ Current Distributions in Period for Hurdle (MIN(-SUM(All Above Cells),Excess Available Cash after Pref and Capital Return)
= Ending Balance

    • 1
Mar 14, 2019

check out the waterfall template I attached a while back. It's set up to answer this question exactly.

Mar 14, 2019