Multi-Family Waterfalls

I found my own deal and I am trying to work out a fair waterfall structure for investors. So I have a few questions:

  1. I am open to any suggestions on what a fair structure may be for a value-add MF product with a 7 year hold

  2. More importantly: Are waterfalls based on IRR. Our investors are cash on cash focused- has anyone seen a cash on cash waterfall hurdle and if so how does that work?

Comments (6)

 
Jan 12, 2021 - 11:36pm

If it's value-add, I doubt you personally want cxc to be a hurdle. Make it irr, it's simple, and the best way to explain it to investors that are non real estate people. If they are that cxc focussed you should buy core-plus. Va assumes some low cash distribution years.

 
  • Associate 1 in RE - Comm
Jan 13, 2021 - 10:37am

I've seem a cash on cash cash on cash hurdle in a build to core transaction. Was fund modeling that out.

 
Jan 13, 2021 - 11:59am

If you think you have a deal that cash flows pretty well, you may want to break out the waterfall into distributions from operating cash flow and distributions from capital events. For example:

Operating Cash Flow Distributions

1) Current 8% pref

2) Accumulated 8% pref

3) 20% promote above the pref

 

Capital Event Distributions

1) Current 8% pref

2) Accumulated 8% pref

3) Return of capital

4) 20% promote thereafter 

 

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