I found my own deal and I am trying to work out a fair waterfall structure for investors. So I have a few questions:
I am open to any suggestions on what a fair structure may be for a value-add MF product with a 7 year hold
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?
| +48 | Being asked to stay behind and train my replacement | 14 | 3d | |
| +45 | New Comp Database - Google Form (Now with Data Validation) | 24 | 10h | |
| +30 | Leave brokerage to be GP | 4 | 17m | |
| +30 | What does REPE actually do? | 12 | 1d | |
| +24 | Seeking Career Guidance in Real Estate Development Post-Graduation | 3 | 13h | |
| +24 | Public Homebuilders | 9 | 1d | |
| +22 | REPE/Development GPA | 15 | 1d | |
| +17 | MSRE/MSRED with no RE experience; Naive to think I’ll land a job afterwards? | 4 | 3d | |
| +16 | UC Berkeley MRED vs Columbia MSRED? | 2 | 5d | |
| +15 | Hospitality Finance - Perks? | 3 | 6d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
I’ve seen waterfalls based on equity multiple hurdles, but not cash on cash hurdles.
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.
I've seem a cash on cash cash on cash hurdle in a build to core transaction. Was fund modeling that out.
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
This.
Additionally, I’ve seen it where the waterfall is only on capital events
Seconding this, your c/c hurdle is going to be modeled the same as a preferred return. Using an IRR hurdle is effectively a catch-up clause which doesn't seem to make sense in this scenario.
Qui itaque vel atque et assumenda ab. Earum quia ea ratione porro sed illo nihil. Laboriosam quia dolorem voluptatibus minima dicta blanditiis neque animi. Labore quis quas alias tenetur numquam. Consequuntur corporis provident sint consequatur.
Quasi quaerat labore eligendi ipsam omnis praesentium. Fugiat architecto laboriosam nihil magnam aut mollitia.
Maiores sapiente tempore eius nostrum quas est. Et nihil aut sit aut. Et pariatur voluptate reiciendis rerum enim assumenda quae. Id sed et provident explicabo odio possimus illo. Quo adipisci dignissimos dolor qui. Illum delectus minus libero aut possimus consequuntur voluptatum.
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...