Waterfall with multiple LPs, different distribution structures

Does anyone have a template for a waterfall in a deal where there are multiple LP's in the same deal, each of whom have their own distribution schedule?

The part I'm hung up on is how to bifurcate between the deal-level distributions at the top.

Any insight is appreciated.

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Comments (6)

Sep 7, 2021 - 7:59pm

You would need to build out separate waterfalls (or at least sub-sections in each tier) for each LP, and separate inputs for each of their respective distribution structures.

The property level distributions would just be allocated pro rata to each LP, any LP expenses would be deducted from there, and the remaining distributable cash flow would be run through the waterfall.

EDIT: If there is also a deal-level promote above all the individual LP waterfall structures, any LP with promotes further down the waterfall would need to be credited for their pro rata share paid at the deal-level.

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  • Analyst 3+ in RE - Comm
Sep 7, 2021 - 8:06pm

Right, I built out the subsections in each tier. But the question is, how do you pro-ratably allocate the property level distributions to each LP? If the Sponsor also puts up, say, 10% of the equity.

For example:

property level distributions: 50m

LP 1: 60%

LP 2: 30%

GP: 10%

You're suggesting LP1's waterfall starts with 30m (60% x 50m) to flow through? That's undercounting though, because we have to allocate some of the GP 10% contribution somewhere.

Sep 8, 2021 - 9:32am

It wouldn't be undercounting, the GP would just receive a direct 10% pro rata share at the property level if they put up 10% of the equity.

$50M distributions:

LP1 - 50*0.6 = $30M

LP2 - 50*0.3 = $15M

GP - 50*0.1 = $5M

$50M total distributions. From there, the GP's $5M doesn't need to flow through anything, and the LP shares flow through their respective waterfalls, net of LP expenses.

If the GP has contributed an equity stake, they get their pro rata share of property level distributions.

  • Intern in RE - Comm
Sep 8, 2021 - 6:02pm

Assuming both JVs are 90-10, then you allocate a certain % of the GP to each. Gross up the 60% and 30% by .9 and allocate the deal level cash flow 66.66% and 33.33% respectively then feed them into your two different waterfalls. GP has 10% of each deal and 10% of the overall deal.

Sep 8, 2021 - 8:00pm

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