One key element of syndication is the real estate waterfall equity structure.
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The preferred return is the return expectation that the sponsor or general partner writes out in the operating agreement of a real estate project.
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In addition to the common equity waterfalls, there are the non-preferred return waterfall, the wacky waterfall, and the side letters waterfall.
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Cash Flows and Real Estate Waterfalls
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Real estate crowdfunding permits investors to invest in similar deals with smaller investment amounts avoiding the complexity of waterfall distribution.
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A waterfall model is most commonly used with a private equity fund and real estate deals.
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Distribution waterfall models are in place to ensure that profits are given to the manager only after the limited partners receive the agreed-upon return on their investment.
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Equity waterfalls are used mainly in real estate syndications, but one can also use them with different investments.
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In commercial real estate, the equity multiple is the total cash distributions received from a real estate investment divided by the total equity invested.
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Some two-tiered waterfall models also include a limited partner IRR check
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