Preferred Return (Pref)
A priority return that must be paid to investors before the general partner or sponsor participates in profits. Typical preferred returns range from 6-10% annually. The pref may be cumulative (unpaid amounts accrue) or non-cumulative. Once the preferred return is satisfied, remaining profits are split according to the promote structure.
Related Terms
Promote (Carried Interest)
The disproportionate share of profits earned by a sponsor or general partner after achieving specified return hurdles for investors. A common structure is "80/20 over an 8% pref" meaning investors receive 80% of profits (sponsor 20%) after achieving an 8% preferred return, with the split becoming more favorable to the sponsor at higher return tiers.
JV Equity (Joint Venture Equity)
Equity capital provided by an institutional investor or partner to co-invest in a real estate project alongside an operating sponsor. JV equity structures typically feature a preferred return to the capital partner, followed by profit splits that reward the sponsor for achieving target returns. Common JV partners include pension funds, sovereign wealth funds, and private equity firms.
Waterfall Structure
The contractual framework governing how cash distributions and profits are allocated among partners in a real estate investment. A typical waterfall has multiple tiers: first, return of invested capital; second, a preferred return (typically 6-10%); third, a catch-up provision allowing the sponsor to receive a larger share until a specified split is reached; and fourth, a promote split above certain IRR thresholds. Waterfall structures align incentives by rewarding the sponsor for outperformance while protecting investor capital with priority returns.
More Deal Structure Terms
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