Real Estate JV Waterfalls: Preferred Return, IRR Hurdles & Promote

What you'll build

What you will be able to do

Each lab ends with a concrete result that you build yourself and the checker confirms, cell by cell.

• Build the equity cash flows of the fictional Cedar Row Apartments joint venture, including the sale, and measure the levered IRR and equity multiple that the waterfall will later split.
• Run the two tier-1 accounts year by year: the unpaid preferred return, which compounds, and the capital account, which falls as capital comes back.
• Track the LP's 8 % hurdle balance year by year, size tier 1 at deal level, and prove that the LP's tier-1 cash earns exactly 8 %.
• Size each LP IRR hurdle in the sale year, cascade the year-5 cash through four tiers with rising GP splits, and measure the LP's IRR after the promote.
• Test four exit scenarios against a 12 % IRR hurdle and a 1.6x equity multiple hurdle and see why many LPs ask for both.
• Value the GP's promote tier by tier and turn it into the two numbers sponsors and LPs quote: the GP's effective share of all cash and of the profit.
• Run the year-5 waterfall for six exit cap rates, value the GP's promote in each, and chart how fast it grows as the cap rate falls.
• Pay the promote deal by deal (American) and on the whole program (European) for three properties, and see the timing gap and the clawback when the last deal loses money.