What One Should Know About Equity Waterfalls in Multi Family RE

[Jared Carpenter]

Good evening BP World,

I was hoping that through your collective responses and examples, we as a community could learn more about the common real estate waterfall components.

In layman's terms, could a few of you kindly explain:

1. The return hurdle

2. The preferred return

- who gets the preferred return?

- is the preferred return cumulative?

- is the preferred return typically compounded?

3. The lookback provision

4. The catchup provision

5. When does return of capital typically occur?

6. What is a promote, how does it work, and at what stage for different execution strategies does it make sense to implement?

7. Do you present this in your Investment Memorandum or do you need to write out an owner's agreement?

Many, many, many thanks!