Preferred return in a multifamily syndication

[Evan Loader]

For those of you invested in syndications with preferred returns, how does your sponsor communicate and track that preferred return if it is deferred? In the early stages of a deal after close, the preferred return in my experience is either lower in years 1/2 or deferred until the property is stabilized, then paid out at an agreed upon date, at a refi/capital event or upon selling the property. In my experience, this would usually be communicated ahead of time before the deal closes, as it is planned for. 

However, with COVID-19 and moratoriums on evictions in many states, this has to change the projections a bit, not only on a preferred return but on distributions overall. I assume that sponsors will prefer to hold onto more reserves until everything stabilizes by deferring some preferred returns and regular distributions, which seems to be a perfectly rational response. It would make no sense to continue distributions as if nothing is wrong, putting the entire deal at risk of failure or reduced returns. The question I have is, how do sponsors keep track of a preferred return if it is delayed/accrued vs regularly paid out? Sponsors out there, do you have a process in place to address this? 

[Charles Seaman]

@Evan Loader As a syndicator, we track them through the use of spreadsheets.  Some groups will use investor management software programs (ex. IMS, etc.) and others might still have different systems that they use.  We simply track how much each investor invested, what their preferred return should've been, and what was actually paid out for each quarter.  If there's a shortfall, it'll stand out so that we can see it in the future and can pay it out when there's money to do so.