A few quick questions on Synidcation Models

[Julie N.]

Hi!

I have been researching syndication models and have a few questions I am hoping someone can help clarify..I'm still getting my footing so apologize if these are elementary.

On an 80/20 straight split syndication. The GP is essentially gifted 20% of the deal for their efforts and is in the cash flow day 1. Is it correct to call this a carried interest or does that only apply to true promotes?

On a vanilla waterfall.. say 8% pref then 70/30. The first 8% annually is returned to LPs then the remaining cash flow is split 70/30. Typically does return of initial invested capital then have to occur after pref to LPs? Or... for example... is it equally common that the sponsor receive 30% throughout the hold period (as long as pref is satisfied). Then a return capital on sale or refi. 

Similar to my question above.. but on a waterfall structure with various IRR promote hurdles. How can a sponsor participate in annual cash flows or is all their upside back end loaded and contingent upon a capital event to get to hit the hurdle?

[Brian Burke]

The terms “carried interest” and “promote” and “profit split” are interchangeable (they are all used to describe the non-fee income to the sponsor). 

I see straight splits often, but not as often as a split over a pref, at least for income property. It’s out-of-market and most often used by lesser-experienced sponsors funded by relatively unsophisticated investors. Sophisticated, experienced investors look for preferred returns on income investments.

Straight splits are more common on short-term investments, such as house flips and development projects.