How to read this result
In the default example, lp preferred return amount is $64,000.00. Annual-income waterfall: GP equity is context and does not set the residual split. This mode does not return capital, accrue unpaid preference or model IRR tiers.
Change one assumption at a time to see how it affects the scenario. Compare periods and cost definitions consistently. Negative results show a modeled shortfall; an unavailable ratio needs a valid denominator.
Formula and methodology
Annual-income mode first pays the current LP preference up to available cash, then splits residual cash. The explicit capital-return mode pays that preference, returns LP and GP capital pro rata up to contributed equity, and only then splits the residual. Neither mode includes catch-up, accrued unpaid preference or IRR tiers.
Enter percentages as whole numbers: 5 means 5%. When used as a factor, the calculation divides a percentage by 100. Percentage outputs multiply the final ratio by 100. Calculations retain precision internally; displayed amounts and rates are rounded to two decimals.
Variables and input definitions
- LP / investor equity (USD)
- Investor/LP contributed equity. Minimum: 0.
- Sponsor / GP equity (USD)
- Sponsor contributed equity shown for context. Minimum: 0.
- Annual distributable cash (USD/year)
- Cash available for this waterfall period. Minimum: 0.
- LP preferred return rate (%/year)
- Simple preferred return assumption. Minimum: 0. Maximum: 100.
- LP residual split (%)
- LP share after preferred-return tier. Minimum: 0. Maximum: 100.
- Distribution scenario (selection)
- Annual income matches the workbook. Capital mode repays equity before the residual split; no catch-up or multi-tier IRR.
Worked example
This example uses the exact prefilled inputs above. Reset defaults to restore this scenario after making changes.
| Item | Default scenario |
|---|---|
| LP / investor equity | $800,000.00 |
| Sponsor / GP equity | $200,000.00 |
| Annual distributable cash | $150,000.00 |
| LP preferred return rate | 8.00% |
| LP residual split | 80.00% |
| Distribution scenario | Annual income only |
| Item | Default scenario |
|---|---|
| LP preferred return amount | $64,000.00 |
| Residual cash after pref | $86,000.00 |
| LP residual distribution | $68,800.00 |
| GP promote/residual distribution | $17,200.00 |
| Total LP distribution | $132,800.00 |
| LP capital returned | $0.00 |
| GP capital returned | $0.00 |
| Total GP distribution | $17,200.00 |
Assumptions and limitations
Basic illustrative waterfall only. Actual operating agreements may include accrued/catch-up pref, return-of-capital tiers, IRR hurdles, fees, clawbacks and tax allocations.
Annual-income waterfall: GP equity is context and does not set the residual split. This mode does not return capital, accrue unpaid preference or model IRR tiers.
The tool uses values you supply. It does not retrieve market prices, verify leases or inspect a property. Results exclude items outside the listed inputs. Review local requirements and the relevant contract when a payment, fee or allocation depends on them.
Common mistakes
Actual partnership agreements may define a different waterfall. In annual-income mode GP equity is context; it does not determine the entered residual split. Distribution estimates are not offers or guarantees.
Sources and method references
These references provide context for the method and terminology. They do not endorse this tool or validate your property assumptions.
- Office of the Comptroller of the Currency — Comptroller's Handbook — Commercial Real Estate LendingNOI, direct capitalization, cap-rate valuation and DCF concepts for commercial real estate.
- Investor.gov / SEC — Private Placements under Regulation D — Updated Investor BulletinPrivate-placement risk/disclosure context relevant to real-estate syndication educational disclaimers.
Frequently asked questions
Does preferred return guarantee payment?
No. Payment is limited by the distributable cash supplied. This simple model does not accrue a shortfall into later periods.
How does return of capital change the split?
In capital-return mode, available cash after the preference first repays LP and GP contributions pro rata. Only cash remaining after that repayment enters the residual split.