Real Estate and Joint Venture Distribution Waterfalls

A real estate JV or private equity real estate fund distribution waterfall uses a typically complex mechanism to answer what appears at first blush to be a simple question: when does the fund manager begin receiving distributions of “promote” (“carried interest” in private equity lingo), and how much of the promote is ultimately paid to the fund manager? A JV in the real estate context is a contractual business undertaking for profit between two or more parties. For example, an institutional real estate investor might join up with a local real estate developer or operator to acquire, develop, and operate a real estate project. This kind of joint venture would typically take the form of a limited liability company (LLC) or limited partnership.


Typically, cash from the partners in a JV comes into the JV via cash contributions, and cash generally comes out of the JV to the partners in the form of distributions. There are usually multiple levels of distributions, and these distribution levels are commonly referred to as “distribution waterfalls” because the excess at each level of distribution spills over to the next level down, like a champagne waterfall, where layers of glasses are stacked, one upon another. Once a layer is filled, the champagne cascades into the next layer of glasses below — in the manner of a waterfall. Special attention will be given to the use of IRR hurdles in the distribution waterfall, which operate in a decidedly different manner than a hurdles using a preferred return.

Detailed Information

Highlights of the course include:

  • Basic Capital Accounting Rules
  • Basic Whole Fund Waterfall
  • Whole Fund Complexities
  • Deal by Deal Waterfalls
  • Basic Deal by Deal Waterfall
  • Dispositions
  • Current Income Distributions
  • Write-downs and Write-offs
  • Waterfall with Income Source Division
  • Partner-by-Partner Waterfall
  • Preferred Returns
  • Clawback
  • Interim Clawback
  • Escrow, Clawback, & Guarantee
  • Fee Waiver