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Plus, 8% also happens to beat the historical stock market return of 7%.” The waterfall refers to the overall distribution of funds and tiers that were mentioned above, but it is often referred to as how profits are split after the preferred return is met.Andrew Campbell explains it perfectly: Profits generated above any preferred returns are generally split between investors (Limited Partners) and deal sponsors (General Partners).
This generally ranges from 1-3% of gross rent revenue.
This may or may not go to the deal sponsor and it goes to cover the cost of managing the asset and management team that was hired.
Since the syndicator only gets paid when the asset is cash flowing, there isn’t much incentive to take on difficult projects. If there is a major rehab project a fee can be imposed to compensate the project manager while the asset isn’t producing income.
It can vary but is often 1-2% of the construction cost.
Syndications in real estate are amazingly diverse in their structure so it’s impossible to cover everything.
In general, there are four components: Let’s break it down further…
Our investment structures are tied to the performance of the investment, and not just closing deals like the typical preferred return strategy.
I originally didn’t plan to dive into the fee structure at all, but since Kenny brought up some great points, I think I’ll dive into the fees and how some different structures affect the incentives and performance of deals.
He said he likes to have an 8% preferred return for the majority of his 450 door portfolio.
It “gives some certainty to investors about their overall returns.