Equity Waterfall, Return of Capital, Pref & Promote

Distributes total sale proceeds through a simplified GP/LP equity waterfall of return of capital, then preferred return, then the promote split, with the pref paid on both LP and GP capital. Inputs are the LP contribution, GP co-investment, preferred return rate, residual split, and total distributable proceeds.

Interactive Tool

GP / LP Distribution Waterfall

Inputs

LP capital contribution

GP co-investment

Preferred return

LP residual split

Total distributable proceeds

Promote = GP profit share above its capital ownership. Here the GP put in 10% of equity but, when the deal profits, takes 20% of the residual.

Waterfall tiers

1 · Return of capital

LP $1,800,000GP $200,000

2 · Preferred return (8.0%)

LP $144,000GP $16,000

3 · Residual split (80/20)

LP $272,000GP $68,000

LP total

$2,216,000

Profit $416,000 · ROIC 23.1%

GP total

$284,000

Profit $84,000 · ROIC 42.0%

After capital and the preferred return are paid, $340,000 of profit remains. The GP contributed 10% of equity but earns 17% of the total profit, that excess is the promote.

Learn the concept

This calculator comes from the free Real Estate Finance course, where the concept is taught with readings, worked examples, and practice questions.

Open Real Estate Finance

Built by Devon Coombs, CPA, MBA, Teaching Professor of Finance at Santa Clara University.