Carry / carried interest
Carry is shorthand for carried interest: the manager’s incentive share of investment profit under the agreement. It is separate from management fees and the return on the GP’s own capital.
Property-level partnership · Promote
Real estate GP / LP promote calculator
Build a real estate capital stack, size the LP raise, and calculate preferred returns and tiered GP promotes. Compare leverage, downside, and LP IRR.
How does a real estate promote work?
A sponsor’s promote is its performance allocation under the partnership agreement. Start with property cash after selling costs and debt repayment, then apply the equity waterfall. Specify whether the quoted GP percentage includes its co-investment share; an “80/20 split” alone is incomplete.
Your investment lab
Make the deal. Follow every dollar.
Start with a preset, then change any input. Your numbers stay in this browser unless you share them.
01 / Sources & uses
What needs to be funded?
$
$
Exclude the separately entered sponsor fee.$
Assumed fully spent; add unused cash to retained cash at exit.$
Funded as a use of cash. Gross sponsor revenue, separate from promote.$
Enter the loan payoff separately in step 2.%
Percentage of total partner capital.LPs
Used only to show an illustrative check size.Partner equity required
$8.80M
$21,800,000 of total uses − $13,000,000 of debt = $8,800,000 of equity.
- LP capital$7,920,000
- GP capital$880,000
- Debt$13,000,000
Each LP contributes$440,00018 equal LPs
Debt / total cost59.6%Cost includes all modeled uses
| Initial investment | $20,000,000 |
|---|---|
| Improvements / spent reserves | $1,000,000 |
| Other costs | $500,000 |
| Closing sponsor fee | $300,000 |
| Total uses | $21,800,000 |
02 / Economics
Define the agreement
years
Baseline: all payments at this year-end. Step 5 can move a portion earlier.% per year
%
Exit assumptions
$
%
$
Includes any accrued debt due.$
After all operating costs, capex, interest, debt service, and ongoing fees. No prior distributions.Before the partners split anything
$15.92M available to distribute
Gross sale value$29,000,000
Less: selling costs-$580,000
Add: retained net cash$500,000
Less: debt paid-$13,000,000
Available to equity$15,920,000
Read a residual dollar correctly
Before any higher tier, the GP receives 20.0% in total of a residual dollar: 10% as a co-investor plus 10.0% as the incentive allocation. LPs receive the balance.
Capital and the preferred return are paid before this residual split.
- LP share of $100$80
- GP co-investment share$10
- GP incentive share$10
Baseline: cash at exit
Steps 1–4 hold property cash until final exit. Step 5 compares an earlier payment and updates unreturned capital and preference balances. Recurring distributions and refinancing debt schedules need a more detailed model.
03 / Distribution waterfall
Who gets what?
Total distributed$15.92Mat year 5
- LP proceeds$13.97M
- GP co-investment$1.59M
- GP carry / promote$360,000
Manager fee revenue: $300,000
Already funded in the budget. Separate from exit distributions and from carry. Business expenses and taxes are not deducted, so this is not manager profit.
Class challenge: predict before you look
Under these inputs, does the GP receive any carry?
Distribute cash in this order
Each bar is a payment tier. Teal goes to LPs, gold to the GP’s invested capital, and purple to the performance allocation.
- 1. Return invested capital$8,800,000
Capital comes back in proportion to contributions, up to available cash.
- 2. Pay the preferred return$3,520,000
8% simple annual accrual on each funded contribution; not a guaranteed payment.
- 3. Split the remaining profit$3,600,000
LPs keep the balance after the incentive allocation; GP co-investment remains separate.
| Tier | LPs | GP co-investment | Carry / promote |
|---|---|---|---|
| 1. Return invested capital | $7,920,000 | $880,000 | $0 |
| 2. Pay the preferred return | $3,168,000 | $352,000 | $0 |
| 3. Split the remaining profit | $2,880,000 | $360,000 | $360,000 |
| Total | $13,968,000 | $1,592,000 | $360,000 |
LPs + GP co-investment + carry = $15,920,000. Every dollar accounted for.
04 / Risk & reward
Change the outcome
Move the exit value and see who absorbs the downside and earns the upside.
$
Debt and other assumptions remain unchanged.The same investment, different agreements
Keep capital, fees, timing, and proceeds fixed. Change only the incentive structure. Catch-up uses a 100% allocation for this comparison.
| Structure | LP proceeds | GP carry | LP multiple |
|---|---|---|---|
| No carry | $14,328,000 | $0 | 1.81x |
| Hurdle; no catch-up | $13,968,000 | $360,000 | 1.76x |
| Hurdle + full catch-up | $13,616,000 | $712,000 | 1.72x |
What if the equity pool returns less—or more?
Illustrative available cash before carry as a multiple of all partner contributions. These are scenarios, not probabilities. Fees and capital stay fixed; sale proceeds and, when necessary, retained cash are adjusted to reach each target.
| Equity cash / capital | LP profit / loss | GP investment profit / loss | GP carry |
|---|---|---|---|
| 0.50x | -$3,960,000 | -$440,000 | $0 |
| 1.00x | $0 | $0 | $0 |
| 2.00x | $7,392,000 | $880,000 | $528,000 |
| 3.00x | $14,432,000 | $1,760,000 | $1,408,000 |
Upside compensation changes the GP’s return
The GP contributes $880,000 and receives $1,592,000 on that investment, plus $360,000 of carry. Fee revenue of $300,000 is separate and can exist even when investors lose money.
05 / Timing experiment
When does the money move?
Move part of the same total cash earlier. Recalculate each payment through the waterfall and compare it with receiving everything at exit.
Year-end payment, after the final capital call and before final exit. A call in the same year occurs immediately before the payment.
Simple preference accrues on unreturned capital. Compound preference also accrues on unpaid preference. Neither is a guaranteed cash yield.
One pool of cash, counted once
Move $3,980,000 earlier; leave $11,940,000 for year 5. Contributions, fees, and total available cash stay fixed. The investor split can change.
Cash is already net of operating costs, debt payments, and modeled fees. This experiment does not create cash or forecast a refinance. A real refinance also changes the loan and future payments.
Before revealing the result: who benefits?
Will earlier cash raise LP IRR? Will fewer dollars accrue to the preferred return? Does a full catch-up change the answer?
Use the ledger to separate timing gains from changes in who receives the profit.
Calls below. Payments above.
Grey bars are partner contributions. Payment bars separate LP proceeds (teal), GP co-investment (gold), and carry (purple). Year 0 is closing; later dates are year-end.
| Measure | Everything at exit | Your timing case |
|---|---|---|
| LP proceeds | $13,968,000 | $13,872,480 |
| LP profit / loss | $6,048,000 | $5,952,480 |
| LP IRR | 12.02% | 14.65% |
| LP multiple | 1.764x | 1.752x |
| GP carry | $360,000 | $455,520 |
| First carry payment | Year 5 | Year 5 |
Read the dollars and the clock together
With simple preference, returning capital sooner shrinks the balance earning future preference; a preference payment alone does not return principal. With annual compounding, interest also accrues on unpaid preference. For the same dated cash flows and hurdle, relabeling capital versus interest does not change IRR.
Earlier payments can reduce the preference hurdle and leave more cash subject to carry. A higher LP IRR does not necessarily mean more total LP dollars.
Annual payment ledger · scroll for all columns
| Year | Total called | LP capital back | LP preference | LP other profit | GP co-investment | GP carry | LP capital left | Unpaid LP preference |
|---|---|---|---|---|---|---|---|---|
| 0 | $8,800,000 | $0 | $0 | $0 | $0 | $0 | $7,920,000 | $0 |
| 1 | $0 | $0 | $0 | $0 | $0 | $0 | $7,920,000 | $633,600 |
| 2 | $0 | $3,582,000 | $0 | $0 | $398,000 | $0 | $4,338,000 | $1,267,200 |
| 3 | $0 | $0 | $0 | $0 | $0 | $0 | $4,338,000 | $1,614,240 |
| 4 | $0 | $0 | $0 | $0 | $0 | $0 | $4,338,000 | $1,961,280 |
| 5 | $0 | $4,338,000 | $2,308,320 | $3,644,160 | $1,194,000 | $455,520 | $0 | $0 |
Total payments: $15,920,000. Matches the original $15,920,000 cash pool.
This is a two-distribution, annual-date experiment. It does not model cash paid before later capital calls, multiple operating distributions, refinancing mechanics, daily XIRR, escrow, or clawbacks. Fees are excluded from GP investment return metrics.
Baseline · all payments at final exit
LP total proceeds$13.97M1.76x · 12.0% IRR
LP profit / loss$6.05MAfter modeled fees and carry
GP carry / promote$360,000Excludes co-investment proceeds
GP total distributions$1.95M2.22x · 17.3% IRR · excludes fees
Timing: steps 1–4 use one closing contribution and one final distribution. Step 5 compares an earlier payment plus the reduced final payment. IRRs use annual dates, not daily XIRR. Equity multiple = total distributions ÷ total contributions. GP return metrics include carry, exclude fees, and are N/A if the GP invests no capital. With no positive distributions, IRR is N/A even though the capital loss is 100%. Displayed dollars are rounded; calculations are not.
Know what the words mean
Promote, carry, and carried interest
Carry is short for carried interest. Promote is the common real estate term for the same broad performance-incentive concept. A percentage alone is incomplete: identify the profit pool, payment priority, hurdle, catch-up, and treatment of GP co-investment.
Promote / promoted interest
The term commonly used in real estate for the sponsor’s performance allocation. It often describes the same economic idea as carry. The words alone do not specify the hurdle, catch-up, or whether the quoted GP split includes co-investment.
GP, LP, and sponsor
GP means general partner; LP means limited partner. The sponsor organizes and manages the investment. These labels describe roles; an LLC may use manager and member terminology. The legal documents determine rights and liabilities.
Open the full waterfall glossary · Find a scenario or check model coverage
Understand what you calculated
The decisions behind the numbers
Start with sources and uses
Purchase price, improvements or spent reserves, closing costs, and the sponsor fee make up total uses here. Debt and partner equity fund those uses. The loan-to-cost ratio shown uses all modeled costs; it is not loan-to-value.
Debt is ahead of equity
Enter the actual loan payoff at sale, including any unpaid amounts. Retained operating cash must already be net of interest, debt service, operating costs, and capital spending. This lab does not forecast NOI or amortization for you.
An IRR hurdle is a timing test
The tiered preset first pays an 8% compounded hurdle, then splits cash until the LP reaches a 15% IRR. Only subsequent dollars use the higher promote. The test is the LP’s return after the promote, not the property’s gross return.
Check the reserve treatment
This model treats the reserve budget as fully spent on the property. If cash remains at sale, include it once in retained cash. Ongoing sponsor fees must be deducted before entering retained cash; the explicit sponsor fee input is paid at closing.
Risk, reward, and what the model leaves out
Leverage magnifies the result
A loan reduces the equity check but puts a senior claim ahead of both partners. A modest drop in property value can cause a much larger percentage loss of equity.
Promote share differs from contributed-capital share
The sponsor may contribute 10% of the equity and receive a different share of upside. Below the hurdle, there may be no promote at all. The default distributes capital and preferred return pro rata.
The real agreement is broader
Recourse, guarantees, capital calls, refinance distributions, tax allocations, and operating-period cash flows need separate modeling. An unpaid preferred return is not automatically a personal claim against the sponsor.
Steps 1–4 use one final distribution. Step 5 adds one early payment after all capital calls, then a reduced final payment. Both use annual dates and fixed partner ownership. Taxes, recycling, subscription lines, fee waivers and offsets, later calls after payouts, daily XIRR, and contractual clawbacks require a separate model. These examples are tested educational calculations, not a reconstruction of a named fund’s performance or an audit of an actual partnership agreement.
Waterfall questions students ask
Are promote, carry, and carried interest the same thing?
Carry abbreviates carried interest. Promote is commonly used in real estate for the same broad incentive-profit concept. The agreement still determines when it is earned, which profit pool is used, and whether the quoted GP percentage includes co-investment. Management fees and returns on GP capital are separate.
Why does a complete loss show N/A IRR?
IRR solves for a discount rate that makes cash-flow net present value zero. With contributions and no positive distributions, there is no valid solution. Losing the entire contribution is a 100% capital loss and a 0.00x multiple, but not a calculated −100% IRR. With no GP investment, GP IRR is also undefined.
Are all common waterfall provisions calculated here?
The lab calculates core whole-pool structures: pro rata, no hurdle, preference without catch-up, partial or full catch-up allocations, and two IRR tiers. It also compares two payment dates. The overview maps additional common terms to explanations, including deal-by-deal carry and clawbacks, and identifies provisions that need a separate model. It is not a universal LPA engine.
Does an 8% preferred return guarantee an 8% IRR?
No. It is a payment priority, and the cash may be insufficient. With one initial contribution, an 8% simple preference over five years adds 40% to capital; receiving 1.40x at year 5 is about a 6.96% annual IRR. An 8% compounded hurdle requires about 1.4693x over those same five years. Interim cash flows change the calculation.
When does the GP actually receive carried interest?
Only when a distribution reaches an incentive tier in the modeled agreement. Fees can be received earlier and are separate. In the timing step, the chart and annual ledger show the first year carry is paid. Real agreements may also defer cash in escrow or impose clawbacks and other conditions.
Does returning capital early always help the LP?
Earlier cash generally improves time value, but it can also reduce later preference accrual on unreturned capital and increase carry. Compare net LP dollars, IRR, and the payment priority together. Relabeling the same dated cash flows alone does not change IRR; changing the economic accrual rules can.
What is the difference between European and American waterfalls?
These labels commonly mean whole-fund and deal-by-deal carry, respectively; they are not geographic guarantees. Whole-fund terms look across fund contributions and results. Deal-by-deal terms can pay carry sooner, subject to the actual agreement’s loss, reserve, escrow, and clawback provisions. The live lab uses whole-pool economics, not deal-by-deal administration.
Is this an audited fund-administration or legal calculation?
No. The published examples are tested teaching models. They assume fixed GP ownership, pro-rata co-investment, the specified fee base, and annual dates. The timing comparison adds one early payment after all calls and one final payment. It does not handle later capital calls after payouts, taxes, recycling, investor-specific side letters, GP fee waivers, daily XIRR, subscription lines, or a contractual clawback. The signed agreement and actual dated cash flows control real distributions.
Bring these questions to class
- How much equity must be raised after the loan and every closing use?
- Would you accept a higher promote in exchange for a larger GP check?
- Does a faster exit change which promote tier is reached?
References & further reading
ILPA workshop · worked whole-fund waterfall, slide 12
Independent arithmetic benchmark: $100M capital, $4M accrued preference, $112M to LPs, and $3M carry. The general-page adaptation simplifies the dates.
A.CRE · payment timing, preferred return, and capital
Distinguishes a cash yield from an IRR hurdle and explains why the agreement’s distribution provisions matter.
ILPA model LPA · whole-fund distributions and clawback
An example agreement, not a universal set of terms. See §§14.3 and 14.7; its bracketed catch-up allocation is 80%.
A.CRE · real estate catch-up and promote mechanics
Shows how sponsor fees, hurdles, catch-ups, and promote conventions can differ.
Carta · 2025 Fund Economics Report
Context for fee and carry terms observed on Carta’s platform; the presets here are illustrative, not a market quote.
Compare all four learning pages · Explore more finance calculators