EQUITY GUIDE
How a Real Estate Waterfall Works
A waterfall distributes cash between partners in a defined order, usually preference, capital return and promote tiers.
In this guideWhat the analysis measuresCalculation frameworkUnderwriting reviewHow to use the result
What the analysis measures
Start with partner contributions and dated distributable cash. Separate return of capital from profit and calculate the preferred return on the contractual balance.
Calculation framework
Apply each tier only after the prior requirement is satisfied. Whole-deal and deal-by-deal waterfalls can produce different timing and clawback risk.
Underwriting review
Reconcile total cash available to total LP and GP distributions in every period. Track unpaid capital, accrued preference and hurdle claims explicitly.
How to use the result
Report partner-level IRR and equity multiple, not only project returns. Read the waterfall agreement for catch-up, lookback, clawback and fee treatment.