Syndication Waterfall
A syndication waterfall is the structured distribution schedule in a real estate partnership or syndication — defining how cash flow and capital events are split between LPs (passive investors) and GP (sponsor) at various return hurdles.
What it means
A typical multi-tier waterfall: (1) LPs receive a preferred return (often 7–8% IRR) on their capital; (2) LPs receive return of capital; (3) above the pref hurdle, sponsor receives 'promote' — a disproportionate share of profits (often 20–30% to sponsor, 70–80% to LPs); (4) higher-tier hurdles may further increase sponsor share.
Waterfalls are typically modeled on either cash-flow-by-cash-flow (distribution waterfall) or IRR-hurdle basis. The specific structure significantly affects returns — sophisticated LPs model waterfall scenarios carefully before investing.
Related terms
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