Equity Distribution Waterfall

How cash from a real estate joint venture is divided between the sponsor and its investor as each return threshold is cleared.

Illustrative model
Projected outcome

Projected outcome

Investor receives
—
—
Multiple
—
Annual return
—
Sponsor receives
—
—
Multiple
—
Annual return
—
Sponsor equity
—
—
Investor equity
—
—
Total equity
—
—

Guided walkthrough

Seven steps, in plain language
Step 1 of 7

 

Cash available to distribute over the hold —
Sponsor has received
$0
Investor has received
$0

How each tier divides its cash

Percentages apply only to cash passing through that tier

When the cash arrives

Bar height is cash distributed that year
Investor Sponsor ownership Sponsor incentive

Where the structure bites

Every cell is a full model — click one to load it
Heatmap measure

Detail

Allocation summaryEvery tier, side by side
Amounts shown per $100 of cash passing through each tier.
TierAppliesIncentive Sponsor shareInvestor share Sponsor per $100Investor per $100
How a waterfall worksPlain-language primer
01

A threshold is a target return

Each threshold is an annual return the investor must actually receive before the next tier begins. Reaching it depends on how much cash comes back and how soon.

02

Cash starts in Tier 1

Until the first threshold is met, every dollar is divided strictly by ownership. The sponsor earns no incentive here.

03

Clearing a threshold opens the next tier

Once a threshold is met it stays met. From that point on, additional cash is divided using the next tier's terms.

04

The incentive rewards performance

In higher tiers the sponsor takes a share off the top. What remains is still divided by ownership, so the sponsor's total share rises.

05

Only new cash uses the new terms

Money already distributed is never re-cut. A tier's percentages apply solely to the additional cash flowing through it.

Ownership-based split · pro rata
Cash divided in proportion to capital contributed.
Performance threshold · IRR hurdle
The annual return that must be reached before the next tier applies.
Sponsor incentive · GP promote
The slice of a tier's cash paid to the sponsor ahead of the ownership split.
Sponsor · general partner (GP)
The partner who operates the investment.
Investor · limited partner (LP)
The partner who supplies most of the capital.
Effective share
Everything a partner receives from a tier — incentive plus ownership-based cash.