From the course: Real Estate Deal Structuring: Introduction to the Waterfall Framework
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Four-tier waterfall
From the course: Real Estate Deal Structuring: Introduction to the Waterfall Framework
Four-tier waterfall
- Hey guys, welcome back. This is now the four-tier waterfall framework that we're going to go over. You see here, everything looks exactly the same as the three-tier, except we have this catch up phase here to the manager. Now a catch up is a tier in the waterfall that is designed specifically to benefit the project manager and it almost always comes after some secondary hurdles or a second split first, it usually almost never happens after the preferred return. The reason for that is the preferred return is sort of a minimum hurdle before any incentives come in, but it's not a big hurdle. So, usually after the preferred return, there is some sort of a split that is still heavily in favor of the investor, but there's a little bit of incentive to the project manager, something like 90/10 or 80/20, but once the hurdles for that second split is met, then the investors now have gotten pretty good return and that's when the extra incentives for the project manager could kick in. And in…
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