A waterfall is the distribution structure in a real estate syndication that determines how cash flow and sale proceeds split between limited partners and the general partner at different return tiers.
Typical waterfall: LPs get their preferred return first, then their original capital returned, then distributions split (e.g., 70/30 LP/GP) above the pref. Multi-tier waterfalls can have additional "hurdles" where the GP share increases (80/20, then 50/50) at higher return thresholds.
LA multifamily syndication waterfalls are a key LP evaluation tool. Structures that concentrate sponsor upside at modest performance levels can misalign incentives. Structures that reward sponsors only for exceptional outcomes align interests better.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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