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.
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