What is a preferred return (pref)?

A preferred return is a contractual hurdle rate (typically 6-9% annual return) that Limited Partners must receive before the sponsor begins taking a promote share of profits.

Updated: August 2026 • Verified v1.2

Commercial Real Estate (CRE) Equity Waterfall & Promote Distribution Calculator

Finance & MathNew

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Tier 1: Min(Cash, Total Capital + Pref); Tier 2: Promote_Hurdle_1(LP, GP); Tier 3: Residual * Promote_Hurdle_2(LP, GP)

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Understanding Your Results

Distributes cash proceeds across 3 distinct hurdles: Tier 1 (Return of Capital + Preferred Return prorated by equity contribution), Tier 2 (Hurdle 1 Promote Split, e.g. 80/20 LP/GP), and Tier 3 (Hurdle 2 Promote Split, e.g. 70/30 LP/GP), outputting total cash, profit, and equity multiple for both LP and GP.

Practical Guidance & Next Steps

Standard US commercial real estate syndication deals offer an 8% preferred return with an 80/20 LP/GP split up to a 14% IRR hurdle, followed by a 70/30 or 60/40 split thereafter.

What is this?

A real estate private equity tool that models multi-tier waterfall cash distributions and sponsor promote splits between LPs and GPs.

How does it work?

1. Enter total equity invested and LP/GP ownership split. 2. Set preferred return rate and promote hurdle splits. 3. Input total cash proceeds to see tiered distributions and equity multiples.

Why use it?

Provides sponsors and limited partners with clear underwriting transparency for deal structuring and investment memorandums.

Technical Scope & Calculation Limitations

Models 3-tier European/American cumulative distribution waterfall.

Frequently Asked Questions

A promote (or carried interest) is a disproportionate share of profits awarded to the General Partner/sponsor once agreed investment hurdle returns (like return of capital and preferred return) are satisfied.

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