Question 1

What is a preferred return in real estate syndication?

Accepted Answer

A minimum return (often 6-9%) that investor capital must earn before the sponsor (GP) shares in any profit. It's cumulative — if it isn't fully paid in one period, the unpaid amount carries forward and compounds until it is.

Question 2

What is a GP catch-up?

Accepted Answer

After the preferred return is paid, the catch-up lets the sponsor take a larger share of the next tranche of profit until the GP has 'caught up' to their overall target split (e.g. 20% of total profit) — before the remaining profit is split at the regular promote ratio.

Question 3

What is an IRR hurdle?

Accepted Answer

A threshold on the LP's own annual return that, once cleared, shifts the profit split in the GP's favor for the next tier — e.g. 80/20 up to a 15% LP IRR, then 70/30 above it. Deals can stack multiple hurdles.

Question 4

Why is my LP IRR lower than the project's IRR?

Accepted Answer

Because the promote and any sponsor fees are paid out of the same profit pool before the LP sees the residual — the gap this tool prints as 'what the promote & fees cost the LP' is exactly that difference.

After debt, promote, and fees, what does the sponsor's structure actually cost the investor?