Don’t Go Chasing Waterfalls: Understanding Equity Waterfalls

An Introduction to Real Estate Private Equity Waterfall Structures and Benefits

Equity Waterfalls are often mentioned by sponsors, but never explained to passive investors. This course is designed to demystify what waterfalls are and how they work. We will talk through the advantages of waterfalls vs. straight split profit share models. Then we will discuss why waterfall models are advantageous to investors and what to watch out for. Next we will define key terms to allow you to have more certainty when reviewing investor packages. We feature an example waterfall, so you can begin to understand how profits flow through the hurdles/tiers and have a better understanding of when you get paid. The class finishes by teaching you how to review the distribution section of an LP agreement to help you verify what the sponsor told you is legally correct.
This course is for you if you are a passive investor looking to up your game in the difficult economic environment. This course will help you to invest at a higher level by gaining an in-depth understanding of waterfall structures. This course was made based on conversations with numerous passive investors who wanted to participate in more exciting deals, but were hesitant due to not understanding the nuances of waterfall structures. My goal for this course is for you to be able to ask educated questions as a sophisticated investor to sponsors whose deals you are considering investing in.

What you’ll learn

  • The Differences Between Waterfalls and Straight Splits.
  • Key Terms in Waterfall Structures.
  • Why Waterfall Structures are Used.
  • How to Understand Waterfalls.
  • How to Read the Distribution Section of an LP Agreement with a Waterfall.
  • How Hurdles Work in Waterfall Structures.

Course Content

  • Introduction –> 15 lectures • 34min.

Don't Go Chasing Waterfalls: Understanding Equity Waterfalls

Requirements

Equity Waterfalls are often mentioned by sponsors, but never explained to passive investors. This course is designed to demystify what waterfalls are and how they work. We will talk through the advantages of waterfalls vs. straight split profit share models. Then we will discuss why waterfall models are advantageous to investors and what to watch out for. Next we will define key terms to allow you to have more certainty when reviewing investor packages. We feature an example waterfall, so you can begin to understand how profits flow through the hurdles/tiers and have a better understanding of when you get paid. The class finishes by teaching you how to review the distribution section of an LP agreement to help you verify what the sponsor told you is legally correct.

This course is for you if you are a passive investor looking to up your game in the difficult economic environment. This course will help you to invest at a higher level by gaining an in-depth understanding of waterfall structures. This course was made based on conversations with numerous passive investors who wanted to participate in more exciting deals, but were hesitant due to not understanding the nuances of waterfall structures. My goal for this course is for you to be able to ask educated questions as a sophisticated investor to sponsors whose deals you are considering investing in.

 

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