Commercial Real Estate & Private Equity
Real Estate JV Pari-Passu & Sponsor Promote Formula
Calculate LP and GP Sponsor Joint-Venture Equity Payouts and Effective MoICs under Pari-Passu Return of Capital & Preferred Hurdle followed by a Disproportionate Sponsor Promote Split.
Distinguish Pari-Passu Co-Investment Return from Disproportionate Sponsor Promote!
In institutional Commercial Real Estate Joint Ventures (typically 90% LP Investor / 10% GP Operating Sponsor on Total Equity E_tot), Tier 1 distributes Return of Equity + Cumulative Preferred Return Dollar Pool P_tier1 = E_tot * (1 + h_cum) strictly PARI PASSU (90% LP / 10% GP, meaning the Sponsor earns the exact same preferred hurdle on its 10% co-invested skin in the game!). Above P_tier1, Tier 2 Residual Cash Flow splits disproportionately: the Sponsor receives its Promote_Bonus p_prom PLUS its pro-rata share of the remaining (1 - p_prom) pool (or an explicit Negotiated Residual GP Share s_gp2 > w_gp, e.g., 30% GP / 70% LP when a 20% promote sits on top of an 80/20 or 90/10 co-invest)!
Verify on Total_JV_Equity E_tot = $20.00M (B2), GP_CoInvest_Share w_gp = 0.10 (10.0% = $2.00M GP cash, 90.0% = $18.00M LP cash, B3), Cumulative_Pref_Multiple h_cum = 0.25 (25.0% cumulative pref over hold -> Tier 1 Pari-Passu Cap = $25.00M, B4), Tier2_GP_Residual_Share s_gp2 = 0.30 (30.0% GP / 70.0% LP above $25.00M, i.e., +20.0% promote lift over GP’s 10% capital share, B5), and Net_Distributable_Cash W_jv = $40.00M (B6): Tier 1 distributes $25.00M pari passu ($2.50M GP, $22.50M LP); Tier 2 distributes $15.00M residual ($4.50M GP, $10.50M LP); Total GP Payout is $7.00M on $2.00M invested (3.5000x GP MoIC in E4!), while Total LP Payout is $33.00M on $18.00M invested (1.8333x LP MoIC in E5)!
| CRE Joint Venture Metric ($20M Equity: 90% LP / 10% GP, 25% Cum Pref, 30% Tier-2 GP, W=$40M) | Formula | Verified Output |
|---|---|---|
| Tier 1 Pari-Passu Pool ($M) | MIN(W_jv, E_tot * (1 + h_cum)) | $25.00M ($2.5M GP / $22.5M LP) |
| Total GP Sponsor Distribution ($M) | w_gp * Tier1 + s_gp2 * MAX(0, W_jv - E_tot*(1+h)) | $7.00M ($3.00M Pure Promote) |
| GP Sponsor Effective MoIC | GP_Total_Dist / (w_gp * E_tot) | 3.5000x (on $2.00M Co-Invest) |
| LP Investor Effective MoIC | LP_Total_Dist / ((1 - w_gp) * E_tot) | 1.8333x (on $18.00M Equity) |
GP Sponsor Total Distribution & Promote Lift Formula
Validate E_tot > 0, 0 < w_gp < 1, h_cum >= 0, w_gp <= s_gp2 < 1, and W_jv >= 0!
=LET(eq_t, B2, w_gp, B3, h_cm, B4, s_g2, B5, wd_j, B6, IF(OR(eq_t <= 0, w_gp <= 0, w_gp >= 1, h_cm < 0, s_g2 < w_gp, s_g2 >= 1, wd_j < 0), "Invalid JV Waterfall", LET(t1_pl, MIN(wd_j, eq_t * (1 + h_cm)), t2_pl, MAX(0, wd_j - eq_t * (1 + h_cm)), ROUND(w_gp * t1_pl + s_g2 * t2_pl, 2))))GP vs LP Effective MoIC Asymmetry Check
Test W_jv = $22.00M (below the $25.00M pari-passu hurdle): Tier 2 is $0, so BOTH GP ($2.20M / $2.00M = 1.1000x) and LP ($19.80M / $18.00M = 1.1000x) earn identical 1.1000x MoIC!
=IF(ISTEXT(E2), E2, ROUND((B6 - E2) / ((1 - B3) * B2), 4))Try the example
Use the original values or change them to test your understanding.