A waterfall is a method for allocating the real estate cash flows between limited and general partner investors. Typically, return of invested capital precedes a waterfall structure. Once invested capital is returned, the first tier of a waterfall is typically the targeted preferred return which must be paid to limited partners before the general partner can begin earning promote in subsequent tiers of the waterfall. This structure is meant to incentivize the general partner to perform.

Commerical Real Estate Glossary

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