SmartHelping / Joint Ventures / Excel
3-Tier Preferred Equity Waterfall — Equity Multiple Hurdle
Model annual cash distributions between an investor and an owner/operator. Set the LP’s capital contribution, available cash flow, and three distribution splits, then see how returns change as capital is repaid and the equity-multiple hurdle is reached.
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See the template in action
Walk through the preferred equity waterfall.
Three stages of cash distribution
Follow the cash through each hurdle.
LP means limited partner, or investor. GP means general partner, or owner/operator. Set a separate LP/GP distribution split for each tier.
Tier 1: Return LP capital
Split available cash at the first defined percentage until the LP has received back its contributed equity. The GP can receive a share during this stage, or you can set the split to 100% LP / 0% GP.
Tier 2: Reach the LP multiple
Apply the second distribution split until total cash returned to the LP reaches the selected equity multiple, including the capital already returned in Tier 1.
Tier 3: Split the remaining cash
Apply the final LP/GP split to cash remaining after the first two hurdles have been met. All three splits can be adjusted to reflect the intended deal structure.
Set the economics of the joint venture
Enter the capital, cash flows, and hurdle terms.
LP equity contribution
Enter the investor’s contributed equity. This establishes the capital-return threshold and the basis for the LP’s equity-multiple target.
Annual available cash flow
Enter the cash available for distribution in each of the 10 annual periods, including terminal or exit proceeds when applicable.
Distribution splits and target multiple
Define the LP/GP percentages for each tier and the equity multiple that completes Tier 2.
Partial distributions across tiers
The formulas allocate cash as hurdles are reached, allowing a single year’s available cash to move through more than one tier.
Understand the hurdle you are modeling
A capital-return and equity-multiple structure.
Cash sharing during capital repayment
A split such as 80% LP / 20% GP allows both parties to receive distributions while the LP’s capital is being returned. A 100% LP / 0% GP split gives the LP all Tier 1 distributions.
What a 1.75x hurdle means
Illustrative example: an LP contributing $100,000 reaches 1.75x after receiving $175,000 in total distributions: $100,000 of capital plus $75,000 above that contribution. This is a total multiple, not an annual return rate.
No separate preferred-return accrual
This template does not include an additional preferred-return rate accruing over time. Its first two hurdles are return of LP capital and the selected LP equity multiple.
IRR is a reported result
The template reports IRR after calculating distributions. The distribution changes in this structure are triggered by capital repayment and the equity multiple.
Review both sides of the waterfall
Compare LP and GP distributions and returns.
LP and GP cash-flow analysis
Review the distributions produced by your assumptions for the investor and owner/operator.
DCF, IRR, and equity multiple
Use the summary tab to review discounted cash-flow analysis, final IRR, and equity-multiple results for the LP and GP.
Annual distribution visual
See the cash-flow split between the parties across the 10-year annual forecast.
Flexible joint venture applications
Use the structure for real estate or other joint ventures where the agreed economics follow capital repayment, an equity-multiple hurdle, and a final residual split.
More context and related analysis
Supporting valuation and real estate resources.
MOIC Calculation Example
Read an example explaining the multiple on invested capital metric.
Explore the resourceDCF Analysis with Sensitivity Tables
Explore a separate template for comparing discounted cash-flow results across assumptions.
Explore the resourceShort-Term Rental Real Estate Model
Explore a separate short-term rental model with an optional joint venture waterfall using monthly cash-flow periods.
Explore the resourceIncluded in the joint venture collection
Explore the Joint Venture Waterfall Bundle.
Joint Venture Waterfall Templates
This three-tier preferred equity template is included in the joint venture bundle. Explore the collection for other preferred-return, IRR-hurdle, catch-up, and cash-distribution structures.
Explore the joint venture bundleQuestions before you start
A few useful details.
Is the Tier 2 hurdle an IRR target?
No. Tier 2 is based on the LP’s cumulative cash distributions relative to its invested equity. IRR is calculated as an output after the distributions are determined.
Can the GP receive cash before LP capital is fully returned?
Yes. Set a Tier 1 split that allocates some cash to the GP. You can also use 100% LP / 0% GP to direct all Tier 1 distributions to the LP.
Does a 1.75x target include the original investment?
Yes. The 1.75x target means total LP distributions equal 175% of contributed equity, including return of the original capital.
Does this template accrue a preferred return?
No. It uses a capital-return hurdle followed by an equity-multiple hurdle, without a separate preferred-return accrual.
Are the cash-flow periods monthly or annual?
This template uses annual cash-flow periods and covers up to 10 years.
Connect deal terms to partner returns
Model your three-tier equity waterfall.
3-Tier Preferred Equity Template — $125, delivered as an Excel download.
