Worksheet – waterfall distribution and impact of sponsor promote

Belmont Real Estate Fund II (BRE II) is an opportunistic real estate fund that invests in all five real estate sectors – Industrial, Office, Apartments, Retail and Hotels. The Fund invested $400 million in equity. BRE II was projected to return a 20%+ IRR and a 4.0x+ equity multiple. The fund terms are as follows:

  • European Waterfall
  • LP Preferred Return of 10%
  • Catch up is 50/50
  • Carried Interest split is 80/20
  • Management Fees are outside the commitment (they do not need to be paid back before carried interest is paid)

The Fund was a 10-year fund and was fully liquidated after Year-10 for total proceeds of $1,700 million. Answer the following.

Question 1. After Year-10, calculate the fund’s value based on the hurdle (10%) that must be achieved before the GP participates in any carried interest. (2 pts).

Question 2. At the Catch-up of 50/50, both the GP and LP get 50% of the following amount, which equals what? (2 pts)

Question 3. Now that the 80/20 split of profits has been achieved what are the remaining profits to be split 80/20? What is the LP portion and what is the GP portion? (2 pts)

Question 4. What are the total dollars and percentage of the LP and GP profits? (2 pts)

Question 5. What is annualized return of the BRE II? (2 pts)

Question 6. What is the Breakeven IRR on BRE II (the IRR that gets GP to full 20% carried interest)? (2 pts)

Question 7. What is the annualized return for the LPs?

Question 8. What is the impact of the sponsor promote on the gross return of BRE II? (2 pts)

Question 9. What is the gross equity multiple (TVPI -Total Value to Paid In) for BRE II? (2pts)

Question 10. What is the net equity multiple for BRE II? (2 pts)