Preferred Return Calculator

Calculate the preferred return owed to limited partners across multi-year holds — simple, compounded, or non-cumulative pref.

If paid, reduces pref balance
Total Preferred Return Owed
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Cumulative pref at end of hold period
Annual Pref Owed
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Total Pref Over Period
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Distributions Made
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Pref Balance Remaining
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Total Return to LP
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LP Annualized Return
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What Is a Preferred Return?

A preferred return ('pref') is the minimum annual return LPs are entitled to receive before GPs get any promote/carried interest. The pref is paid first from available cash flow each year and accumulates if not paid. Typical 2026 pref rates: 6-9%, with 8% being the most common.

Three pref structures: Simple/non-compounded: annual pref equals equity × pref rate; unpaid pref accumulates without earning additional pref. Compounded: unpaid pref earns the pref rate, compounding the LP's claim. Non-cumulative: if not paid in the year earned, it's forfeited. Source: NCREIF NPI methodology, CRE Capital syndication research. Last updated: May 2026.

Cumulative vs Non-Cumulative Pref

Most syndications use cumulative simple pref. Example: $1M equity at 8% pref over 5 years = $80K/year annual obligation. If the deal only distributes $50K in year 1, the $30K shortfall carries to year 2 (where you'd owe $80K + $30K carryover = $110K). At sale, any remaining unpaid pref must be cleared before promote is calculated.

Non-cumulative pref is GP-favorable and rare. Avoid deals with non-cumulative pref unless GP has exceptional track record.

Pref Catch-Up Provisions

Some waterfalls include a 'catch-up' provision after the pref is paid in full. The catch-up gives the GP 100% of distributions until they 'catch up' to the agreed promote ratio. Example: 8% pref → 100% catch-up → 80/20 split. The catch-up ensures GP gets their full promote share without losing ground from years when pref consumed all cash. Common in private equity, less common in real estate.

Pref Affects Deal Underwriting

The pref creates a 'hurdle' the deal must clear to be successful. A deal projected to deliver 9% LP IRR with 8% pref looks tight — only 1% above pref leaves little room for promoted upside. Healthy deals project at least 4-6% above pref (12-14% LP IRR with 8% pref) to make GP economics attractive while still rewarding LPs. Run multiple scenarios; if the deal only works at base case, it likely won't work.