Class A vs Class B LP?

Some deals have multiple LP classes — different prefs, splits.

Tax treatment of GP carry?

Often capital gain (long-term carried interest) per IRC 1061.

RE Syndication Waterfall

Waterfall: LP pref 8%, GP catch-up to 50%, then 80/20 promote split. Calculate distributions at various IRR levels.

LP Capital ($)

GP Capital ($)

Total Project Return (after sale) ($)

Hold Period (years)

Preferred Return %

LP Profit Share

—

GP Profit Share

—

LP IRR

—

GP IRR

—

Total capital	—
Total profit	—
LP preferred due	—
LP final share	—
GP final share	—
LP IRR	—
GP IRR	—

Real estate syndication waterfalls distribute profits across tiers: return of capital, preferred return to LP, catch-up to GP, then split (typically 80/20). Understanding the math helps both LPs evaluating deals and GPs structuring promote.

Standard Waterfall Tiers

Tier 1: Return of capital pro-rata. Tier 2: 8% preferred return to LP (accrued). Tier 3: GP catch-up (often 50/50 until split is 80/20 cumulative). Tier 4: 80/20 LP/GP split of all remaining profit. Some deals add Tier 5: 70/30 above 20% IRR for outperformance promote.

Preferred Return Mechanics

8% pref typically compounds annually on un-returned LP capital. Calculate cumulative: LP invests $1M Year 1, gets back $50K Year 3 — pref still accrues on remaining $950K. Track separately from distributions.

Catch-Up Provision

After LP receives pref, GP 'catches up' to make sure overall split favors GP per agreement. E.g. catch-up at 50/50 to GP until total split is 80/20 with LP. Without catch-up, GP misses promote on early years.

Last updated May 2026. Sources: BiggerPockets RE Syndication.