Waterfall Model For Real Estate Joint Ventures with Catch Up

I’ve just wrapped up a new JV waterfall model with catch up clause that I am excited to share on the site. This model was built as an addition to my back-of-the envelope retail/industrial/office acquisitions model I posted a few weeks back. And like the acquisition model, I made an attempt to make this as intuitive as possible for the user, aesthetically pleasing, and easy for the eye to follow.

Also like the acquisition model, this entire waterfall model is on one sheet and the user can operate and read it from left to right. It is broken into three main sections: Inputs (left), the Waterfall Model (center), and the Return Summary (right).

The model gives you the ability to project up to three hurdle rates (tiers) and it has an option to include a ‘catch up’ for the sponsor between the first and second tier. In Tier 1, the user can model for either a pari passu split or for a preferred return for the LPs.

Waterfall with Catch Up Option

The optional Catch Up section, which is positioned under tier 1 in all three sections of the model, is currently ‘turned off’ when you download the model, but can be turned on by answering ‘yes’ to the question ‘Is there a catch up?’ in cell D32. If you are using the catch up section, you must use solver or goal seek to calibrate the waterfall model any time you alter assumptions in your DCF model or in the sponsor fees, equity split, or tier 1 sections of the waterfall (these are all inputs that come before the catch up section).

This is explained fairly thoroughly in the video below and there are also explicit instruction on how to use both solver and goal seek with the model written under the inputs section. Additionally, as an added safety, there are three warning signs placed strategically throughout the model that will remind you to use solver if required. If you are unfamiliar with catch up clauses and how they work, it is explained in the attached video below and will also be laid out in a follow up post.

Modeling More than Two Partners

One final note, the leveraged cash flow coming in from the DCF model can be split between one or two limited partners and the sponsor, but a user should be able to build upon this model to have it account for more partners if necessary.

Also, with a little tweaking of some of the formulas, it is possible to make this model work with any DCF model that calculates returns and payouts annually.

Quick Note: Not interested in DIY analysis? Consider working with A.CRE Consulting to handle your bespoke modeling project.

Learn More

Download the JV Waterfall Model with Catch Up

To make this model accessible to everyone, it is offered on a “Pay What You’re Able” basis with no minimum (enter $0 if you’d like) or maximum (your support helps keep the content coming – typical real estate Excel models sell for $100 – $300+ per license). Just enter a price together with an email address to send the download link to, and then click ‘Continue’.

Proceed to Download Page

Video Tutorial of JV Waterfall Model with Catch Up

For more information and general guidance on using the model, please watch the video below:

I hope our readers find this model useful. Again if there are any questions, concerns, or general feedback, feel free to contact me.

About the Author: Michael has spent a decade working in various capacities on more than $7 billion of real estate transactions spanning all asset classes and geographies throughout the USA. Most recently, Michael was a founding member and COO of Stablewood Properties, an institutionally backed real estate operator. Before Stablewood, Michael was at Hines in San Francisco where he primarily worked on 2 high-rise mixed-use development projects totaling 2 million square feet. Michael has both an MBA and Master in Real Estate with a concentration in Real Estate Finance from Cornell University.

Contact Michael