This document discusses various concepts related to real estate private equity funds and syndications. It defines different types of investment funds based on their target risk and return profiles, from core funds with the lowest risk and returns to opportunity funds with the highest risk and potential returns. It also outlines key components of a private placement memorandum, specifies versus blind asset pools, pari passu cost and profit sharing, preferred returns and promotes, catch-up provisions, clawback provisions, squeeze down formulas, and round tripping assets.

1. REAL ESTATE FUNDAMENTALS & SYDICATIONS
REAL ESTATE PRIVATE EQUITY
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2. RISK PROFILE
• There are four main types of
investment funds which all
target different returns.
• There is no bright line rule
that separates these
different risk types and
people in the industry might
argue there are additional
risk tolerances in between.
• These transaction level
returns are generally gross
IRR, not net to the investors.
Core Funds 7% - 10%
Core Plus
Funds
11% - 13%
Value Add
Funds
14% -17%
Opportunity
Funds
18% +

3. PRIVATE PLACEMENT
MEMORANDUM
• Also known as a “PPM” or Offering Memorandum, this is a
document that outlines the terms of securities to be offered in a
private placement. Resembles a business plan in content and
structure. A formal description of an investment opportunity written
to comply with various federal securities regulations. A properly
prepared PPM is designed to provide specific information to the
buyers in order to protect sellers from liabilities related to selling
unregistered securities.
• Typically PPMs contain: a complete description of the security
offered for sale, the terms of the sales, and fees; capital structure
and historical financial statements; a description of the business;
summary biographies of the management team; and the numerous
risk factors associated with the investment.

4. SPECIFIED VS. BLIND ASSET POOL
• Specified Asset Pool – An equity fund established to
acquire specific, identified assets.
• Blind Pool – An equity fund established to acquire
assets that meet certain criteria’s but that have yet to
be identified.

5. PARI PASSU
• Latin for “in equal proportion.”
• If you have a 95% / 5% relationship between JV partners,
all Venture Costs, Cash Flow, Tax Attributes (i.e.
depreciation) will be pari passu, in equal proportion (95/5),
until the hurdle rate is satisfied and the GP gets promoted.

6. Preferred Return / Hurdle Rate
Hurdle Rate - The internal rate of return that a fund must
achieve before its general partners or managers may receive
an increased interest (the promote) in the proceeds of the fund.
Often, if the expected rate of return on an investment is below
the hurdle rate, the project is not undertaken.
– This is also called the “Pref” or “Preferred Return.”
– The higher the pref, the higher the cost of capital for the
sponsor.

7. PROMOTE
Once the pref/hurdle rate is fulfilled (and the catch up has been
applied, if any), the LP is “promoted” to a higher percentage.
– For example, if you have 95/5 partners and the deal calls for an 8%
preferred return (IRR) (the hurdle rate), once the IRR exceeds 8%,
the interests will switch to 80/20 and the LP has received a 15%
promoted interest.
• There is sometimes what is called a “Super Promote” that will
create a second hurdle rate and higher promote (60/40 or
50/50) after this hurdle is reached.
– The “Promote” is also sometimes called the “Carried Interest” which
there has been a lot of discussion about changing the method of
taxation.

8. PREF’S AND PROMOTE
GP (Fund Sponsor) LP (Investors)
Initial Equity Investment $50,000 $950,000
Sales Proceeds ($2,000,000)
Preferred Return (8%) $4,000 $76,000
Return of Equity $50,000 $950,000
Balance of Sale Proceeds ($920,000)
If Pari Passu $46,000 $874,000
Promote Split (20%/80%) $184,000 $736,000
Total Cash Received (ROE) $238,000 (476%) $1,762,000 (185%)
Assumptions: 95/5 Split
$1 Million Investment
8% Proffered Return
Property Is Held for One Year
80/20 Promote
$2 Million upon Disposition
Cash Flow Ignored
All Fees Ignored

9. Catch Up’s
Once the returns exceed the pref and both the GP and LP
have received their equity and pref, the LP sometimes
receives a preferred payment to the hurdle rate. Once
the hurdle rate has been achieved by the GP, the LP
“catches up” to the GP at the hurdle rate.

10. CLAWBACK PROVISIONS
• The clawback provision is sometimes called a "look-
back," because it requires a partnership to undergo a
final accounting of all of its capital distributions when
the fund is wrapped.
• This task is designed to ensure that the G.P. receives
no more than its fair share of the profits.

11. SQUEEZE DOWN FORMULAS
If any partner fails to make a required capital contribution,
their interest in the investment vehicle is “squeezed down”
to balance out for the additional capital funded by the
contributing partner.
– This would also most likely constitute a default
under the organization documents.

12. ROUND TRIPPING THE ASSET(S)
This is the process of acquiring and then disposing of the
asset. Round Tripping is usually discussed in the context of
track record. If you have not round tripped the asset, then
your returns are all projected and hypothetical versus if you
have disposed of the asset and have actual returns to
report.

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