EQUITY GUIDE
Real Estate Promote Structures Explained
A promote increases the sponsor’s share of residual profit after agreed investor return thresholds.
In this guideWhat the analysis measuresCalculation frameworkUnderwriting reviewHow to use the result
What the analysis measures
Separate the sponsor’s ordinary pro-rata distribution from promote. Promote applies only to cash allocated under the promoted tier.
Calculation framework
Model one or more hurdles, catch-up if applicable and residual sharing. Whole-deal and deal-by-deal promotes behave differently over time.
Underwriting review
Calculate partner cash flows and returns after every tier, then reconcile total distributions. Avoid using project IRR to infer LP hurdle achievement.
How to use the result
Test lower profit, slower timing and interim distributions. A structure can produce sponsor promote while leaving unresolved clawback exposure.