Waterfall Distribution

A waterfall distribution defines the priority and allocation of cash flows among investors and sponsors, typically structured in tiers with preferred returns before profit sharing.

Standard Waterfall TiersDistribution
Tier 1: Return of capital100% to LPs until capital returned
Tier 2: Preferred return100% to LPs until 8% IRR achieved
Tier 3: GP catch-up100% to GP until GP has 20% of distributions
Tier 4: Profit split80% to LPs, 20% to GP on remaining profits
Alternative structuresMultiple hurdles with increasing GP share
European waterfallGP receives distributions from day one pro-rata
Example WaterfallAED 10M Total Profit
Tier 1: Return capitalAED 50M to LPs (assume AED 50M invested)
Tier 2: 8% preferred returnAED 20M to LPs (8% on AED 50M over 5 years)
Remaining for tiers 3 and 4AED 10M
Tier 3: GP catch-up to 20%GP gets AED 2.5M (20% of total AED 70M to date)
Tier 4: 80/20 splitAED 7.5M remaining, AED 6M to LPs, AED 1.5M to GP
GP totalAED 4M (20% of AED 80M total distributed)


Related Terms

Distribution PriorityPreferred Return GP Catch-UpProfit SplitCarried Interest (Carry)

RERA licensed advisors

Banner Image

Free expert advice

Get property recommendations matched to your goals. No pressure. No commitment.