Joint Venture Waterfall

After leaving the office you see an email from your boss — they just had a conversation with one of your firm's regular JV partners about the potential acquisition. This partner has specific experience leasing multifamily in the submarket and could help execute the business plan.

The JV partner originally wanted an acquisition fee of 20 bps of purchase price plus an asset management fee of 10 bps. Your boss pushed back on the acquisition fee and negotiated a 20 bps stabilization fee instead — paid once the asset is fully leased rather than at close. Your boss asks you to solve for the GP and LP IRR and the impact of fees to the GP IRR, using the waterfall structure from the last deal your firm did with this partner. This needs to be ready before their mid-day check-in with their boss tomorrow.

You know you need more time than just the morning, so you work that evening. You find the investment committee memo from a recent deal with the same JV partner — it has the waterfall structure. You think through the fee calculations: both the stabilization fee and asset management fee should be based on asset value at a point in time (capping forward NOI, similar to the refi calculation). Annual valuation makes more sense than monthly. The asset management fee is paid monthly; the stabilization fee is paid once at stabilization.

You get home, order dinner, open your computer, and get cranking. You solve for LP IRR, GP IRR, and the fee impact — and send it before mid-day the next morning.