The Equity Investor Returns tab is where you will enter your equity structure to generate a cash flow waterfall. The model allows the Equity Investor to receive a Preferred Return along with up to three user-defined hurdles. After the three hurdles, any remaining cash flow will be split according to a user-specified Final Split rate. User Inputs are defined by the orange shaded boxes.
This cash flow model is designed to allow a Preferred Return along with up to three (3) user-defined hurdles based on an Internal Rate of Return (IRR) or Cash on Cash. Equity is generally returned to each party at the disposition (sale) of the asset.
- Using this model, annual cash flow outlays begin at the Preferred Return and progress to the next Hurdle upon the Equity Investor achieving the specified Cash on Cash or IRR for that stage.
- The Developer’s return is determined by the cash flow received from each Hurdle but is not used to trigger a progression to the next Hurdle. By design, this can in some circumstances provide the Developer an greater return than that of the Equity Investor.
- Hurdle progression is triggered only by Equity Investor Cash on Cash or IRR achievements and not by return of equity dollars.
- If the Equity Investor provides 100% of the Initial Equity Contribution, the Developer can receive cash flow using the cash flow splits but will not be able to calculate a Cash on Cash or IRR. This is due to there being no initial cash outlay by the Developer.
Tips & Tricks
- If you do not need one or more of the hurdles, just enter a zero “0%” in the Rate column (column D).
- You can base the Cash Flow Waterfall on Pre- or Post-Tax cash flow by changing the drop-down option in cell B21.
You can easily switch between the Input View and Print view anytime by using the dropdown menu on each tab. In Input View, all of the input cells will be highlighted orange.