Performance participation crystallizes annually on appraisal gains. Where's the give-back?

In-kind repurchase means they hand you an interest in an asset instead of cash. In practice for a retail investor it's close to unusable, and the reason it's in there is to protect the fund from being forced to dump property in a bad market. Read it as a warning label about what stress looks like rather than as something you should expect on a Tuesday.

@harrow that's the read I've had too, though I'd add that a provision nobody expects to use still tells you what the drafters were worried about.

I'm mostly lost in this thread but the catch-up piece confused me enough to ask. If the hurdle is 5% and the return is 6%, does the sponsor get 12.5% of the 1% or 12.5% of the whole 6%? I've seen the term used both ways in things I've read and I can't tell which is standard.

@vellum with a full catch-up, once you clear the hurdle the sponsor takes a large share of the next slice of return until they've effectively received their percentage of the entire return, hurdle included. Without a catch-up, they only get their cut of what's above the hurdle. The difference at a 6% year is small and at a 12% year it isn't. Fathom's doc says catch-up, so the second reading applies.

Fathom, is the 5% hurdle a hard number or does it float against an index? A fixed 5% in a high rate environment is a very different bar than one that moves.

Underwriting this the way I'd underwrite a deal: the annual crystallization on unrealized marks is standard across most of the large NAV REIT sponsors, so passing on that alone means passing on the category. What differentiates them is the loss carryforward mechanics, whether the hurdle is fixed or floating, and how independent the valuation process actually is.

On the last one, look for whether third party appraisals cover 100% of the portfolio annually or only a rotating sample, and whether the valuation advisor can be dismissed by the advisor without cause. A sample-based process with a dismissible advisor and an annual crystallization is a stack of small conflicts sitting on top of each other.

The thing your post prices correctly and most people miss: a high water mark restores fairness on paper only. Cash paid on a mark that reverses is gone, and your recovery is a future fee holiday, which is worth less than the cash and worth nothing at all if you've redeemed by then. That last clause is the part I'd weigh hardest given the repurchase caps, because your exit and your fee recovery are competing for the same timeline.