Same sponsor, same building: comparing 9 percent debt against a 15 percent equity target that underwrites closer to 11

The spread living in one column is what a common equity position is. The debt gets its 9% whether the exit cap is 5.75 or 6.5. Common equity is the residual claim, so the entire gap you computed is the price of holding that residual. Your model isn't broken.

What I'd argue with is the exit cap you anchored to. Underwriting an exit tighter than entry means the projection is partly a bet on cap compression. Plenty of underwriting expands the exit 25 to 50bps over a five year hold. If 6.25% wipes the promote, run 6.5% and see whether you land below the pref, because that band is your realistic downside rather than an outlier.

Two mechanical things your numbers may not carry. An asset management fee taken on revenue keeps getting paid at full size while distributions are being cut, so in the weak case the fee load grows as a share of what reaches you. And find out whether the 8% pref accrues simple or compounds, because a hold with two years of deferred distributions is a materially different settlement figure depending on which. Crowdfunding structures aren't standardized here, so read that clause rather than assuming market convention.

The debt side isn't automatically the safe half. Check the loan-to-cost and where the 9% actually sits relative to any other debt on the asset. Then check whether the interest is paid out of operations or out of a funded reserve with a defined life. A coupon coming from an interest reserve tells you nothing about whether the property can service it once the reserve is gone.

The five year hold is the part I'd stare at longest. Land taught me that a projection ending at a sale date is really a projection about who's buying in that window, and nobody knows that. If the sponsor has to extend to year seven at the same total dollars, your 11% turns into something starting with an 8. Ask whether the operating agreement lets them extend, and how many times.

Does the 20% promote have a catch-up? There are two versions of what people call the same waterfall. In one, above the 8% pref the sponsor gets 20% of everything after that. In the other, once the pref is met the sponsor takes 100% of the next dollars until they've caught up to 20% of all profit including the pref tier. Same headline number, very different money to the investor. Whichever one is written into the docs decides which case applies.

Slightly behind everyone here. Promote means the sponsor's share of profit above a threshold, and the pref is the investor's first claim on cash? If the pref is 8% and the target IRR is 15%, is the 8% something I'd actually receive, or is it just where the sponsor's cut begins?

Juniper, the 8% is both, which is what makes it confusing. It's a priority claim and a threshold. Whether cash shows up in an account is a separate question from whether the pref is accruing on paper. Anchor, one more on the debt option. Nine percent fixed with a 24 month term means the investor takes refinance risk at month 24, not exit price risk. If the borrower can't refinance and the sponsor grants an extension, that turns a two year hold into four.

Juniper, taking the terms one at a time. A preferred return, or pref, is a rate that the investors are entitled to before the sponsor shares in any profit. Eight percent pref means the first 8% a year on your money belongs to you in line order. Whether it arrives as cash depends on whether the property generates enough cash that year. If it doesn't, most structures let the unpaid amount accrue, meaning it builds up as an IOU and gets settled later, often when the property sells.

The promote, sometimes called carried interest, is the sponsor's share of profit above the pref. Twenty percent promote means once investors have received their 8%, the sponsor keeps 20 cents of each additional dollar of profit. That's the incentive for them to do more than clear the pref.

So in anchor's deal, the 8% is your priority claim and the point where the sponsor's participation starts. The 15% is a target IRR, which is a projection of the annualized return over the whole hold, including the money from the eventual sale. Nobody owes you the 15%.

The part that catches new investors on these platforms is timing. A deal can be performing reasonably and still send you nothing for two or three years while the pref accrues. If you're expecting income, read the projected distribution schedule and the stated lockup, which on crowdfunded deals commonly runs two to seven years, rather than reading the headline number.

For an investor who needs current income, the 9 percent paying monthly is the whole point, and a 15 percent that might arrive in year five as a lump is close to useless. That is a different question from which one is better underwriting. Anchor, do you need the cash or are you compounding it?

Asset management charged on revenue rather than NOI is the line worth renegotiating, and on a platform deal there is no renegotiating it. On an operating building a bad year can take NOI down 30 percent while revenue barely moves, so a revenue based fee behaves like a fixed cost dressed up as a variable one. In your 6.25% exit case that 1.5% is still coming off the top of the same collections while the distribution goes to zero.

The 2% acquisition fee is paid on day one out of the raise, so a chunk of your capital never buys anything. Small on a five year hold, less small if the deal exits early.

In offerings on these portals the interesting clauses are never in the deal summary. Look for the fee deferral language, where the sponsor can defer the asset management fee when cash is tight and accrue it, sometimes with interest, ahead of your accrued pref at sale. Look at how the promote is measured, IRR-based versus multiple-based, since an IRR-based promote pays the sponsor more for a fast exit and a multiple-based one pays them for a big one. And check whether the platform's 0.5% is charged on committed capital or on invested capital, because on a deal that funds in tranches those are different bases. Your 11% is only as good as which of those you assumed.