When a syndication offering memo shows a 1.75x equity multiple and a 15 percent IRR on the same deal, the hold assumption is doing a lot of lifting.

The math is right. A 1.75x EM over five years implies roughly 11.8 percent annualized on a simple compound basis, and bridging that to 15 percent IRR entirely through timing requires distributions to hit early and hit hard. The assumption doing the most work is usually the refi cap rate: the model assumes the asset can be refinanced at a specific value in year two or three, that value drives the early capital return, and the early capital return is what inflates IRR above the EM-implied floor. If that cap rate assumption is 25 to 50 basis points optimistic, the refi proceeds shrink, the event may not pencil at all, and you are back to back-end weighted cash flows with the same five-year hold.

The risk you have not named is the promote waterfall interaction. Many deals use an IRR hurdle to trigger the GP promote, and if a delayed or failed refi slides LP distributions later in the hold, the LP may still hit the hurdle numerically at exit while having received less capital sooner. The sponsor's promote mechanics do not always distinguish between IRR achieved through timing versus IRR achieved through price appreciation. Those are different risk profiles for the LP even at the same headline number.

On the offering memo itself, the year-by-year cash flow schedule should show the projected refi proceeds as a distinct line, not buried in net cash flow. If distributions spike in year two or three with no labelled source, that is the refi assumption, and you are right that the memo should name it explicitly. A sponsor who obscures a load-bearing assumption in the schedule is either sloppy or avoiding scrutiny, and at the Conservative readiness level you are at, neither is acceptable in a first commitment to a sponsor.

What does the projected NOI growth rate look like between year one and the refi year, and does the sponsor's exit cap rate assumption match the refi cap rate or are they running two different numbers?

The misconception worth correcting: IRR and EM are not redundant checks on each other, they measure different things, and a sponsor can optimize one while letting the other look respectable without the two numbers being inconsistent at all.

What actually matters here is the preferred return rate and when it starts accruing, because an 8 percent pref that accrues from day one and compounds if unpaid will pull early distributions toward the LP even without a refi, which mechanically closes the gap between the EM math and the IRR figure. If the pref is simple, non-compounding, and only paid when cash is available, the IRR boost has to come from somewhere else and a mid-hold refi becomes the most likely culprit. What does the waterfall say about unpaid pref accrual?

The misconception I see repeated in LP conversations is that a higher IRR always means a better deal than a higher EM, when actually they measure different things and can point in opposite directions depending on how long you hold and when cash moves.

What I would pull apart in this specific scenario is the reinvestment assumption buried inside that 15 percent IRR. IRR assumes every distribution you receive gets reinvested at the same 15 percent rate for the remainder of the hold. If you are getting chunky early distributions from a year-two refi, the IRR looks great on paper, but your actual compounded return depends on what you do with that returned capital, and most LPs park it somewhere at 5 or 6 percent while they wait for the next deal. The modified IRR, where you set the reinvestment rate at something realistic like 6 or 7 percent, will often drop that 15 percent figure to 11 or 12, which lands it much closer to what the EM was already telling you. So the two numbers are not as far apart as they look once you strip out the reinvestment fiction. The question I would bring to the GP is whether they can run the waterfall with an explicit mid-hold capital return event removed, just to see what the base case looks like if the refi gets pushed 18 months, because that stress test will show you exactly how much of the promote they collect on timing they do not control. What does the rate cap situation look like on the bridge debt, and when does it expire relative to the projected refi date?

The refi assumption being "load-bearing" is the exact right word and I wish more GPs would use it. I had a deal cross my desk last year, Southeast multifamily, 72 units outside of Atlanta, and the year three refi was so central to the IRR that when I asked what happens if rates are still sitting where they were in late 2023, the sponsor basically said the distributions compress and the exit timeline extends. That is not a stress test, that is the deal falling apart in slow motion. What I do instead of modeling the IRR at face value is I pull out the refi proceeds entirely and recalculate on the remaining cash flows only, then decide if I still want in at that number. Seven properties in and I have learned that any sponsor who cannot show me the year-by-year schedule within 48 hours of me asking probably does not have it built out the way they say they do. What does the GP say when you ask them to model the hold without the refi?

The promote structure is where this gets sharper. Most waterfall agreements set the IRR hurdle on capital returned to the LP, so a refi that slips by eighteen months does not just compress the IRR, it can pull the GP's promote trigger much later, which changes the GP's incentive to push hard for that refi in the first place. That misalignment sits quietly inside deals where the GP earns their carried interest on a single exit rather than on interim distributions, and the year-by-year schedule rarely makes it legible. The EM is indifferent to timing by design, so a GP under pressure can let the hold extend without any formal penalty, and the LP absorbs the full drag while the promote math stays intact on paper. What does the waterfall look like on the deal you are reading, specifically whether the GP promote is calculated on the exit only or on each distribution as it goes out?

What I want to see is the T-12 actual rents next to whatever NOI is propping up that refi valuation in year two, because if they're banking on a cap rate compression to hit the refi LTV threshold and rates don't cooperate, that liquidity event disappears and so does the IRR gap.

Have you asked the GP what happens to the distribution waterfall if the refi gets pushed to year four?