Consider an Internal Rate of Return Waterfall for Your Next
Development Project
The internal rate of return (IRR) waterfall arrangement has
gained popularity in recent years as a way to shift risk from
equity investors, while rewarding developers for strong
performance. But neither a developer nor an investor should enter
into such an arrangement without a firm grasp of how it works.
Traditional Profit Split
A traditional real estate development deal typically involves an
institutional lender, equity investors and the developer (who also
may be an equity investor). The lender generally has the least
risk, because it has the first repayment priority, but its return
is limited to interest payments.
