Reference no: EM133118378

Worksheet - Waterfall Distribution (Please show all work)

Case Problem - Belmont Real Estate Fund II

Belmont Real Estate Fund II (BRE II) is an opportunistic real estate fund that invests in all five real estate sectors - Industrial, Office, Apartments, Retail and Hotels.  The Fund invested $400 million in equity.  BRE II was projected to return a 20%+ IRR and a 4.0x+ equity multiple. The fund terms are as follows:

• European Waterfall
• LP Preferred Return of 10%
• Catch up is 50/50
• Carried Interest split is 80/20
• Management Fees are outside the commitment (they do not need to be paid back before carried interest is paid)

The Fund was a 10-year fund and was fully liquidated after Year-10 for total proceeds of $1,700 million.

Question 1 After Year-10, calculate the fund's value based on the hurdle (10%) that must be achieved before the GP participates in any carried interest.

Question 2  At the Catch-up of 50/50, both the GP and LP get 50% of the following amount, which equals what?

Question 3  Now that the 80/20 split of profits has been achieved what are the remaining profits to be split 80/20?  What is the LP portion and what is the GP portion?

Question 4  What are the total dollars and percentage of the LP and GP profits?

Question 5 What is annualized return of the BRE II?

Question 6  What is the Breakeven IRR on BRE II (the IRR that gets GP to full 20% carried interest)?

Bonus Question  What is the equity multiple (TVPI - Total Value to Paid In) for BRE II?