Preferred Return Financial Model - Multiple Hurdles - Simple Interest (Non-Compounding)

 I had a bunch of requests for this joint venture spreadsheet structure to be built by clients and so that means it is time for a template. I have never built the logic for non-compounded preferred return hurdles with simple interest (normally I build based on IRR hurdles). It just means the accrued preferred return due does not compound on the equity balance and it also means the return due does not equal any defined IRR.

$45.00 USD

After purchase, the spreadsheet will be immediately available to download in Excel. It can easily be uploaded to Google Sheets if desired. Template also included in the joint venture spreadsheets and real estate spreadsheets bundle. Last Version Update: 10/1/2022

Keep in mind this is different than preferred equity (claim on equity). In this type of deal, there is only a claim on a 'return' earned. There may or may not be language for how any equity contributions are repaid. The template can handle this as a separate row was built in to define any return of initial invested capital.

Anyone can use this for any kind of joint venture deal between a GP and LP where the preferred return due to LPs is based on non-compounding simple interest rate hurdles and has one or multiple equity contributions, distributions, and separate equity repayments over time in the operating agreement.

Template Features:

  • 3 Hurdle Rates (4 tiers)
  • Define how cash flow is split between GP/LP at each hurdle rate
  • Separate row to define if any initial capital is to be returned
  • Displays final IRR of LP and GP
  • GP doesn't necessarily have to contribute any capital
  • Easily extend for as many periods as you need (if monthly divide the rate by 12, quarterly divide it by 4, if annual then no need to adjust the rate
  • Interest accrues but does not compound
Example of Scenario (this template will do all these calculations for you):
  • Initial Capital Invested: $10,000,000 (any more capital contributed or paid back will effect the balance over time and the resulting return due as well)
  • Hurdle Rate 1 is 9%, Hurdle 2 is 15%, Hurdle 3 is 20%
  • Hurdle 1 (100% LP / 0% GP)
  • Hurdle 2 (90% LP / 10% GP)
  • Hurdle 3 (80% LP / 20% GP)
  • After 20% (55% LP / 45% GP)
  • Any initial capital returned will be reduced from available cash flow that can flow to the above hurdles
  • No distributions happen until year 10 (if distributions happened along the way, it simply goes towards the tier 1 accrued preferred return and down through each hurdle depending on what is available to distribute)
  • Year 10 distribution is $50,000,000
  • At year 10, 9% x 10,000,000 x 10 is due to pass first 9% hurdle rate (no compounding)
  • Tier 1 Distribution to LP = $9,000,000; GP = $0
  • Remaining to Distribute = $41,000,000
  • Tier 2 Distribution is 15% x 10,000,000 x 10 = $15,000,000 due to LP less $9,000,000 already paid for tier 1 hurdle
  • Tier 2 Distribution to LP = $6,000,000; GP = $666,666
  • Remaining to Distribute = $34,333,334
  • and so on....through each hurdle and if there is not enough cash to cover a hurdle, then you simply don't move to the next hurdle and cash is split according to the split rate in that hurdle until all the cash is used up
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