JV and common equity

Common equity is paid last and gets everything left over. In most deals it is split between a sponsor who finds and runs the property and investors who put up most of the cash, and the agreement that divides the cash flow is called the waterfall.

A real, filed example

Most published waterfall numbers are illustrations. One that isn’t: Sealy Industrial Partners IV, LP, a real estate fund that files with the SEC, describes its distributions in its 10-K for fiscal 2025 (filed March 12, 2026) as:

1. a 6% annual cumulative, non-compounded preferred return on unreturned capital to the limited partners;
2. return of the limited partners’ capital; then
3. the rest split 80% to the limited partners and 20% to the sponsor’s affiliate.

The same filing describes the joint ventures the fund invests in: the operating partner typically gets a promote of 10% to 50% of profits after an agreed return of 6% to 12% on invested capital.

The stack builder uses the fund’s 6% preferred return and a 20% promote. Because the builder also has the sponsor co-invest (10% of the common equity by default), the sponsor ends up with 28% of the cash above the preferred return: the 20% promote plus 10% of the other 80%. Change any of the three to match your terms; it shows the LP’s and the sponsor’s IRRs separately.

How the split works in the model

Both sides fund the common equity pro rata (90% LP and 10% sponsor by default). Each year’s cash goes first to any unpaid preferred return, then to return of capital, then the promote comes off the top of what’s left, and the remainder is split pro rata. A deal that barely clears the preferred return pays the sponsor little more than its pro rata share; a deal that clears it comfortably is where the promote shows up.

Raising the equity from investors

Selling LP interests is selling securities. The two usual routes:

• Rule 506(b): no general solicitation; unlimited accredited investors and up to 35 non-accredited investors in any 90 days, who must be financially sophisticated (alone or with a representative) and must receive disclosure documents. File Form D within 15 days of the first sale. (SEC)
• Rule 506(c): you may advertise, but every purchaser must be accredited and you must take reasonable steps to verify it. (SEC)

An accredited individual has net worth over $1 million excluding their home, or income over $200,000 ($300,000 with a spouse or partner) in each of the last two years and a reasonable expectation of the same this year (SEC). This is general information, not legal advice; talk to securities counsel before the offering.

Janover Capital, which runs this site, is not a broker-dealer. It doesn’t raise or place LP or JV equity and takes no fee for it. If you need equity, we can point you to people who work on that side, and that’s all.