American-Style Waterfall

A common method for distributing investment cash flow between two or more partners. An American-Style waterfall refers to a form of equity waterfall where the sponsor (i.e. general partner) is eligible to receive a promote (i.e. carried interest) before the limited partner has received a full return of capital and earned a preferred return. As such, distributable cash flow during operations and distributable cash flow at a capital event are treated differently.

While referred to as American-style, this form of real estate partnership waterfall is common worldwide including in Europe. It is often preferred by general partners as it front loads distributions to the general partner.

An American-Style Equity Waterfall compared to a European-Style Equity Waterfall

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