Simple 3 Tier Waterfall Model

Waterfall models in real estate projects are one of the most difficult concepts to understand. Cash flow from a development or investment project can be split in a countless number of ways

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Waterfall models in real estate projects are one of the most difficult concepts to understand. Cash flow from a development or investment project can be split in countless number of ways. A waterfall is a method of splitting profits among partners in a transaction that allows for profits to follow an uneven distribution. The waterfall structure can be thought of as a series of pools that fill up with cash flow and then once full, spill overall excess cash flow into additional pools.

This Excel model contains 2 types of waterfall methods. The first method of waterfall distributes profits based on a pro-rata basis between the investor and the sponsor, effectively sharing the risk between the two. On the other hand, the second method of waterfall distributes profits first to investors until they get back their capital and preferred returns, and then starts distributing profits to the sponsor, effectively minimizing the risk to the investor, and increasing the risk to the sponsor.

Inputs are always depicted with a yellow fill while calculations are depicted with white fill and black characters.

There is also color coding for the various tabs of the model. Yellow tabs are mostly assumptions tabs, and light blue tabs are admin tabs (for example: the cover page).

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