MODEL DESIGN
How to Build a Multi-Class Equity Waterfall for Complex Capital Stacks
Overview
ARTICLE IN PROGRESS
We're writing a deep engineering essay on CS-001. How we built it, the design choices behind it, and how to use it. The model itself is live and available today.
CS-001 is the distribution waterfall pulled out into its own file. When the capital stack has more than two parties (a fund with multiple investor classes, a JV with GP promote and preferred equity, a deal with mezzanine and clawback) the waterfall is a model in its own right. CS-001 pairs with any pro forma in the collection to handle the distribution layer separately.
Planned Sections
When the full piece is published, it will cover:
- Why the waterfall belongs in its own file when the capital stack has more than two parties.
- Design choice: three IRR-tested promote tiers with GP catch-up.
- Design choice: compounding annual preferred return vs accrual conventions.
- Design choice: clawback mechanics and the cross-deal vs deal-level framing.
- Design choice: GP co-invest treated separately from GP promote.
- How to pair CS-001 with a pro forma to model funds and JVs.
For an example of the engineering-essay format this article will follow, see how we engineered AQ-141, the Multifamily Opportunistic Pro Forma Model.
About the Model
CS-001 is an Institutional-tier multi-class equity waterfall. Three IRR-tested promote tiers, GP catch-up, compounding annual preferred return, clawback mechanics. Built for REPE funds and JVs with complex capital structures spanning common equity, preferred equity, and mezzanine.