b'Any remaining cash will be split 70/30 between Class A and Class B.Analysis In the preferred return scenario, on sale,1.Class A would receive 70% of $5M, or $3.5M, and 2.Class B would receive 30% of $5M, or $1.5M.What was Class As cash on cash return? Class A received distributions of $700k/year for 5 years ($3.5M) plus $3.5M from sale for a total of $7M. Thus, Class A earned an overall return of 70% ($7M$10M = 0.7; 0.7 x 100 = 70%), or an annualized return of 14%.What was Class Bs total return in numbers? Class B received $60k/year for5yearsforatotalof$300k,plus$1.5Monsale,equalingtotal distributionsof$1.8M.Dividedover5years,thatwasanannualized distribution of $360k. Anyarrearages(deficiencies)inClassApreferredreturnswillbe deferred and made up from future cash flow or proceeds from a capital transaction, at the asset managers option. There is no catchup for Class B, so whatever Class B gets in any given year is all it ever gets.We have clients who have used the Preferred Return Model above, and have since said they would never do it again because they did all the work andtheinvestorsgotallthemoney.Thiscanhappenwhenthereisnt sufficient cash flow for Class B to get a return during operations, and the projected sales price isnt realized, leaving only enough to pay back capital contributions of Class A, make up arrearages in their preferred returns, and 210'