b'The scenario I painted above was probably rosier than what you will find in real life. You are much more likely to find deals that dont have 8% returns in the first 2-3 years, leaving deficiencies in Class A returns that must be made up on sale; and further diminishing the amounts available for distribution to Class B. This typically results in no distributions to Class B for the first 2-3 years, and if you dont have a Class B catchup, you will never be able to make up Class B distributions for those years.Consider these models when you are doing your underwriting, and, if thepropertycansupportit,includetheClassBcatchupstoprotect yourselvesandthemembersoftheassetmanagemententity.Theasset manager can always elect to forego any management fee or any distribution to which Class B is entitled, if you wish to achieve your projected returns for Class A. Its better to give yourself the ability to collect the Class B catchup if you have sufficient funds, than to give away all of the proceeds to Class A and be sorry you didnt protect yourself. Most of our clients only make this mistake one time. Variations to Consider Change the Split to Match the Target Returns for Investors The returns shown in the example waterfalls above (and in the bonus table) are based on a 70/30 split. The target for investors is an annualized return in the mid to high teens. If the returns based on a 70/30 split arent sufficienttoenticeinvestors;trychangingthesplitandadjustingthe numbers to something like a 75/25 split.215'