I want to make sure that I am thinking of the preferred equity model correctly. I am drawing my conclusions from what I have seen posted elsewhere as well as what is included in the HBR guide.
In a normal SF model, the operator’s carry can be ~25% of remaining equity once the debt has been repaid and the preferred holder's receive their principal + preference. How does this change if I am self-funded and I am co-investing with my own capital as well. For example, say that I ask for a manager's carry of 40% and I commit $500K of my own capital + I receive $1M from preferred investors, would my effective payout be 40% (carry) + 1/3 of the remaining 60% of available common equity so an incremental 20%? In total, I would receive 60% (40% + 20%) of the available common equity distributions.
This assumes the deal covers the investors IRR hurdle and all those boxes are checked. Am I thinking of this correctly or should I be thinking of it differently? What is an appropriate manager’s carry in this type of scenario?
Feedback on Sample Preferred Equity Model
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