Worksheet - Waterfall Distribution (Please show all work)

Case Problem - Belmont Real Estate Fund II

Belmont Real Estate Fund II (BRE II) is an opportunistic real estate fund that invests in all five real estate sectors - Industrial, Office, Apartments, Retail and Hotels. The Fund invested $400 million in equity. BRE II was projected to return a 20%+ IRR and a 4.0x+ equity multiple.The fund terms are as follows:

• European Waterfall
• LP Preferred Return of 10%
• Catch up is 50/50
• Carried Interest split is 80/20
• Management Fees are outside the commitment (they do not need to be paid back before carried interest is paid)

The Fund was a 10-year fund and was fully liquidated after Year-10 for total proceeds of $1,700 million.

Question 1After Year-10, calculate the fund's value based on the hurdle (10%) that must be achieved before the GP participates in any carried interest. (2 pts).

Question 2At the Catch-up of 50/50, both the GP and LP get 50% of the following amount, which equals what? (4 pts)

Question 3Now that the 80/20 split of profits has been achieved what are the remaining profits to be split 80/20? What is the LP portion and what is the GP portion? (6 pts)

Question 4What are the total dollars and percentage of the LP and GP profits? (4 pts)

Question 5What is annualized return of the BRE II? (2 pts)

Question 6 What is the Breakeven IRR on BRE II (the IRR that gets GP to full

20% carried interest)? (2 pts)

Bonus QuestionWhat is the equity multiple (TVPI - Total Value to Paid In) for BRE II? (2 pts)