Preferred Return Catch Up Calculator

Pref accrues through hold; catch-up happens at exit. This calculator runs the math.

LP equity

Pref rate

Current accrued pref

Cash distributions to date

Years remaining

Catch-up at exit

$3,000,000

Total pref at exit

$3,000,000

Current unpaid pref

$600,000

How the math works

Unpaid pref = accrued − distributions. Future accrual = equity × rate × years. Catch-up = unpaid + future.

Distinguish between current pay and accrual balance on the quarterly LP report. Sponsors sometimes muddle the two in investor updates, hiding a growing accrued-pref obligation that has to be paid off at exit before promote triggers. Clear reporting keeps both sides honest.

How to Use

Enter LP equity.
Enter pref rate.
Enter current accrued pref.
Enter cash distributions to date.
Enter hold years remaining.
Read catch-up needed at exit.

Frequently Asked Questions

Accruing vs paid pref?

Accruing pref: compounds if unpaid in a given period, gets paid at exit. Paid pref: must be distributed annually; no compounding. Accruing more common in value-add (cash flow thin during ramp); paid common on stabilized.

Compounding?

Most accruing pref compounds monthly or annually. Same as any accrued interest. Over 5-year hold, compounded 8% pref = 46.9% cumulative; simple 8% = 40% cumulative. 7% gap is economically significant to LP.

Partial distributions?

When partial pref paid during hold, applied first to accrued balance (highest vintage). Remaining pref accrual continues on unpaid balance. Complex — track via schedule, not summary numbers.