Preferred Return True Up Calculator

Pref accrues and true-ups at exit.

LP equity

Pref rate %

Years

Distributions paid

True-up owed

$1,954,625

Pref accrued

$3,754,625

Cash pref paid

$1,800,000

How the math works

Accrued = equity × ((1+pref)^years − 1). True-up = accrued − distributions paid.

$8M × (1.08^5 − 1) = $3.76M accrued. − $1.8M paid = $1.96M true-up owed.

How to Use

Enter LP equity.
Enter pref rate %.
Enter years.
Enter distributions paid.
Read pref accrued and true-up owed.

Frequently Asked Questions

Pref mechanics?

LP entitled to X% annual return before GP receives promote. Pref accrues even if cash flow insufficient. At exit, shortfall paid before promote. Common: 6-10% preferred return. Compounds annually.

Cash vs accrued?

Cash pref: paid from operating cash flow when available. Accrued pref: builds up, paid at sale. Most deals hybrid: pay pref from cash flow when available, true-up at exit if interim shortfall.

Calculation?

Compounded pref = equity × ((1 + pref)^years − 1). Less distributions paid = true-up amount. On $10M equity, 8% pref, 5 years, $2M distributions: $4.7M accrued − $2M = $2.7M true-up owed at exit.

How does this interact with the rest of the capital stack?

Each tier of the stack affects the next. Senior debt constrains LTC and DSCR. Mezz and pref consume equity spread. Interest rate hedges protect DSCR but cost premium. Always model the full stack holistically — optimizing one tier alone often degrades another. Institutional underwriters run three or four scenarios across the stack before committing capital.