What is a Two-Tiered Return Structure in Multifamily Investing?

A two-tiered return structure (part of the capital stack) gives investors more choices when placing equity into multifamily syndication opportunities. Investors can invest in either Class A and/or Class B tiers. This allows investors to match investment goals.

For limited partners, this is becoming a common trend. Limited partners want to receive returns on a promissory note style with the Class A tier. While some investors enjoy the returns structured in Class B tiers. Investors can also participate in both tiers as well.

  • Class A: Class A investors sit behind the debt in the capital stack (order of the total capital invested in a project).
    • This tier is limited to a certain percentage of the total equity.
    • Class A investors have virtually no upside upon disposition or another capital event.
    • This tier is for investors who prefer stronger cashflow and minimal risk.
  • Class B: Class B investors sit behind Class A investors in the capital stack.
    • Class B may include a preferred return which accrue over the life of the deal.
    • Cashflow from operations remaining after paying out Class A will be distributed to Class B investors.
    • This tier is for investors who want to maximize their returns over the life of the investment.
    • Class B investors participate in the upside upon disposition or capital events.
  • Class A require higher minimum investments starting at $100,000.
  • Class B minimum investments start at $50,000.
  • Investors can break up their $100,000 investment into both Class A and Class B tiers.
    • Example: $25,000 into Class A and $75,000 into Class B or vice versa so long as the total investment in the deal is $100,000.
Capital Stack

By learning these concepts and terms, you’re separating yourself from the novice investor looking to be more active than passive. Here’s where you can learn more multifamily investing terms.

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