The Deep Reference
How the equity engine actually works
The technical mechanics behind the JV LLC structure. Two streams flow in, preferred returns pay out, profit gets split — and the developer is paid last. This page is the source of truth. Both sites link here.
Hover any tier on the right to see plain-English explanation. Streams flow continuously; reveal animation triggers on scroll.
Try It
See how the waterfall plays out
Adjust the contributions and project gain below. The split, preferred returns, and developer carry recalculate live. These are illustrative — not a representation of returns from any specific project.
Inputs
Distributions
Property Owner
$469K
Capital Investor
$782K
Developer · LAST
$249K
Carry comes out of profit-split remainder after both prefs and the member share. If prefs eat all the gain, the developer earns nothing.
This scenario builder is illustrative only. Real deals are structured per the actual JV operating agreement — pref rate, profit-split ratio, and waterfall mechanics are negotiated and documented before any commitment. Past performance does not guarantee future results.
Mechanics
The structure, explained step by step
▸What is a project-specific JV LLC?
A JV LLC is a single-purpose entity that owns one development project and only that project. Members of the LLC own equity in the deal — not a fund that owns many deals. If the project succeeds, members benefit. If it under-performs, the impact is contained to that LLC; other investments and other LLCs are unaffected.
▸What is a preferred return?
A preferred return is a contractually-defined annual return that members get BEFORE any profit-sharing happens. In our structures, both capital members (cash) and property members (land) typically receive an 8% preferred return on the value they contributed. The pref accrues year over year and is paid at distribution time. If the project doesn't generate enough to pay the full pref, the unpaid portion typically rolls forward.
▸How is property valued?
Property contributed to the JV LLC is valued through a qualified third-party appraisal. The appraisal happens BEFORE the contribution closes and BEFORE the operating agreement is signed. Disputes are handled through a defined mechanism in the operating agreement (often a panel of appraisers). The appraised value becomes the property member's basis for both their preferred return and their equity stake.
▸What happens to an existing mortgage?
If the contributed property has an existing mortgage, it gets paid off or refinanced as part of the JV's initial financing. The property member's contributed value is the NET appraised value above the debt (e.g., $1.5M appraisal minus $400K mortgage = $1.1M contribution). The mortgage doesn't follow the property into the LLC.
▸Why is the developer paid last?
Because alignment matters. If the developer were paid first — like a fee from the gross — they'd have weaker incentive to drive maximum project value. By placing the developer's promote at the END of the waterfall, AFTER both members' prefs AND their profit share, the developer only earns when the project genuinely creates upside. Under-deliver, and the developer earns less. That's the alignment baked into the structure.
▸What if the project under-performs?
If the project's net gain is less than the total preferred returns owed, the available money pays prefs pro-rata, and the developer earns zero carry. If the project loses money, members may not be made whole on their contributions — JV LLC equity interests are illiquid and carry the same downside risk as any direct equity investment in development. Full risk disclosures are in the operating agreement.
▸What if the project over-performs?
Above the prefs, profits split between members per the agreed ratio (often 80/20 or 70/30 in favor of members). The developer's carry comes out of the remaining 20-30%. Both upside scenarios benefit members proportionally to their equity stakes.
▸Can a property owner add cash, and can a capital investor cash-out an owner?
Yes to both. A property owner can contribute the property PLUS additional cash, which increases their equity stake in the deal (and their preferred return base). A capital investor can contribute extra cash that gets passed to the property owner as a cash-out at closing — useful when the owner needs liquidity but doesn't want to fully sell. Both are negotiated in the operating agreement.