An IRR preference will always provide the investor with a return that is equal to or greater than the return from an IRR lookback.
What is IRR preference and IRR lookback?
- With an IRR preference, the investor receives all additional cash flow from the sale (after each party has received capital equal to their investment) until a specified IRR is reached.
- The cash flow after each party has received capital equal to their initial investment is split in a predetermined proportion with an IRR lookback.
- IRR Lookback Payment refers to a payment that brings the annualized internal rate of return on the loan to 25%, as determined by the lender.
- IRR is a metric that expresses as a percentage to an investor the average annual compounded return on a real estate investment over time. The preferred return is the first claim on distributions of free cash flow.
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