Real estate deals happen every day. According to Altus Group, roughly 345 real estate transactions were conducted daily across major U.S. property types in 2024. 

The total daily dollar volume for those transactions was $811 million, 2% higher than the long-term average, with approximately 121 properties transacted on an average day in Q4 2024. [1]

Understanding the moving parts and your role as an investor in the deal structure is essential in multifamily real estate transactions.

GENERAL & LIMITED PARTNERS

A general partner (GP) or sponsor puts together the private placement offering. They identify an investment property, secure financing, and partner with passive investors, known as limited partners (LPs), to participate in the deal. Passive investors will then provide a portion of the capital and earn money from the cash flow and the equity, depending on the deal structure. [2] 

One major benefit of this setup is that LPs have no active management responsibilities. The general partner (GP) oversees property management directly or through a third party. Once the property or properties are acquired and investor capital is committed, the general partner (GP) executes the business plan. 

This includes managing construction or renovation projects, overseeing daily operations, monitoring financial performance, ensuring compliance with lender requirements and government regulations, sending regular investor updates and reporting, managing distributions and tax documents, and preparing the property for exit.

ACCREDITED INVESTOR REQUIREMENT

Limited partners must meet accredited investor requirements to participate in most private placements. An accredited investor is generally an individual with an annual income of at least $200,000 (or $300,000 for joint income) or a net worth of at least $1 million (for both individual and joint net worth), excluding the value of their primary residence. However, it’s important to note that in certain limited circumstances, the amount of debt secured by the primary residence exceeding its fair market value could potentially reduce net worth for accreditation purposes. The criteria for being an accredited investor can vary between individuals and entities. For example, certain entities, such as corporations, partnerships, limited liability companies, and trusts, may qualify as accredited investors based on their total assets, net worth, or the sophistication of their management. According to the SEC, an accredited investor can also be a general partner, executive officer, or director of the company issuing the unregistered securities. [3]

An accredited investor is considered “financially sophisticated” enough to buy unregistered securities. Unregistered securities are generally considered riskier because they don’t require the typical disclosures with offerings registered with the SEC. [3]

However, since accredited investors tend to be more knowledgeable and financially secure, they can better handle the risks of buying these unregistered securities. The SEC believes these accredited investors have a reduced need for the protection provided by regulatory disclosures. [3] If an individual meets the financial requirements set by the SEC, they are considered accredited. No government agency or independent body reviews an investor’s credentials, and no certification exam or legally binding document shows someone is an accredited investor. [3] Simply put, there is no formal government certification for being an accredited investor. 

While issuers may rely on investor self-certification, particularly in Rule 506(b) offerings, prudent legal practice often necessitates additional due diligence to establish a reasonable belief in the investor’s accredited status and mitigate potential legal risks.  It is particularly important to note that for offerings conducted under Rule 506(c) of Regulation D, which allows for general solicitation, issuers are required to take affirmative steps reasonably designed to verify that purchasers are accredited investors. This is a higher standard than simply having a reasonable belief based on investor representations.

The responsibility of determining whether an investor qualifies to buy unregistered securities rests with the issuing company, and this determination requires issuers to have a reasonable basis to believe in the investor’s accredited status, not only initially but also at the time of the sale of the securities. Issuers must undertake reasonable steps to verify an investor’s accredited status and must have a reasonable belief, based on those steps, that the investor meets the accredited criteria before allowing them to participate in the offering. [3][4] 

CAPITAL STACK

The capital stack in private placement represents the financial structure of a commercial real estate deal. It visualizes the various types of capital used to finance the project, showing the order in which investors and lenders are repaid, as well as the risk and reward associated with each layer of the capital stack. Below is a breakdown of the capital stack from what is typically viewed as lower to higher risk.

Senior debt typically refers to a first mortgage (primary loan used to buy a property); it holds the highest priority in the capital stack. When a first mortgage is obtained, the lender places a lien on the property, giving it the legal right to be repaid first upon a sale or even a foreclosure. In other words, if the property is sold, the first mortgage is paid before any returns are distributed to different positions or investors in the capital stack. [5]

Mezzanine Debt is a hybrid of debt and equity, typically used to reduce a borrower’s equity requirement. It takes precedence over preferred and common equity. Mezzanine debt is sometimes utilized to bridge the gap between the first mortgage and the common equity. It is senior to preferred and common equity but subordinate to the first mortgage. [5]

Preferred equity is an investment that offers investors a fixed rate of return (usually in the form of a dividend) and a priority claim on payment, ahead of common equity holders. Because of its fixed payment structure, preferred equity is at a lower risk than common equity. With the capital stack, preferred equity sits between debt and common equity, providing a balance of returns with slightly more risk than debt but generally higher returns than the senior debt receives from interest paid on the loan. [5] 

Common equity is the portion of the capital stack with the highest risk and potential return.  Unlike the first mortgage, if the property sells, the common equity is the last to get paid off and is subordinate to the entire capital stack. [5] However, common equity investors share in the deal’s upside at the time of sale. [6] Limited and general partners may participate in common equity depending on how the deal is structured. It does not receive fixed returns, like preferred equity, but benefits from any remaining profits after all other obligations are paid, offering meaningful upside potential if the investment performs well. 

To summarize, if a property sells, the first mortgage is paid first, mezzanine debt (if applicable) is next, preferred equity is paid after that, and the common equity is last to receive returns. As a result, these investments have different return and yield metrics based on their respective positions in the real estate capital stack. [5]

DISTRIBUTING RETURNS

Internal rate of return (IRR) and equity multiple (EMx) are primary metrics that sponsors and general partners use to present projected and hypothetical returns in a private placement deal. It is essential to understand that they heavily rely on assumptions embedded within proformas, and actual results can differ materially due to human error, economic shifts, force majeure events, and other factors outside the sponsor’s control. Thus, thorough sponsor vetting and a careful review of the underlying assumptions are critical parts of any investment decision. 

IRR is a metric that estimates the annualized rate of return over the life of an investment and is expressed as a percentage. It is the discounted rate that makes the net present value (NPV) of all projected cash flows, including distributions and final sale proceeds, equal to zero. The higher the IRR, the better the investment is expected to perform. [7] The exact IRR formula is complex and is often calculated using financial software or Excel. Investors should be aware that IRR is a theoretical rate of return and can be significantly impacted by reinvestment assumptions and the timing of cash flows. It should be considered alongside other metrics and a thorough understanding of the investment’s risks.

Equity multiple (EMx) or multiple on invested capital (MOIC) is a financial metric often used in real estate that compares the total cash an investor receives from a property over a specific period to the total amount of capital they invested. It is calculated by dividing the cash flow distributed during the holding period (including sale proceeds) by the total equity invested. If you were to invest $1 million and the sponsor delivers approximately $2.6 million to you during a 3.5-year holding period, this would equal a 2.6 equity multiple. [8] This is a hypothetical example, and actual returns may vary.

The waterfall and promote structure in multifamily real estate represents a payment model for distributing profits from an investment. According to Janover Inc., the sponsor “will receive a disproportionate share of the profits, known as a promote, as long as the project hits certain profitability benchmarks.” [9] 

The term “waterfall” refers to the arrangement of parties (i.e., investors, limited partners, and general partners) in their specific payout order (return of capital). Here’s a reminder on the waterfall and promote structure that Janover offers: Say a sponsor invests 5% equity in a $1 million property ($50,000), and the pool of limited partners invests 95% ($950,000); the first contractually agreed-upon return hurdle could be a 9% IRR. Once the LPs have received their original capital and a 9% return, any remaining profits are split according to the terms of the agreement. For example, the sponsor gets 20% of the profits, and the investors receive 80%. [9]

CONNECT WITH AN INSTITUTIONAL REAL ESTATE OWNER/OPERATOR

BAM Capital partners with accredited investors who want to enjoy passive income and all the other benefits of multifamily private placement. As the private equity arm of The BAM Companies, BAM Capital has been focusing on buying the most profitable assets and staying disciplined in its investment thesis. BAM Capital’s investment strategy aims to create forced appreciation while mitigating investor risk. To date, the brand has successfully managed over $1.7 billion in assets across ~9,000 apartment units.

Remember that no investment is without risk. Before making financial decisions, consult your investment advisor and schedule a call with a BAM Capital investment team member.

Disclaimer: All investments carry risk, including potential loss of capital. This content is for informational purposes only and is not financial, legal, or investment advice, nor an offer or solicitation to buy or sell any security. Consult an independent advisor for personalized guidance and contact BAM Capital for details on current offerings. BAM Capital and its representatives are not fiduciaries or investment advisors. The information provided is general and may not reflect individual financial goals. Any financial terms, projections, or forward-looking statements contained herein are hypothetical in nature and should not be interpreted as guarantees of future performance or safety. Such statements reflect Bam Capital’s opinion and are subject to market fluctuations, economic conditions, and investment risks. Past performance does not predict future results. BAM Capital and its affiliates do not guarantee the accuracy or completeness of this information. Bam Capital offers investment opportunities under Rule 506(c) of Regulation D exclusively for accredited investors as defined by the SEC. Verification of accredited investor status is required prior to participating in any investment.

© 2025 Bam Capital. All rights reserved.

SOURCES:

[1]: Altus Group. (2025). “US commercial real estate transaction analysis – Q4 2024.” https://www.altusgroup.com/insights/us-cre-transactions/?utm_source=google&utm_medium=organic

[2]: The Motley Fool. (2024). “How to Start Investing in Real Estate: The Basics.” https://www.fool.com/investing/stock-market/market-sectors/real-estate-investing/basics/ 

[3]: BAM Capital. (2025). “Accredited investor requirements & what you need to know.” https://bamcapital.com/what-is-an-accredited-investor/ 

[4]: Investopedia. (n.d.). “How to Become an Accredited Investor.” https://www.sec.gov/education/smallbusiness/exemptofferings/rule506c 

[5]: BAM Capital. (2025). “Real estate capital stack explained.”

[6]: Tactica Real Estate Solutions. (n.d.). “Exploring Preferred Equity in the Real Estate Capital Stack.” https://www.tacticares.com/blog-feed/exploring-preferred-equity-in-the-real-estate-capital-stack#:~:text=Preferred%20Equity%20vs.,-Common%20Equity&text=As%20an%20investor%2C%20the%20benefits,%2C%20quarterly%2C%20or%20accrue). 

[7]: Google Generative AI. (2025). “Irr example in multifamily real estate.” https://www.google.com/search?q=irr+example+in+multifamily+real+estate

[8]: BAM Capital. (2024). “IRR vs. Equity Multiple explained.” https://bamcapital.com/irr-vs-equity-multiple/ 

[9]: Janover Inc. (2022). “Waterfall and Promote Structures in Commercial Real Estate.” https://www.commercialrealestate.loans/commercial-real-estate-glossary/waterfall-and-promote-structures/