A real estate private equity (REPE) fund model is a spreadsheet engine that converts legal terms and asset cash flows into investor cash flows, net asset value (NAV), and performance metrics. Capital accounts track each investor’s money in and out and their share of earnings. A distribution waterfall sets the order and split of distributions between limited partners (LPs) and the general partner (GP), including preferred return, catch-up, and carried interest.
This guide shows how to build a closed-end fund model that turns the limited partnership agreement (LPA) into math and reconciles every dollar. The payoff is practical: clean cash flow timelines by stakeholder, NAV by period, DPI, RVPI, TVPI, gross and net IRR, and carry accruals and cash – all consistent with the LPA and ready for admin and audit.
Lock the Terms: Translate the LPA Into Inputs You Can Compute
Entity design and aggregation rules
Most North American funds use a Delaware limited partnership with a Delaware LLC GP. Investors subscribe through onshore and offshore feeders, sometimes with blockers. EU-centric funds may use a Luxembourg RAIF and AIFM, and Cayman feeders remain common. The model should aggregate feeders and blockers only for cash effects like tax leakage or fee base differences. Limited recourse and ring-fencing sit in the LPA. Bankruptcy remoteness matters at the SPV level, not at the fund.
Capital timing and pacing
Hardcode the base inputs with clear labels and a single source of truth. Define commitments, GP commitment, and close dates. For staggered closes, compute equalization interest on actual days at the LPA rate, paid by later closers to earlier ones. Tie the investment period to fee step-downs and recycling limits. State recycling and recallability exactly as drafted. Set target leverage and ranges – these bound property underwriting and fund-level financing. If commitments span currencies, call in the commitment currency and convert at calls and distributions, overlaying hedges where relevant.
Economics and fee base
Encode the economics word-for-word from the LPA. For the management fee base, specify whether it is commitments, invested capital, or NAV; document step-downs and offsets. If the base shifts to invested capital, state whether write-offs shrink the base. For carried interest, choose European (whole fund) or American (deal-by-deal), then set preferred return rate, catch-up rate, and final split. Define compounding, what counts as return of capital, and carry crystallization and audit prerequisites. Configure clawback triggers, escrow percentage, and timing. List fund-borne expenses, organizational caps, and broken-deal cost treatment and offsets.
Documentation map and assumptions sheet
Know what governs which math: the LPA drives the waterfall, fees, expenses, recycling, valuation, and reporting conventions. The PPM informs strategy and can be a backstop on valuation or reporting if the LPA is silent. Side letters can alter fee base, MFN, and reporting – build an override table by investor. The subscription facility agreement dictates borrowing base, advance rate, interest, and allowed uses; tie it to call timing. Administration, audit, and valuation policies set frequency, model governance, pricing sources, and fair value hierarchy. Create one assumptions sheet that controls timing cadence, day count conventions, effective dates, investor roster, and currencies. Do not hardcode outside this sheet.
Call Capital, Run Capital Accounts, and Roll NAV
Call logic that matches uses and sources
Roll unfunded commitments by investor period by period. Compute gross uses for investments, fees, expenses, and facility repayments. Net uses against subscription facility availability if used, then call LP capital for the remainder. Allocate pro rata to unfunded commitments, adjusted for fee discounts or investor classes where permitted. Calculate equalization interest and fee true-ups for later closers and post adjustments to cash flows and capital accounts. Treat fees and expenses separately. Apply fee offsets from manager-earned transaction or monitoring fees in the period earned and at the LPA’s offset percentage.
Optimize timing with a subscription credit facility
A subscription credit facility bridges capital calls and reduces LP IRR drag by shifting timing. Configure commitment, advance rate, and borrowing base, limited to the uncalled commitments of included investors. Tie interest and fees to a benchmark plus spread and set compounding to match the agreement. Respect permitted uses, maximum tenor, and any distribution netting rules. Draw to fund investments and repay within the window using subsequent calls. Include a toggle to show LP IRR with and without it and provide headline and look-through performance consistent with ILPA fields. For an in-depth overview, this guide to subscription credit facilities provides additional context and examples: Subscription Credit Facilities – Structure, Pricing, Risks.
Capital accounts, NAV math, and an example
Roll fund- and investor-level capital accounts by period. Add contributions, net of any return of capital and recallable distributions. Allocate net income and unrealized gains or losses at fair value. Subtract distributions by category – return of capital, preferred return, carry, and excess. NAV equals prior NAV plus net income and unrealized change, plus contributions, minus distributions. Choose US GAAP or IFRS and stick with it. Under ASC 946, most REPE funds report investments at fair value with changes in earnings. Under IFRS, apply IFRS 10 investment entity assessment and IFRS 13 measurement for qualifying entities.
Simple example: Investor commits 100. The fund calls 21 in Q1 (20 investments, 1 fees), then 15 in Q2. Portfolio appreciates by 3 in Q2. Q2 capital account: begin 21, plus 15, plus 3 unrealized, end 39. Under a European waterfall, future distributions first reduce contributed capital.
Underwrite Assets and Build the Portfolio Roll-up
Property model skeleton
Each property or JV needs a compact model that captures acquisition price and costs, financing, operations, and exit. For operations, focus on rent, vacancy, operating expenses, and capex to compute levered free cash flow to equity. For exit, set the sale date, exit cap rate, and selling costs. Development deals add draws, cost-to-complete, and contingency. Keep drivers focused and make sensitivity-ready toggles for occupancy, rent growth, expense growth, capex, and exit cap.
Debt module and covenant enforcement
A usable debt block calculates interest, fees, and amortization from outstanding principal. Enforce covenants – if DSCR or LTV breaches a threshold, divert cash to debt service via a sweep. Allow floating-to-fixed via swap rate and notional and track break costs at exit. Feed levered equity cash flows to the fund from SPVs net of any withholding. Under ASC 946, do not consolidate property debt in the fund roll-up; show net equity cash flows.
Portfolio construction and pacing
Build a schedule that tracks investments by period, sector, and geography. Include number of assets, average ticket, acquisition dates, and ramp. Pair sector and geography targets with guardrails and track progress. Where LPs take co-investments, reduce fund equity accordingly and adjust fee and carry if co-invest sleeves are fee-free or reduced-carry. Roll property cash flows into a portfolio summary by period, and let that summary feed the fund waterfall and capital stack view.
Gross to net performance bridge
Show the bridge from gross to net by period: fees, fund expenses, subscription line costs, taxes, and carry. Investors expect this view, and it is the fastest way to spot errors.
Encode Waterfall Mechanics, Fees, and Carry Controls
Choose waterfall type and define tiers
Choose European (whole fund) or American (deal-by-deal) and encode tiers. For European, return contributed capital, pay preferred return to LPs, run a GP catch-up, then split residual. For American, distribute per investment, often with loss reserves or givebacks. Define whether the preferred return compounds and the period and day count. State whether management fees and organizational costs are treated as return of capital in the waterfall – these choices drive when carry turns on. For a plain-English refresher on tiers and splits, see this walkthrough: Breaking Down the Distribution Waterfall. You can also cross-reference the nuances in waterfall mechanics.
Carry protection and fee stack
Carry protection comes from the LPA: compute a final GP clawback to return excess carry and track escrow to mitigate credit risk. Add escrow percentage and release schedule. In American waterfalls, implement loss netting or rolling loss accounts to avoid early carry on winners and later losses. For the fee stack, make the base explicit. Commitment-based fees usually step down after the investment period; invested-capital-based fees require accurate tracking of cost and write-downs; NAV-based fees should rely on prior-period NAV to avoid circularity unless the LPA mandates concurrent calculation, in which case document your iterative routine. Apply offsets from transaction or monitoring fees when earned, with any required lookback. Include audit, tax, admin, legal, and org costs, and respect caps and amortization rules.
Illustration by numbers
European waterfall, quarterly periods: LP capital 100; preferred return 8 percent annual compounding quarterly; catch-up 100 percent to GP until GP equals 20 percent of profits above the pref; final split 80/20; proceeds at year 5 equal 150. Pay back 100 of capital first. Then pay accrued preferred return (about 46.9 if all capital was day-one). Then pay GP catch-up until GP has 20 percent of the profits above the pref. Split the rest 80/20. Wire by period and add an override if an audit sign-off gates carry.
Valuation, Reporting, Compliance – and a Fresh Control Layer
Valuation cadence and reporting outputs
Adopt a fair value framework and stick to it. Under US GAAP, ASC 820 sets the measurement and hierarchy and ASC 946 applies to investment companies. Under IFRS, IFRS 13 governs fair value and IFRS 10 determines consolidation for investment entities. Set valuation frequency – quarterly is standard. Use third-party appraisals where available, but keep responsibility in-house. Flag stale marks, document macro inputs, and calibrate to entry. Report gross asset-level IRR and multiple, fund-level gross IRR and multiple before fees and carry, net IRR and TVPI after fees and carry, and DPI and RVPI tied to capital accounts. Map to ILPA fields so administrators and LPs can reconcile in minutes.
Regulatory touchpoints to anticipate
For SEC-registered advisers, prepare fields and exports for Form PF gross/net asset values, borrowings, and investor concentrations. Private fund rule litigation changed compliance timing in 2024, but investors still expect ILPA-style transparency and crisp fee and carry disclosures. US beneficial ownership reporting began in 2024 for new entities, so align entity charts and ownership data with investor class outputs. If marketing in the EU, ensure Annex IV reporting granularity for AIFMD and AIFMD II. Finally, produce investor-level schedules that pass AML/KYC and sanctions checks aligned with administrator cash controls.
Auditable controls – the modern angle
Add a lightweight control layer that catches issues before auditors do. Implement version control and change logs, segregate inputs, calculations, and outputs, and lock formulas. Build automated reconciliation checks: capital called equals uses plus facility change; sum-of-the-parts across assets; and preferred return by investor. For valuation governance, document sources, calibrations, and overrides each quarter. For carry, require an independent recalculation before paying carry and fund an escrow to backstop clawbacks. As a fresh addition, add unit tests in Excel or Python that run on open: for example, assert that recycling never exceeds limits, that NAV-based fees anchor to the correct period, that the subscription credit facility never funds distributions outside permitted uses, and that negative DPI never coexists with paid carry. These low-effort tests prevent costly restatements.
Sensitivities, Timeline, and Owners
Scenario analysis that matters
Add toggles for exit cap ±50-100 bps, rent growth and vacancy cases, debt cost shifts and covenant sweeps, subscription line tenor and usage, fee base variants (NAV vs invested capital), and European vs American waterfall with the cost of early carry. Stress GP clawback and LP DPI. A case with acceptable TVPI but weak late-life DPI deserves attention. If your fund considers balance sheet leverage at the fund level, model optional NAV financing scenarios and demonstrate dilution to net returns.
Build plan and gates
A workable model takes six to ten weeks if documents are stable. Weeks 1-2: abstract terms from the LPA and side letters, draft a modeling term sheet, and resolve ambiguities with counsel. Weeks 2-3: build assumptions, capital mechanics, equalization, fee base, and draft subscription line terms. Weeks 3-5: create a property model template and portfolio roll-up, validate with one asset, and add co-invest logic. Weeks 5-6: encode waterfall and carry, produce investor- and class-level outputs, test against hand calcs. Weeks 6-8: implement reporting outputs and ILPA mapping, add performance metrics, lock formatting and protections. Weeks 8-10: dry run with auditor and admin, resolve fee base or catch-up differences, and produce a sign-off memo. Do not finalize the carry engine before the LPA is locked.
Pitfalls, Alternatives, and What to Leave Out
Common pitfalls and kill tests
- Fee base ambiguity: If post-investment period fee base and write-offs are unclear, assume no reduction and escalate.
- Waterfall reproducibility: Two reviewers should reproduce carry from the LPA alone; if not, fix the model or clarify the LPA.
- Facility circularity: Toggling the facility off and aligning calls should yield the same net LP cash flow; otherwise, timing logic is off.
- Equalization accuracy: Charge later closers interest from actual call dates at the LPA rate, not quarter-ends.
- Source-use balance: Every use must have a same-period source or facility draw; otherwise, leakage exists.
- NAV-based fee timing: Use prior-period NAV unless the LPA mandates concurrent calculation, then document iteration.
- Tax leakage: Apply withholding at SPV where relevant or you overstate performance.
- Covenant sweeps: Model DSCR/LTV sweeps or asset cash flows will be too high.
- Co-invest economics: Scale fund equity, fees, and carry correctly when LPs take co-investments.
Comparisons and alternatives
Separate managed accounts use the same framework per account with simpler waterfalls. Club deals and JVs trade a fund-level European waterfall for deal-level waterfalls. Evergreen funds require NAV-based subscriptions and redemptions with strike dates, gates, and anti-dilution math – do not retrofit a closed-end fund model.
What to exclude from this build
- Consolidated statements: Leave statutory GAAP or IFRS statements to the administrator’s systems.
- Detailed tax: Limit to withholding and broad deductibility assumptions; push specifics to tax.
- Complex derivatives: Keep to simple pricing and payoff; no hedge accounting in the fund engine.
Practical Tips That Save Time
- Use LPA definitions: Encode “contributed capital,” “realized proceeds,” and “expenses” verbatim because carry hinges on them.
- ID everything: Assign IDs to investors and assets and link all schedules by ID to survive re-ordering.
- Benchmark carry: Rebuild two prior fund waterfalls in the model to train the team and validate logic.
- Investor dashboard: Deliver a one-pager with commitments, contributions, distributions, NAV, net IRR, DPI, RVPI, and fees paid to date.
- Quarterly readiness: Expect an auditor carry recalculation and a fair value memo each quarter, aligned with ASC 820 or IFRS 13.
Key Takeaway
A disciplined REPE model converts the LPA into unambiguous math, rolls asset cash flows into investor outcomes, and defends carry with reproducible calculations. If you nail the inputs, keep capital accounts and NAV tight, encode the waterfall cleanly, and add audit-ready controls, you will approve first close, pace acquisitions, monitor carry risk, and explain subscription line effects with confidence.