Updated July 21, 2026
A hurdle rate is the minimum return a sponsor must deliver to investors in a multifamily deal's equity waterfall before the sponsor starts earning its promote — an outsized share of profit above its ownership percentage.
Waterfalls commonly stack multiple hurdles — for example, an 8% hurdle where the sponsor gets its pro-rata share, then a second tier above a higher return threshold where the sponsor's share jumps, rewarding it for outperformance. The hurdle rate is negotiated at the outset and directly shapes how aligned the sponsor's incentives are with actually hitting the underwritten return.
For LA syndicated multifamily deals, the hurdle structure is one of the first things a sophisticated LP checks in the offering — a low hurdle with an early promote kick-in means the sponsor gets paid well before investors hit a market-competitive return.
From the Sterman LA Multifamily Glossary — defined the way a broker actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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