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Peter E. Fisch and Mitchell L. Berg Peter E. Fisch and Mitchell L. Berg

A carried interest, also known as a promote, is a form of incentive compensation typically used in real estate joint ventures (as well as in other real estate and non-real estate investment vehicles) in order to reward a sponsor for generating profits. The promote is usually structured as an additional share of the profits from the venture after all investors have received distributions fully returning their invested capital, together with some stipulated return on that capital (at an agreed ‘hurdle rate’). (It should be noted there are many variations on the theme, including promotes on operating cash flow prior to return of capital and ‘catch-up’ distributions, that are generally beyond the scope of this article).

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