What Does Pari Passu Mean in a Real Estate Syndication?
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Pari passu is Latin for "on equal footing". In a real estate syndication, investors who are pari passu share distributions, and losses, in proportion to the capital they put in, with no one paid before the others. The opposite is a preferred position, where one group is paid first.
A worked example (hypothetical)
Investors put in $900,000 and the sponsor co-invests $100,000 on the same terms, pari passu. A $50,000 distribution is shared 90/10:
| Topic | Capital | Share | Distribution |
|---|---|---|---|
| Investors | $900,000 | 90% | $45,000 |
| Sponsor co-investment | $100,000 | 10% | $5,000 |
If instead investors held a preferred class that must receive an 8% return first, the sponsor's co-investment would be paid only after investors got their $72,000 for the year. See investor classes.
Where else does "pari passu" appear?
- Sponsor co-investment: see sponsor co-investment and skin in the game.
- Loans: two pari passu lenders share the same priority and payments, unlike senior and mezzanine debt in the capital stack.
- Waterfall splits: a 70/30 split above the pref is not pari passu; it is a promote. See the waterfall and promote.
Check the cap table and the distribution section of the operating agreement to see who is pari passu with whom, and see the cap table.
How DoorRaise fits in
On DoorRaise, sponsors raise equity for apartment buildings from their friends and followers under Rule 506(b) or 506(c), and DoorRaise verifies that every investor is accredited before they sign, in both. Investors fund by wire into the deal's escrow account at Enterprise Bank & Trust, and quarterly distributions and updates are the default. DoorRaise does not hold investor money or give investment advice.
FAQ
Is pari passu good for investors?
It is neutral: it means equal treatment. A preferred position is better for the group paid first.
Is the sponsor's promote pari passu?
No. The promote is an extra share above the pref, not a pro rata return on capital.
Can different classes be pari passu?
Yes, if the operating agreement pays them at the same priority and rate.
Sources
This article is general information, not legal, tax or investment advice. Every investment can lose money, and distributions are not guaranteed. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.