Preferred Equity and Invested Capital

[Caleb Smith]

In the equity waterfall, I recently learned that the preferred return is distributed based on the amount of capital invested in the deal.

Then, as the capital is paid back, the preferred return is adjusted to the amount still invested in the deal. Same percentage, but different amount to base it off of.

Does this sound accurate?

Going off of that, is capital returned done by profit splits or only during the refinance and sale?

I appreciate any help you can give me on this particular scenario.