Distributions - does this OA match the summary?

[Nicole F.]

Hi, newbie to syndication investments here. Would really appreciate some technical help with interpreting the OA language around distributions. It seems that the below verbiage allows the sponsor to participate in the preferred return, but the table in the deal summary on crowdstreet indicates they do not participate in the pref.

"Cash flow from operations in the ordinary course of the Property will ultimately be distributed
to Members in the following order:
-First, to all Members, until they receive an 8% Annual Non-Compounding Preferred Rate of
Return on all unreturned capital.
...

-Second, to all members pro rata in accordance with their respective interest (60% to investor
members and 40% to the Sponsor)." 

This last sentence seems to lump "investor members" and "Sponsor" together under the umbrella of "all members", so that would mean since all Members participate in the pref, Sponsors get to participate. However, Member is capitalized in the first sentence and not the last, so that may be meaningful.

The table in the offering shows no sponsor participation in the pref:

Please help, and thanks!

[Brian Burke]

Yeah, @Greg Dickerson is right.  The very definition of a preferred return is that a stream of cash flow is distributed entirely to the investors until the hurdle is met. If the sponsor is participating, it’s not a preferred return.  The language you supplied addresses that where it says “First...”

If the sponsor is investing cash in the deal alongside the investor, they would participate in this tier on a pro-rata basis, however.

The provision beginning with “Second...” addresses what happens to any remaining distributable cash after the first tier has been satisfied.

The only confusing thing to note here is that “members” is not capitalized in the second provision.  Any capitalized term should have a definition elsewhere in the agreement. It is capitalized in the first provision so you should find a definition somewhere (usually alphabetically in the beginning of the agreement).  The uncapitalized instance might be an oversight.