Order of payment and actual distributions get confused a lot
Had a call recently that reminded me how often this gets misunderstood, so I wanted to share it: someone assumed a 6% preferred return meant they’d receive 6% per year, and that’s not how it works. A preferred return simply sets the order of who gets paid first, meaning limited partners have priority before general partners participate in profits, but it’s not a guarantee and it’s not the same thing as cash-on-cash return. What actually gets distributed, quarterly or otherwise, depends entirely on how the project performs and how much cash it throws off in reality. Strong cash flow drives distributions; weak or deferred cash flow limits them, regardless of what the pref says on paper. In short, preferred return and cash flow distributions are two different things, and they’re often mistakenly treated as the same.