Carried interest, often called "carry" or referred to in real estate as the promote, is the share of investment profit that a sponsor or fund manager earns after limited partners receive their invested capital back plus a preferred return. It functions as the primary performance-based compensation for the team managing the deal, distinct from fixed fees charged regardless of outcome.
Carried interest is typically structured as a percentage, commonly in the range of 15 to 30 percent of profit above the preferred return threshold, though exact terms vary by sponsor and deal. Because it only pays out when investors are already earning a solid return, carried interest is designed to reward outperformance rather than simply closing transactions. It also carries a notable tax dimension: carried interest has historically been taxed at long-term capital gains rates when holding period requirements are met, a treatment that has drawn ongoing policy debate. For a closer look at the mechanics behind how this profit share is structured, investors can review how tiers, hurdles, and catch-up provisions interact.
Further reading: The Promote Decoded: How Sponsors Get Paid in Private Real Estate
Watch: Smart Humans: Lightstone DIRECT’s Sanford Blumenthal on Democratizing Real Estate Investing
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