How do Investor Members receive a return on their investment?
Investor members receive a cumulative preferred annual return of 10% on their investment starting from the time their money is transferred to the LLC. This means that in any given year investor members receive the preferred return on their equity investment first, after which the balance of available cash is distributed on an 80%/20% pro-rata basis to the investor members and the managing member. The preferred return varies for each hotel, but generally it’s expected that investor returns will increase year-over-year as operating results improve beginning in the stabilized year. If investor members fail to receive their preferred return for any year, the shortfall is accrued. Upon the sale or refinancing of a hotel, investor members receive any accrued preferred return first, then their original equity, with any remaining balance split on a 80%/20% pro rata basis between the investor members and the managing member.
