High IRR, but low distributions?

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Commercial Real Estate (CRE) Investor Question #81: I invested in a CRE deal with a 15% IRR over 5 years, but I am only getting 7% annual returns in the first couple of years. What gives?

IRR is based on all the cash flows during the duration of the deal i.e. 5 years in this case. Whereas, cash on cash returns are based on monthly or quarterly cash flows and the distribution check is sent to you.

IRR includes income from operations AND capital events (refinancing or sale). Cash on Cash primarily consists of operational cash flow, absent any capital events. During the first couple of years there will likely be income only from operations and hence the 7% annual returns. You can expect a bigger distribution during the capital events.