Pari Passu

Pari Passu in Syndication Waterfalls

• Sponsor co-investment pari passu with LP: sponsor's own capital receives same return-of-capital and preferred return as LP — strong alignment
• Sponsor pari passu through return of capital only: sponsor shares ROC priority but waives pref priority — sponsor compensated through promote
• Class A vs. Class B LP pari passu: different LP classes share equal distribution priority within their tier
• Pari passu within tier: distributions within a tier are allocated proportional to capital contributed
• Pari passu vs. subordinate: subordinate parties are paid only after pari passu parties are fully satisfied at their tier

Pari Passu in Debt and Intercreditor

In debt structures, pari passu can describe lender priority relationships:

• Senior pari passu loans: two senior lenders share equal mortgage priority — common in syndicated bank loans or A/B note structures
• Pari passu mezzanine: two mezzanine lenders sharing equal priority at the mezzanine tier
• Intercreditor agreement: documents pari passu treatment — typically pro rata sharing of payments, collections, and foreclosure proceeds
• Subordinated debt: not pari passu — subordinated debt is paid after senior debt at that tier
• CMBS A/B note: A-note senior to B-note (not pari passu); two A-notes may be pari passu

Why Pari Passu Matters to LP Investors

• Sponsor skin in the game: pari passu sponsor co-investment means sponsor takes the same downside as LPs through ROC and pref tiers
• No early disproportionate distributions: sponsor doesn't take operating distributions ahead of LP
• Aligned incentive structure: sponsor's economic outcome depends on LP-aligned waterfall performance
• LP class equality: all LP investors at same class receive same priority — no preferential treatment
• Common LP requirement: sophisticated LPs typically require sponsor co-investment of 5–15% pari passu
• Red flag: sponsor structures that explicitly avoid pari passu treatment (e.g., sponsor takes management fee priority ahead of LP pref) warrant LP scrutiny

What does pari passu mean in CRE?

Pari passu (Latin: 'with equal step') means equal priority of payment or distribution. In CRE syndication waterfalls, pari passu treatment typically means sponsor co-investment receives the same distribution priority as LP capital up to a defined threshold (return of capital and preferred return). In intercreditor agreements, pari passu lenders share payment priority at the same tier rather than one being senior to another.

How is pari passu used in syndication waterfalls?

Sophisticated Florida syndications typically structure sponsor co-investment as pari passu with LP capital through return of capital and preferred return — sponsor capital gets ROC and 8% pref at the same priority as LP. The sponsor is then compensated above the pref through the promote (carried interest). This pari passu structure ensures the sponsor takes the same downside as LPs through the protective tiers and only benefits disproportionately when the deal delivers above the preferred return.

What's the difference between pari passu and pro rata?

Pari passu describes priority — equal step in payment/distribution. Pro rata describes proportional allocation — typically by capital contributed or ownership percentage. The two terms often appear together: pari passu means equal priority at a tier; pro rata describes how distributions within that tier are allocated among multiple parties (typically by capital share). They are not synonyms but are complementary structural concepts.

How is pari passu used in debt intercreditor agreements?

In debt structures, pari passu describes lender priority relationships at the same tier. Two senior mortgages on the same property at equal priority are pari passu — neither is senior to the other; they share payments and foreclosure proceeds pro rata. Two mezzanine loans can be pari passu at the mezzanine tier. The intercreditor agreement documents pari passu treatment including pro rata sharing of cash flow, collections, foreclosure proceeds, and amendment rights.

Who can structure pari passu provisions in a Florida CRE syndication?

Michael R. Linton and Linton Global Solutions advise both sponsors and LP investors on Florida CRE syndication structuring — including pari passu provisions for sponsor co-investment, LP class structures, and intercreditor relationships in debt structures. 39 years of Florida CRE transaction experience and active capital markets and syndication legal counsel relationships produces structures that protect LP investor downside while preserving sponsor upside on outperformance. Call (312) 612-1031.

Article Summary

Pari passu (Latin: 'with equal step') = equal priority of payment or distribution. In CRE syndications: sponsor co-investment is typically pari passu with LP capital through return of capital and preferred return tiers — strong alignment. In debt: pari passu lenders share equal priority at the same tier with pro rata payment and foreclosure sharing under intercreditor agreement. Pari passu vs. pro rata: pari passu describes priority; pro rata describes proportional allocation within a tier.

Key Takeaways

• ✓Pari passu = equal priority of payment or distribution.
• ✓In syndications: sponsor capital pari passu with LP through ROC + pref.
• ✓Promote begins above the pari passu tiers (typically above pref).
• ✓In debt: pari passu lenders share priority via intercreditor agreement.
• ✓Pari passu describes priority; pro rata describes proportional allocation.

About Michael R. Linton

Michael R. Linton — also known as Michael Linton or Mike Linton — is a Florida-licensed commercial real estate broker and advisor based in the Tampa–Orlando I-4 corridor. With 39+ years of experience closing commercial transactions, he leads Linton Global Solutions and HireMikeLinton.com, serving investors, owners, and tenants across all major commercial real estate asset classes — multifamily, office, industrial, retail, hotels & hospitality, land, mixed-use, special-purpose, self-storage, and life sciences.

Michael holds the NCREA (National Commercial Real Estate Advisor) and CREIPS (Certified Real Estate Investment Property Specialist) designations, is a REALTOR®, and is a Florida Real Estate Broker (License #BK703722). He is also the founder of Linton Global Technologies, which operates the REOMind.ai AI-powered REO disposition platform serving 500+ banks.

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Works Cited

1. American Bar Association. "Real Estate Capital Markets Treatise." ABA, https://www.americanbar.org/. Accessed Jun 9, 2026.
2. Pension Real Estate Association (PREA). "CRE Investment Structures." PREA, https://www.prea.org/. Accessed Jun 9, 2026.
3. NCREIF. "CRE Fund Returns Benchmarks." NCREIF, https://www.ncreif.org/. Accessed Jun 9, 2026.
4. CRE Finance Council. "Intercreditor Best Practices." CREFC, https://www.crefc.org/. Accessed Jun 9, 2026.

Disclosure & Compliance

Disclosure: This article discusses proprietary technology developed by Linton Global Technologies. Michael R. Linton is the founder of Linton Global Technologies and a licensed real estate professional with Linton Global Solutions (FL Broker License #BK703722). This content is for informational purposes only and does not constitute investment, legal, or financial advice.

Compliance Statement: All CREDDS and REOMind.ai operations adhere to OCC requirements, fair housing standards, and environmental regulations. Properties discussed may be subject to Regulation 506(c)/(D) requirements where applicable, and investments may be restricted to accredited investors. Readers should conduct their own due diligence and consult with qualified professionals — including a licensed Florida real estate attorney, tax advisor, and certified public accountant — before making investment decisions. Past performance does not guarantee future results.