When a PPM's waterfall terms differ from the operating agreement, investor attorneys will catch it. The PPM typically promises an 8% preferred return and 70/30 split, but if the operating agreement says something different, you've got a disclosure problem that can delay closing or trigger litigation.
If the waterfall in your PPM and the waterfall in your operating agreement don't match, an investor's attorney will find it. Your PPM describes the waterfall to investors: preferred return first, say 8%, then a 70/30 split, maybe a promote above a certain threshold. Your operating agreement is supposed to implement that exact structure. The operating agreement gets drafted First, usually when the property is being acquired and the loan is being reviewed. The PPM might come later, sometimes weeks later when you need to raise capital, sometimes adapted from a prior deal's template. If nobody reviewed both documents as a set before they went to investors, the numbers may not have been reconciled. An investor's attorney reads both side by side. They find 2 different preferred return thresholds, or a different split percentage, or a promote calculation that doesn't match, you either have to correct the documents before close, which delays the deal and signals disorganization, or you might even lose the investor. The Operating Agreement controls as the governing document, and if it says something different than what the PPM said, you've made a disclosure to investors that isn't backed by your governing document. That gap is exactly what litigation gets built on. 2 more mismatches attorneys find immediately, and how to fix those are in the long form. See the link in the bio.
