What is SCI’s Real Estate Fund Structure? How It Works

In the world of private real estate investments, fund structures often get overlooked, but for investors seeking long-term, tax-efficient income, the way a fund is built can be just as important as the assets it holds. 

At Sunrise Capital Investors (SCI), we’ve spent over a decade refining a fund model designed to deliver consistent returns, strong downside protection, and real alignment with our investors. In this article, we’ll walk through how our fund structure works and why we believe it stands apart.

Key Takeaways

• SCI structures its funds with an 8–10% preferred return, ensuring investors are paid first, on a quarterly basis, before the sponsor earns any profit.
• Preferred returns accrues based on the unreturned capital, and once the principal is returned, any unpaid preferred return is distributed.
• After returning investor capital and paying the preferred return that has accrued over the period, SCI provides a 70/30 LP/GP profit split with investors.
• SCI focuses on long-term cash flow and capital appreciation through mobile home parks and parking assets.
• SCI funds are designed for tax efficiency, using cost segregation studies, accelerated depreciation, and bonus depreciation to deliver substantial paper losses that can offset passive income.
• SCI has delivered 30+ consecutive quarters of on-time, in-full distributions, demonstrating operational discipline and consistency across market cycles.

A Long-Term, Income-Focused Strategy

SCI funds are structured as closed-end vehicles. We do this intentionally as our investment thesis focuses on creating long-term, tax-advantaged income streams from durable commercial real estate assets like mobile home parks and structured parking. 

This longer time horizon allows us to: 

• Execute meaningful operational improvements
• Refinance and hold for steady cash flow
• Avoid forced sales in volatile market cycles
• Acquire assets with long-term appreciation potential

It also allows our investors to benefit from compounding cash flow, investing without capital gains or recapture taxes, and the kind of patient capital strategy that institutions often use but individuals rarely have access to. 

Of course, patience alone doesn’t create trust. That’s why our capital structure puts investor income first.

How SCI Returns Investor Capital Before Profit Sharing Begins

Our structure is designed to return your invested capital as efficiently as possible. That begins with the way we use operating cash flow. Rather than waiting for a full asset sale, we aim to return investor principal earlier in the fund’s lifecycle, often through a strategic refinance. 

Once a property stabilizes, we may execute a refinance to unlock equity, allowing us to return a significant portion of your initial investment without triggering a taxable capital gain. This accelerates your return of capital.

While returning capital efficiently is key, how income flows to investors during the life of the fund is just as important to overall performance.

What Is a Preferred Return and Why Does SCI Use It?

A preferred return is the minimum annual return investors must receive before the sponsor can participate in any profits. It’s a key component of SCI’s structure, aligning incentives and protecting investor capital. 

Depending on an investor’s contribution size, they receive an 8-10% annual preferred return. In Fund 4, this preferred return accrues on the basis of unreturned capital.

Here’s how it works: 

• During the investment period, your preferred return accrues while your full initial capital is being returned. 
• Once your principal has been fully repaid, any accrued preferred return is then paid to you. 
• After both the return of capital and the accrued preferred return have been delivered, the model transitions into the profit-sharing phase, typically a 70/30 split between investors and the sponsor. 

This approach ensures that investor capital is prioritized and that SCI only participates in profits after investors have been made whole. To date, SCI has delivered over 30 consecutive quarters of on-time, in-full distributions, a track record we’re proud of and one we’re committed to continuing.

How Does SCI’s Profit Sharing Waterfall Work?

Once the preferred return and initial capital are returned, additional profits are split through a waterfall structure, often a 70/30 split. In this model, 70% of the profits go to the limited partners, and the remaining 30% to SCI as the sponsor. 

For early investors in a fund’s lifecycle, we offer an enhanced equity split to compensate for asset uncertainty in the fund. For example, early investors in our Fund 4 received a 76/24 equity split as compared to the standard 70/30 split. 

This incentivizes us to not only protect investor capital but also grow it meaningfully over the life of the fund. Beyond how profits are split, tax efficiency is a key driver of real returns in commercial real estate. 

What Tax Benefits Do SCI Investors Receive?

Real estate offers powerful tax advantages, and our structure is designed to maximize them for our limited partners.

Through cost segregation studies and accelerated depreciation, many SCI investors receive significant paper losses in the early years of the investment. These passive losses can offset other passive income and help reduce taxable income without impacting actual cash flow. Only investors with Professional Real Estate status as defined by the IRS are able to use these losses to offset active income.

Because we hold assets long-term, SCI investors often realize the bulk of depreciation benefits over the first 5–7 years, especially through cost segregation and bonus depreciation. While depreciation recapture can occur on sale, our longer hold periods and refinance strategies help defer that impact. 

Together, these benefits reflect what sets SCI apart: a structure built with intention, not just to generate returns, but to preserve and grow wealth over time. 

How Is SCI’s Real Estate Fund Structure Different from Other Real Estate Funds?

So how is our structure different from other real estate investment funds? 

• Simplicity: We don’t use unnecessary financial engineering or overly complex capital stacks. 
• Focus: We stick to asset classes we know (mobile home parks and parking) with clear upside and positive cash flow on day one.
• Discipline: We avoid chasing deals in hot markets. Instead, we pursue long-term cash flow over short-term gains.
• Track Record: SCI has raised and managed capital across multiple funds, delivering predictable income through market cycles.

Built for Investors, Not Just Operators

The structure of a fund reveals the priorities of the team behind it. At SCI, our structure reflects our belief that investors should be rewarded first, protected always, and empowered through transparency. As more investors seek stable yield and tax-efficient strategies in a volatile market, we believe structure will increasingly separate strong funds from the rest. Ours is built to stand the test of time.

SCI’s Fund Structure FAQ

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