Liquidity Provider Structure, Yield Ramp, and Return Model
I. Entity Structure
Core mechanism: Working capital recycles every ~45 days (8x/year), but each DST remains under management for 2+ years. Each cycle adds to the cumulative AUM base. The 2% management fee applies to the entire growing portfolio. $100M of working capital generates $1.6B in AUM at steady state, producing $32M/yr in recurring fee income.
II. Key Assumptions
Capital & Velocity
Facility Size$100,000,000
Average Asset Size$2,200,000
Assets per Deployment Cycle~45 properties
Deployment Cycle Duration~45 days
Annual Turns8x
Annual Gross Deployment$800,000,000
Average Utilization Rate~85%
DST Portfolio & Returns
1031 Investor Hold Period2+ years (IRS safe harbor)
Management Fee2.0% annually on AUM
Acquisition / Transfer FeesNone
Acquisition Cap Rate6.00% – 6.50%
Weighted Avg. Lease Term10 – 20 years
GeographySoutheast United States
LP Yield per Cohort~2%
Stabilized Annual Yield~16%
III. LP Yield Ramp from Capital Recycling
The capital provider earns approximately 2% on committed capital per deployment cohort. As the recycling engine reaches full velocity (8 cohorts per year), the annualized yield stabilizes at approximately 16%. The ramp reflects the time required to fill all cohort slots.
Yield Build by Deployment Cohort
2%
Cohort 1
~Day 45
4%
Cohort 2
~Day 90
6%
Cohort 3
~Day 135
8%
Cohort 4
~Day 180
10%
Cohort 5
~Day 225
12%
Cohort 6
~Day 270
14%
Cohort 7
~Day 315
16%
Cohort 8
~Day 360
16%
Year 2+
Stabilized
Each cohort contributes ~2% to the annualized yield. At 8 cohorts/year, yield stabilizes at ~16%.
LP Yield Ramp Schedule
Cohort
Elapsed Time
Capital Deployed
Cohort Return (2%)
Cumulative Annual Yield
Status
1
~45 days
$100M
$2.0M
2%
Ramp
2
~90 days
$100M
$2.0M
4%
Ramp
3
~135 days
$100M
$2.0M
6%
Ramp
4
~180 days
$100M
$2.0M
8%
Ramp
5
~225 days
$100M
$2.0M
10%
Ramp
6
~270 days
$100M
$2.0M
12%
Ramp
7
~315 days
$100M
$2.0M
14%
Ramp
8
~360 days
$100M
$2.0M
16%
Stabilized
Capital is returned and redeployed at the conclusion of each ~45-day cycle. The 2% per-cohort yield reflects the net spread earned on each deployment, inclusive of placement economics and management fee accrual. Yield stabilizes once all 8 annual cohort slots are concurrently active.
$100M committed capital × 2% per cohort × 8 cohorts/year = $16M annual distributions at stabilization. The first-year ramp reflects deployment timing, not credit risk. By month 12, all cohort slots are filled and the yield is fully stabilized at 16%.
IV. AUM Accumulation
Each deployment cycle creates approximately $100M in new DST assets that remain under management for a minimum of two years. Because working capital recycles 8x annually while DSTs persist, assets under management compound rapidly.
AUM Build & Fee Income by Quarter
Period
Cycles (Cumul.)
New DST AUM
Dispositions
Total AUM
Fee Rate
Quarterly Fee
Annualized Fee
Y1 Q1
2
$200M
—
$200M
2.0%
$1.0M
$4.0M
Y1 Q2
4
$200M
—
$400M
2.0%
$2.0M
$8.0M
Y1 Q3
6
$200M
—
$600M
2.0%
$3.0M
$12.0M
Y1 Q4
8
$200M
—
$800M
2.0%
$4.0M
$16.0M
Y2 Q1
10
$200M
—
$1,000M
2.0%
$5.0M
$20.0M
Y2 Q2
12
$200M
—
$1,200M
2.0%
$6.0M
$24.0M
Y2 Q3
14
$200M
—
$1,400M
2.0%
$7.0M
$28.0M
Y2 Q4
16
$200M
—
$1,600M
2.0%
$8.0M
$32.0M
Y3 Q1
18
$200M
($200M)
$1,600M
2.0%
$8.0M
$32.0M
Steady State (Year 3+)
$1,600M
2.0%
$8.0M
$32.0M/yr
Earliest DSTs reach disposition at quarter 9 (beginning of Year 3), consistent with the two-year IRS safe harbor. At steady state, new deployments replace dispositions and AUM plateaus at approximately $1.6B.
AUM Accumulation ($M)
$200M
Y1Q1
$400M
Y1Q2
$600M
Y1Q3
$800M
Y1Q4
$1.0B
Y2Q1
$1.2B
Y2Q2
$1.4B
Y2Q3
$1.6B
Y2Q4
$1.6B
Y3+
AUM scales linearly for two years, plateaus as earliest DSTs reach disposition
V. Distribution Waterfall
1
Return of Capital — 100% of deployed capital returned upon each DST placement (~45-day cycle)
$100,000,000
2
Preferred Return — ~2% per cohort, ramping to 16% annualized at stabilization
$16,000,000 / yr
3
Sponsor Catch-Up — Sponsor receives distributions to agreed share of excess above preferred return
Per agreement
4
Residual Split — Remaining net income allocated per LP agreement
Per agreement
5
Disposition Proceeds — Net proceeds upon DST property sale (Year 2+) distributed per waterfall
Per waterfall
VI. Fee Structure
Fee
Rate
Basis
Notes
Management Fee
2.0%
Total DST portfolio AUM
Sole revenue driver
Acquisition Fee
None
—
No upfront load
Transfer / Disposition Fee
None
—
No backend load
The 8x capital velocity transforms the 2% AUM fee into a 16% effective annual rate on committed capital. No transaction fees are charged. The fee structure aligns sponsor and LP interests: Optionality Capital earns only when DSTs are successfully placed and managed.
VII. Capital Provider Protections
Structural Protections
Senior position in the capital stack
Security interest in NNN properties during the acquisition period
Underlying assets backed by investment-grade credit tenants
9 years in institutional multifamily real estate private equity
AVP at GID ($32.1B AUM, 57,000+ units), one of the largest vertically-integrated real estate firms in the U.S.
Previously Director of Acquisitions at TriBridge Residential ($1.4B portfolio, 21%+ IRR since inception) — led sourcing, equity/debt capital markets, and IC presentations across the Southeast
15+ transactions totaling 3,700+ units across multifamily, mixed-use, adaptive reuse, condo conversion, and furnished rental strategies
Led Plant 64 acquisition ($83.5M, largest apartment deal in Forsyth County history) and TriBridge’s HTC development platform with JPM Chase
Direct 1031/TIC structuring experience; structured single-asset REIT for foreign pension fund investor
Quantitative trading, systems engineering, venture investing
Quantitative Trader at Tower Research Capital — strategy development on MFT/HFT interest rate futures
Investment Associate at Bridgewater Associates ($150B+ AUM) — highest performance rating among all first-year IAs; youngest manager at Bridgewater
First engineering hire at HG Vora Capital Management ($7B+ AUM event-driven hedge fund)
Employee #5 at Vannevar Labs ($1.5B valuation, AI defense technology). 5 patents. Multiple B2B SaaS products as solo operator.
Early-stage co-investor with Khosla Ventures, 8VC, Eric Schmidt in proptech, AI, and hedge fund infrastructure
Princeton University, A.B. Mathematics, 2017
Complementary expertise. Zhang contributes institutional deal flow, underwriting discipline, and capital markets relationships honed across 3,700+ units and $32B+ in managed assets at GID. Wang contributes the technology infrastructure to automate DST formation, investor matching, and capital recycling at 8x velocity — plus institutional-grade systems experience from Bridgewater, Tower, and HG Vora. Both Princeton 2017.
IX. Broker-Dealer Requirement — Structural Competitive Advantage
Regulatory Framework
DST interests are securities under federal law. Each sale of a DST interest constitutes a securities transaction requiring execution through a FINRA-registered broker-dealer with appropriately licensed registered representatives (Series 7, Series 63/66). SEC Rule 3a4-1 and applicable FINRA regulations govern all distribution activity.
Compliance Infrastructure
Regulation D, Rule 506(b)/(c) — Private placement to accredited investors with full suitability review and subscription documentation
State blue sky filings — Notice filings in each state of offering
Books and records — Ongoing FINRA reporting, investor communications, regulatory filings
Why This Creates a Moat
12–18 month formation period — FINRA review, compliance buildout, and net capital requirements create a significant barrier to entry
$500K–$1M+ annual operating cost — Dedicated CCO, compliance infrastructure, FINRA audits, and net capital requirements
Distribution velocity mismatch — Third-party selling groups are designed for traditional DST sponsors with 1x velocity, not 8x
Relationship compounding — Registered rep networks and 1031 investor relationships deepen over time and cannot be replicated quickly
Institutional signal — Controlled distribution demonstrates compliance maturity and operational permanence to capital providers
Distribution Channel Comparison
Approach
Time to Market
Margin Retention
Velocity Compatibility
LP Confidence
Owned / Affiliated BD
12–18 months (one-time)
Full
Built for 8x
Institutional grade
Third-party selling group
3–6 months
30–50% shared
1x optimized
Moderate
No BD (non-compliant)
Immediate
N/A
N/A
Enforcement risk
The broker-dealer is not merely a compliance requirement. It is the distribution engine. Without controlled distribution, capital cannot recycle at 8x velocity, and the AUM compounding mechanism fails. Early investment in BD infrastructure creates a structural advantage that compounds with each month of operation.
X. Competitive Positioning
Dimension
Traditional DST Sponsor
Optionality Capital
Capital Velocity
1x
8x annual
AUM per $100M Facility
$100M
$1.6B at steady state
Annual Fee Income per $100M
$2M/yr
$32M/yr at steady state
LP Capital Duration
7–10 years
~45 days per cycle
Transaction Fee Burden
Acquisition, disposition, transfer
None
Placement Dependency
Market-driven sale
Structural 1031 demand
LP Stabilized Yield
6–8%
~16%
1031 exchange demand is structural, not discretionary. Exchanging investors must identify replacement property within 45 days and close within 180 days, or face full capital gains tax liability. This non-discretionary demand creates a reliable buyer pool that de-risks placement and sustains the recycling engine through market cycles.
Confidential — For Qualified Investors Only — Optionality Capital LLC — This document does not constitute an offer to sell or a solicitation of an offer to buy any securities — Subject to revision