A Hurdle IRR Share is a feature of some profit-participating loan structures in UK property development finance where the lender receives a portion of profits, but only after the developer achieves a predefined internal rate of return (IRR). This hurdle rate sets a benchmark return for the developer, with profit sharing commencing only after it is met. The structure protects early upside for the developer while allowing the lender to participate in returns if the project performs strongly. It is a common mechanism in mezzanine or hybrid debt to incentivise success while controlling risk exposure.
In structuring terms, a Hurdle IRR Share typically operates within a Profit-Participating Loan and is carefully calibrated in the financial model to align lender upside with outperformance rather than base case delivery. The hurdle is usually defined on a project level IRR, requiring clear agreement on cash flow assumptions, timing of distributions, and exit values. These mechanics are formalised through documentation, often influenced by the distinctions set out in Deed vs. Agreement, which can affect enforceability and flexibility. Sensitivity analysis, including reference to tools like the Delay Cost Sensitivity Index, is frequently used to understand how timing risks impact whether the hurdle is realistically achieved.
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