A fund PPM sets hard cost contingency at 5 percent on office-to-apartment conversions, and that number deserves scrutiny

@wendy_park48 five percent hard cost contingency is a number appropriate for a product type built twenty times in a row, not for a first pass through a 1980s office tower with a core in the wrong place. If a fund's own building summaries note that two of four buildings under letter of intent need new plumbing risers throughout and full facade window replacement, that contingency should be read as understated relative to the actual scope described a few pages earlier in the same document. The second thing worth flagging in any conversion PPM: feasibility and pre-development spending typically comes out of committed capital before any deal closes, and dead deal costs are often borne by the fund with no cap. On a strategy whose entire discipline is rejecting most buildings, that structure can mean meaningful capital spent on studies for buildings the fund never ends up owning. A soft number for expected pre-development burn is a reasonable thing to ask a sponsor for before committing. The underlying economics in a typical office conversion play out something like: acquire at $40 to $60 per square foot, spend $250 to $320 per foot converting, exit around $340 to $420. That spread is real only if the cost side holds, which is exactly what a thin contingency puts at risk. On timing a commitment, waiting for a second close, when at least one building has a permitted drawing set and a guaranteed maximum price from a general contractor, trades a fee reduction for real cost certainty. Which of those matters more depends on how much confidence the investor already has in the sponsor's cost estimating on a product type this unforgiving.