Took the preferred slice instead of common on an urgent care build. Paid on time.
I don't like development risk. I read this room for a year mostly to understand why I didn't want to be in it. Then a sponsor I'd been introduced to twice offered me something I could actually understand.
Single tenant urgent care, about 4,800 sf on an outparcel in a suburb with a lot of new rooftops. Total project $3.6M. The lease was signed before the land closed, 15 years with a regional operator that runs about 30 clinics, rent commencing at certificate of occupancy. So the building had a tenant before it had a foundation.
I put in $40,000 as preferred equity at 11% accruing, ahead of the common, with a hard maturity at 30 months. Sponsor signed a completion guaranty personally and the pref sat above his money in the waterfall, meaning overruns hit him before they hit me.
Month 11 the tenant asked for a different canopy detail and a change to the drive-through window. The change order was around $61,000 and the contingency was already half spent on rock in the footings. Because the pref sat above him, the sponsor funded it out of his own pocket rather than calling capital. That is the moment I understood what the structure had actually bought me. If I'd been in the common, that $61,000 comes off my side.
Certificate of occupancy at month 15, rent commenced, refinance into permanent debt at month 20. I got $40,000 back plus $7,700 of accrued pref. The common equity did considerably better than I did on a percentage basis, and I'm fine with that.
What I'd keep. The signed lease before funding. The pref sitting above the sponsor's money rather than beside it. A hard maturity date with actual remedies rather than a vague expectation of a refinance. What I got lucky on is that the operator stayed solvent for 20 months, and I had no protection against them not doing so.