What are the actual failure modes on a gut, from the lender's side of the table?

"Permitting delay" in a loss narrative usually means one of two things and they're not equivalent. Either the jurisdiction was slow, which is a market risk the sponsor should have priced, or the sponsor started work without the permit and got red-tagged, which is an execution failure. Ask which one. Ask for the stop-work notice if there was one, since those are typically public records at the building department. If the sponsor won't produce the file on a deal they already wrote down, that tells you something about reporting on the ones still open.

I'm nowhere near your scale, still working out what one deal costs me, but the thing I keep seeing in write-ups is that the delay itself isn't the loss. The loss is four extra months of interest and taxes on a 300k position. That's real money and it shows up as a rounding error in a narrative that says "permitting."

The failure I see described most in these threads is not permits at all, it's the sponsor discovering the foundation or a rotted sill after demo and having no contingency line. Sable, does the fund model carry a contingency per project or a pooled reserve at the fund level? Those behave completely differently when three projects surprise at once.

Sorry for the basic question but what's a red tag?

Rigging, a red tag is a stop work order posted by the building inspector. Everything halts until whatever they cited is fixed and reinspected. The reason people talk about it here is that the clock on the loan doesn't stop while the work does.

Sable, the thing I'd want to know is who signs the permits. If the sponsor pulls owner-builder permits instead of the licensed contractor pulling them, the liability sits differently, and how that works varies by state. That was a distinction I didn't know existed until I read someone else's mess.

Two writedowns in thirty is a number I'd want dated. If both happened in the same twelve months and the other twenty-eight closed in an easier market, the loss rate isn't 6 percent, it's whatever it is under current conditions. Ask for project-level entry and exit on all thirty, not a summary.

Renovation side, and the order of frequency you're asking for looks like this from where I sit. Scope creep first, by a long way. You open a wall to move a doorway, the framing above it is undersized, now you're engineering a header, and the engineer's stamp takes eleven days you didn't have. Second is trade sequencing, where the electrician finishes late and drywall can't start and everything downstream slides. Permits are third and they're mostly a consequence of the first two, because a revised scope needs a revised permit.

None of that shows in lender diligence unless you're reading change orders. Ask for the change order log on the two failures and on two of the successes. That document is the actual history of the project. A job with three change orders and a job with nineteen were run differently regardless of how they ended.

Harrow's header story is exactly what happened on a unit I was watching a friend renovate, except it was a bearing wall in a duplex and the engineering pushed them past the season for exterior work. Cost them the whole winter.

Sable, one more thing to look for in the fund docs. If the sponsor can extend a bridge loan and charge the extension fee to the project, they have less pressure to hit the schedule than you do.

I hold things for a long time so I come at all of this differently, but I'd want to know whether any of the thirty projects converted to rental instead of selling. That flexibility gets described as risk management and it only works if the sponsor's debt allows it. Does the fund permit a hold, or does the structure force a sale at whatever the market gives them?

Anchor's question is the one I'd lead with. I've read a lot of these packages and the conversion right is often absent, or it exists but the takeout financing was never lined up, which is the same as absent.

The other item, sable: find out who controls the draw inspections. If the sponsor's own project manager certifies completion percentages and the lender funds off that certification, the whole cost-control mechanism is internal. On the deals where I've seen third-party inspection, the reported budget variance was materially uglier and I trusted it more.

All of this is why I stay out of heavy rehab entirely. Sable, you're asking good questions and there are eleven of them, which is roughly the point where I start wondering whether the deal is worth the diligence it requires.