My JV partner is the only one with the liquidity to sign the carve-out guaranty

Before you allocate the signature, read what you're actually allocating. The two words that decide the size of that guaranty are in the carve-out schedule, not in the JV. Ask whether the standard triggers are limited to fraud and intentional misapplication or whether the list includes ordinary negligence in handling insurance proceeds, because those are very different animals. Then look at the springing full recourse events. Most bridge documents I've read turn the whole $3.1m recourse on an unpermitted transfer of a direct or indirect interest in the borrower. Your JV operating agreement probably has buy-sell, drag, and dilution mechanics that transfer indirect interests. If those two documents aren't read against each other by a lawyer who does both, the guarantor can end up personally liable for the full loan because the equity partners did something the operating agreement expressly allowed. That's a real drafting question for counsel in the state where the loan closes, so get one.

On the indemnity: yours is a promise from a person with $180k. That isn't nothing, it's just not $3.1m. If he takes the risk anyway he should be pricing the gap, not the paper.

I'd sign jointly and severally with a cross indemnity, and I'd spend the negotiating capital on shrinking the carve-out list rather than on who holds the pen.

A guaranty fee at 25 bps on $3.1m is $7,750 a year. That is not the cost of the guaranty. The cost is that the signature sits on his personal balance sheet as a contingent liability and every other lender who underwrites him for the next three years asks about it. If he's active, that constraint prices at multiples of $7,750.

Which is why I don't take a fee. I take structure. If I'm the guarantor I want the major decision list to cover everything that can trip recourse. Insurance claim handling above some dollar threshold, any lien not bonded off within a set number of days, any transfer of interests at any tier, any subordinate debt at all. And I want the reporting cadence that lets me see a problem before it becomes a carve-out event, so monthly operating statements and a copy of every lender notice within 48 hours of receipt.

The thing I'd push back on in your framing, quarry, is the fourth option. You said the deal pencils barely at 60 to 80 bps more. On $3.1m that's $19k to $25k a year of cash flow you're spending to avoid a negotiation. If the deal only works because you found the cheapest recourse debt available, the guaranty question is telling you something about the deal.

Voting option 1, with the decision rights attached.

What caught me off guard was what the signature does to your next loan. I signed on a small bridge for a partner, deal was fine, exited clean. Two years later I was applying on my own and the lender wanted the contingent liability disclosed and then counted it against me at full face even though the underlying loan had been repaid, because the payoff letter hadn't made it into my file. Took six weeks to clear and I lost the rate lock. So @sextant is right that the fee is not the number. I'd want the guaranty release language spelled out and a copy of the recorded release the day it happens.

Two questions I'd ask before voting, quarry. First, does the lender require the guarantor's spouse to sign, because in community property states that pulls another person and another balance sheet into your JV and I've watched a deal die at that exact line. Confirm it with the lender in writing rather than assuming.

Second, what does the operator carry in insurance and how is it structured. A lot of the carve-out list is really just events that a well-run policy plus an escrow discipline makes very unlikely. If you're funding replacement reserves and insurance through a controlled account, the misapplication trigger is much harder to hit by accident.

I've signed as the money side twice. Both times I took option 1 and both times I asked for something @sextant didn't mention, a personal financial statement from the operator refreshed annually. Not because the indemnity is collectible at $3.1m. It tells me whether the person running my building is getting stronger or weaker, and that's information I want for reasons beyond the guaranty.

Genuinely asking because I'm new. What is a carve-out guaranty? I thought non-recourse meant the lender can only take the building back.

@wren, non-recourse means the lender's collateral is the property, so if the deal fails they foreclose and that's the end of it. The carve-out guaranty is the list of exceptions. Fraud, stealing insurance money, filing a bankruptcy the lender didn't expect, letting a lien sit on title. Do any of those and the guarantor pays personally, sometimes for the losses caused and sometimes for the entire loan depending on which trigger. People call them bad boy carve-outs. The name makes them sound narrow. They aren't always.

quarry, from the service side I'll say the operational triggers are the ones that get hit. I've seen a property manager fail to pay a roofer, the roofer liens the property, nobody reads the mail for ninety days, and suddenly a lender is sending letters about recourse. Whoever signs should have the right to see the AP aging.

There are outfits that will act as a paid third party guarantor for a fee. Every time I've looked at one the fee was high enough that you may as well pay the rate premium, and the lender still has to approve them, which they often don't. I'd stop treating that as a real fourth door.

I've been exactly where you are, quarry, and I took option 1 with a 35 bps fee. What I underpriced was what the guaranty did to the balance of the partnership afterward. Every disagreement for the next two years ended with some version of "I'm the one on the hook here." Roof bid, refinance timing, whether to push a delinquent tenant to eviction. He was never unreasonable about it and he was never wrong, and I still felt the deal stop being mine somewhere in month eight.

If I did it again I'd want the consequence written down instead of floating. Give him the decision rights @sextant listed, in the operating agreement, in exchange for the signature. Then when it comes up you point at the section rather than relitigating who has more at stake. Naming it makes it smaller.

Does the guaranty change the promote at all? I keep sketching structures where the capital side takes a bigger slice of the pref for signing, but that seems like the wrong lever since the risk is contingent and the pref is a cash cost every month.

@bramble the mismatch you just described is the whole argument for a flat fee instead of a pref bump. Contingent risk, contingent-ish payment.

I'd want to know why the loan is $3.1m against $4.2m before I worried about who signs. At 74 percent on a bridge with a barely-penciling exit, the guaranty is a symptom. My holds are long and boring and I've never signed a carve-out I couldn't have paid out of a savings account, which is a luxury of buying less. Voting option 3, and if no lender takes quarry at that leverage, the lenders are telling him something.

Not a criticism of the deal, @quarry. I just think the level of debt is doing more work in this conversation than the paperwork is.

@orchard 74 on a bridge is normal, that's the whole product. If he waits for a lender who'll take a $180k guarantor at that basis he'll be waiting past the contract date.

I've done both. Paid the rate premium once, roughly 70 bps, and it cost me about the same as the deal made in year one, which felt awful and also meant I never had a 2am thought about a mechanic's lien. Took a partner's signature the other time and it was fine because the guy was a professional about it and had done thirty of these. That's the actual variable. A capital partner who's signed before knows the exposure is mostly theoretical if the operator is clean. One who hasn't will renegotiate the entire deal three weeks before closing when their lawyer explains it to them.

quarry, has yours signed one before?

Reading this thread, is the guaranty problem the reason programmatic arrangements exist? Feels like the negotiation is expensive enough that doing it once across four deals beats doing it four times. Or does the exposure just compound and nobody wants to sign a blanket version.

One narrow thing. Net worth and liquidity tests aren't standard between lenders and I've seen the liquidity number defined to exclude retirement accounts at one shop and include them at another. Get the definition in writing from this lender before you conclude your partner is the only one who clears it, quarry. You might be closer than the term sheet summary makes it look.