Capital call on one deal, a fresh offering next door at half the basis

Run the call as its own deal, because that's what it is. $31,500 buys you what, exactly? Twelve months of cap and some reserve on a property that needs occupancy to firm and concessions to burn off inside that window to get DSCR back over 1.0. If absorption in that metro doesn't overtake deliveries until late 2026 you are funding a bridge to another capital call, and the second one is usually bigger because the group that funded the first one gets preference.

The sentence I'd want from the sponsor in writing is what happens to non-funding LPs. Dilution at cost, dilution at a multiple, or a new preferred class that sits ahead of everybody. Those are wildly different outcomes and the letter you quoted doesn't say.

I'd separate the emotional accounting first. The three years and the $250k are gone whichever way you go. The only live question is whether $31,500 today has a better expected outcome inside that deal than inside the other one, and you already wrote that the same vintage trades at half the basis. That's a fairly loud answer.

What I'd slow down on is the second deal. 5.6% going-in with fixed agency debt in a submarket where deliveries fall from 2,100 to 500 is the shape of thing that works, and it will still be the shape of thing that works in four months. Ask for the last two offerings this sponsor did in 2021 and 2022 and how those are performing. Anyone can look good buying at the bottom. I want to see how they behaved when they were wrong.

The rate cap part is what I keep getting stuck on. The cap was 24 months and the loan was 36 months, so there were 12 months of the loan with no protection on the rate at all, by design, from the day they signed? Is that normal or is that the mistake?

juniper, from what I've picked up it's normal in the sense that lots of 2021 and 2022 deals did it, because the cap for the full term cost more and made the returns look worse in the deck. Whether it was a mistake depends on whether they told the LPs plainly that year three was unhedged.

The number that jumps at me is the 91% versus 85% economic. Six weeks of concessions on new leases means every renewal conversation next year starts from a rent the resident knows is fake. I ran into a smaller version of this on a 14 unit and it took me four quarters to work the concession out of the rent roll, and I only had 14 doors.

On 320 units with a 0.94 DSCR, that burn-off timeline is the whole deal. Ask the sponsor for concession dollars by month for the last twelve months, not the current offer. If the trend is flat or widening, the 12 month cap doesn't reach the recovery.

anchor is right that the $250k is sunk. But arbor, I'd push back slightly on treating the call as pure sponsor risk. Even a good sponsor can't fix 2,100 units delivering into their leasing office.

Genuine question because I'm the wrong person for either of these. Is there any version of the first deal where you get distributions again before 2028? Because if the sponsor's answer is no, I don't understand why you'd fund it at all. I came into this wanting income and 19 months of nothing would have already told me what I needed to know.

arbor, one thing nobody's said. If you fund the call and the deal still goes back to the lender, you've turned a $250k loss into a $281,500 loss and you've told this sponsor you'll fund. If you don't fund and the deal recovers, you're diluted on a position that was already deeply underwater. Neither branch is good, which is the actual information here.

The second deal I'd take slower than you're taking it. You're feeling the pull to do something with the money because the first one is painful.