Two decks in one submarket, and the split is who must be right about 2027

A, and not because I'm clever about cycles. I want the checks to show up in year two without the market doing me a favor. Wren, what's A's year one cash on cash after the insurance re-shop actually lands? If it's 3 percent it isn't income either way and the whole comparison collapses.

The rent line is the argument everyone wants to have and the debt is what will decide it. Deck A has fixed agency paper at low proceeds and no maturity inside the hold, so the sponsor can be wrong about rents for three years and still be alive to be right later. That optionality is worth real basis points that don't appear in the IRR column.

So the question I'd put to B is what the debt looks like. If B is bridge with an interest rate cap that expires before the rent growth arrives, then B isn't a bet on 2027 rents. It's a bet on 2027 rents arriving before a specific date on a loan document, and those are different risks. Ask for the term sheet and confirm the cap strike, the extension tests and what the extension actually costs in writing with the lender, because summaries in decks get stale.

The other thing I'd want side by side is the exit cap treatment. B holds exit flat to entry while assuming rent growth, which is the friendlier of the two possible inconsistencies. A goes 25 wide. If you regrade both to the same exit assumption the 400 bps gap gets smaller, and then you can see how much of B's edge is the rent thesis versus the residual math.

I ran both shapes on my own sheet last night and here's what bothers me.

Strip B's rent growth to zero and hold everything else, and B lands under A by a wide margin, because you paid 8 percent more per unit for the same NOI. So B has no downside case at all. It has a base case and a hope.

But A has its own problem. Insurance re-shop, PM insourcing and submetering are usually partly in the trailing twelve already, or they show up in the T3 annualized and then get counted again as an improvement. I've caught that double count in three decks over the past year. Ask A for the T12, T3 and the pro forma expense lines in one column set, and ask which of those savings are already in the T3. If the answer is most of them, A's flat-rent return is thinner than it reads.

Tax appeals also don't belong in a base case. Assessment practice and appeal timing vary by state and county, and the outcome isn't the sponsor's to control. I zero it and treat any win as upside.

Wren, one more number: what's the concession level in the T3 at both, expressed as weeks free? If A is already giving six weeks and modeling flat, A is modeling a rent decline in effective terms.

Ledger's double-count point is the one I'd chase, and I'd add the fee stack to it. Whoever needs rent growth to clear their promote hurdle tends to find rent growth in the model. Look at where the promote kicks in on B and how close the projected outcome sits to that line. If the base case lands a hair above the hurdle, the rent assumption is doing paid work.

GP co-invest tells you something too. Real dollars in from the sponsor at the same basis changes how the flat-rent scenario gets managed when it shows up. And ask both sponsors what they bought in 2021 and 2022 and what happened to it. The ones who took a capital call and worked through it talk about downside differently than the ones who haven't been tested yet. That history isn't in either deck.