Deployed $22M in three tranches over 14 months instead of one, blended to $184k a door. The pacing rule held, the operator relationship nearly didn't
First full program I've been responsible for placing, and the thing that worked was refusing to fund it all at the first close.
Mandate was $22M into multifamily, patient money, no forced exit date. I wrote a pacing rule before I looked at a single deal: no more than 40 percent of the program committed in any six month window, and a written right to skip a scheduled tranche without losing my place in the co-invest queue.
How it went. Tranche one, $8M into a JV on a 248 unit 2002 vintage asset in a midwest infill submarket, $196k a door. Tranche two eleven months later, $7M with the same operator, Sun Belt submarket where the permit pipeline was down around 45 percent from the 2022 run rate, $181k a door. Tranche three, $7M into a stabilized mid-90s asset with assumable agency debt at roughly a 4 handle coupon, $174k a door. Blended $184k against my own replacement cost build of $247k, weighted going-in cap 5.3, and the assumable loan on the last one is doing more for the levered return than anything I negotiated on fees.
What nearly broke it. The operator wanted the whole $22M at their first close and told me, not unreasonably, that a scheduled commitment is worth less to them than a funded one. We landed on committed capital with a funding schedule and a skip right that costs me the queue position on one specific co-invest if I use it. Counsel earned their fee on that paragraph.
The other one: a fourth deal, coastal-adjacent, where the insurance renewal came back 38 percent over the model in diligence. We walked. My share of pursuit costs was about $85k, which I'd pay again.
What I'd keep: building my own replacement cost number rather than using the OM's, and the skip right. What I'd change: I'd have negotiated the co-invest fee terms in the same document as the fund commitment instead of six months later.