Pref equity behind an agency loan at 78 percent last dollar, on a basis that reset. Am I underwriting the right value?

On the appraisal, why does it have to be a full appraisal? Ask for a broker opinion of value from two shops who cover that submarket and a rent comp survey with concessions shown as effective rent. You get most of the information in two weeks and you don't blow the timeline. If the two BOVs come back within a few percent of the acquisition price, your 78 percent is real enough. If one comes back ten percent lower, you now have a reason to ask for the appraisal and the sponsor can't call you difficult for it.

Also, 8 percent compounding accrual on a two year minimum multiple of 1.20 is doing a lot of quiet work in your favor if the sponsor is slow. Have you checked whether the accrual and the min multiple double count, or whether the multiple is a floor that absorbs the accrual?

The min multiple and the accrual almost always interact, and which one binds depends on the exit month, so run it as a schedule rather than a rate. At 12 percent with 4 current and 8 accruing and compounding, a two year hold pays you 8 points of cash on top of a balance that accretes to 1.1664, call it 1.25x all in, so the 1.20 floor is already behind you by roughly month 19 or 20 and is really only prepay protection. Past that the coupon governs. Model the repayment month by month and see where the two curves cross, because that tells you what a fast prepay actually pays you.

On the valuation question, the tension you have named is real and there is no clean fix. Asset values sit roughly 20 to 30 percent below the 2022 peak while replacement costs have risen about 39 percent since 2020, which is exactly the gap institutional capital is deploying against. That gap protects you at a hold-through-the-cycle horizon. It does not protect a pref that needs to be repaid on a fixed date, because your repayment source is a refinance or a sale in a specific window, priced by the capital markets on that day.

So the assumption your position depends on is the exit financing, not the current value. Ask what the senior loan permits in terms of a supplemental, whether the pref can be refinanced without touching the assumable senior, and what debt yield the asset needs to produce to support a takeout at the pref's maturity. Then test that debt yield against the submarket's concession burn-off schedule. A single-asset pref with a hard maturity inside the recovery window is a timing bet on when occupancy firms, and vacancy peaking near 8.5 percent nationally does not tell you when your submarket clears. Have counsel confirm the change of control mechanics against the senior loan documents, since agency transfer provisions are specific and not something to assume.

The change of control remedy is the part I'd spend the money on. Removing the manager sounds decisive and then you find out you've inherited an asset with a capital plan half done, a property manager who has not been paid, and a senior lender who wants to have a conversation about whether the transfer was permitted. The remedy is only worth what you can operate. Do you have an operator lined up who would step in on this specific asset in that specific metro? If the answer is you'd figure it out then the remedy is a negotiating tool rather than protection, which is fine, just price it as such.

@sable's two-BOV approach is what I'd do. I'd also ask for the last three months of rent rolls rather than one, so you can see the concession trend rather than the snapshot.

Reading along mostly to learn. One thing I noticed in @vellum's post that nobody picked up: the appraisal was done on the same trade it's now being used to justify. So the value is the price and the price is the value. Is that normal in this business or is that a red flag?