A co-invest model where the exit cap equals the entry cap deserves a hard look before funding

Ask them how the $255k replacement cost was built. If it's hard costs plus soft costs plus a land number from 2019, the gap is smaller than the deck says. Land in outer-ring Sun Belt submarkets moved a lot and not always up. I'd want the number broken into dirt, sticks, and everything else, priced this quarter, from someone who actually bid a job there.

The premium over in-place NOI is the line worth chasing first, and the evidence matters more than the projection. Has the sponsor already renovated units at this property or one within a couple of miles, and if so, what do the signed leases show, renovated versus classic, same floorplan, same month? An answer that points only to comparable assets in the submarket is a broker's guess dressed up as data. Also ask how many units a month the crew can actually turn. Say 300 doors at 10 a month is 30 months of downtime and disruption baked into the first two years of the hold. The model usually shows the turn happening faster than a crew can execute it.

The whole story sits in the NOI line. At a 5.04 going in and a 5.0 exit, nobody is asking you to believe in cap compression. They're asking you to believe in $1.16M of NOI growth, $2.94M to $4.1M, in five years.

Split it. 190 doors at $215 is about $490k of gross annual rent at full burn-in. Take out vacancy, credit loss, and the expense drag on that revenue and call it $400k to $430k of NOI. That leaves roughly $730k that has to come from market growth. Your revenue base is around $4.9M. If operating expenses grow 4 percent a year, they add about $420k of cost over the hold, so revenue has to grow roughly $1.15M organically, call it 4.3 percent compounding for five straight years. That is the number the deal depends on, and it is a real possibility in a submarket where the pipeline is contracting. It is also not a given.

Sensitivity: equity looks like $28M or so including capex and closing. Move the exit cap 50bp wider and $4.1M capitalizes at $74.5M instead of $82M. That $7.5M is about 27 percent of your equity. Ask for the model with the exit at entry plus 50.

Things to get in writing rather than in the deck: the actual insurance renewal quote, and how property taxes get reassessed on a sale in that state, because reassessment practice varies by state and in some it resets hard at transfer. Get the promote hurdle and the fee schedule too, since 14.5 percent net depends on what's coming off the top. Whether this specific offering is suitable for you is a question for your own attorney and tax adviser.

If new leases are getting a month free, what is the in-place NOI actually built on? Asking rents with a concession netted out, or asking rents with the concession sitting in a footnote? Those are different deals. And who's managing it after close, the sponsor's own shop or a third party.

At $19k a door across 190 units, that is $3.6M of work in a submarket where every operator within five miles is running the same interior scope. Ask who the crew is and whether they are already committed elsewhere. Quotes for repetitive multi unit work tend to hold for about a quarter and then they do not, so a renovation budget built on today's number for a program that runs longer than that is carrying unpriced risk.

91 percent physical with a month free on new leases is probably 85 or 86 percent economic. On the T-3 you want net effective, plus the concession line, the loss to lease line, and bad debt broken out separately. Bad debt is where the biggest gap tends to open between what a T-12 shows and what a property actually collects, because some managers book it against revenue and some park it below the line. Also, windlass, ask for the last three months of collections rather than billings. Billed rent and collected rent can be four points apart on a property like that and nobody mentions it until you are in due diligence.

What does "below replacement cost" actually protect me from? I get that nobody can build a new one at $193k, so new supply stops coming. But if the correction shows up in occupancy in 2027 and my hold is five years, am I selling into the good part or the part after it? Buying under replacement cost seems to help whoever owns it in year 10, and I want to know if that's me.

Take a 12 unit building where the plan calls for a $200 premium. It is common for that premium to take eleven months or so to show up in collected rent, because turns land when leases expire rather than when the model says, and one unit sits while another resident renews at the old rate because the owner would rather keep the occupancy. Scale that to 190 doors and the burn-in curve is the thing to see month by month rather than annually. Windlass, if their year one shows more than a third of the premium collected, ask them to walk you through the turn schedule.