Sized the mezz off a senior quote that never went to credit. $61k.
Dead deal, 84 units, and the money is gone. Writing it down while the sequence is still clear.
Purchase price $9.4m. First quote from the senior lender was 65% of cost, so $6.1m, verbal from the originator on a Tuesday. That left a $3.3m gap against $1.6m of my own equity and $700k from two partners. So I went looking for $1m of mezz and found it at 14% with 2 points, on a pledge of my LLC interests, subject to their diligence and an intercreditor with the senior.
I signed the purchase contract with $150k hard after day 21 on the strength of that stack. Day 34 the appraisal came in at $9.1m and the senior's credit committee re-underwrote the NOI, marking down the other income line and using a higher vacancy factor than the broker package. New proceeds were $5.3m, sized off a 1.25x coverage test rather than the loan to cost number the originator had quoted. Gap went from $3.3m to $4.1m.
The mezz lender didn't walk. They offered to go from $1m to $1.5m, at 16% with a bigger origination fee, and the combined coverage on the two loans came out at about 1.02x on the lender's own NOI. I couldn't fund the debt service out of the property in year one and I wasn't willing to fund it out of my pocket for eighteen months, so I let it die.
Cost: $150k deposit, of which I recovered $89k after the seller relet it in a negotiation I'm glad I didn't have to litigate. Plus $17k of third party reports and $9k of legal on the intercreditor draft. Net $61k and four months.
What I'd do differently, plainly. I won't go hard on a deposit against a verbal loan to cost quote again. I'll ask the senior for their coverage-tested proceeds using their own vacancy and expense assumptions before I go hard, and I'll size the mezz against that number, not the friendly one. And I'll model the combined coverage at both loans at the top of the file rather than as an output, because 1.02x is a number I should have seen coming.