The sponsor's construction draw schedule was fiction and I got it wrong

The permit record is the right first stop, and Phoenix's development services portal will show the current status, any holds, and the inspector comments that sponsors never quote in a deck. After that, the checklist a careful operator runs is: confirm the senior's actual draw mechanics in the credit agreement rather than the sponsor summary, stress the interest reserve at the senior's slowest historical funding pace rather than the assumed pace, check whether the mezz coupon accrues or is cash-pay during a cure period and who has the right to cure first, and verify that the sponsor's equity contribution is already in rather than staged alongside construction milestones that share the same permit dependencies.

The number that deserved more attention in your friend's deal is the 60-day hold effect on the interest reserve runway. If the reserve was sized for 30-day draws and the senior moved to 60, the burn rate on the reserve effectively doubled against the same milestone schedule, and that gap opened before the first permit delay even mattered.

What was the stated interest reserve coverage in months at close, and did the mezz documents give her any notice rights tied to the senior's draw-cycle changes?

The 1.09x on an 18-month hold at 13% coupon is the number that tells the whole story. A 13% coupon running 18 months on a dollar-in should compound to something closer to 1.19x or 1.20x before fees. The gap between that and 1.09x is the accrual that sat unpaid during the cure period and then got partially compressed in the refinance negotiation, most likely. Confirm what actually happened to the accrued interest in the refi documents if you can get them, because that number carries diagnostic information.

The assumption doing the most work in that deal was not the draw schedule itself. It was the interest reserve sizing. Mezz reserves are typically modeled against the senior's funding cadence, and if the model assumed 30-day senior disbursements and the senior moved to 60-day holds after the first permit slip, the reserve was undercapitalized from the moment that delay hit. A two-times multiplier on the senior funding lag alone would have flagged the fragility, even before the permit check.

The risk the thread does not name directly: the permit record in Phoenix would have shown the delay, but the structural question is whether the interest reserve had any cushion against senior lender behavior that a sponsor does not control. Even with clean permits, a senior lender can slow disbursements for internal credit reasons unrelated to the borrower. In a mezz position, the reserve sizing needs to stress the senior's disbursement schedule, not just accept the sponsor's assumption about it.

The permit pull discipline you are landing on is right. It is also the faster fix, because it takes twenty minutes and catches the most common misrepresentation in construction mezz decks.

When you look at the interest reserve in the next deal, are you stress-testing the senior funding cadence as a variable, or are you taking the senior term sheet's disbursement language at face value?

The part that compounds the error is that permit timing does not just affect when draws fund, it sets the floor for how long the interest reserve has to last, and if the senior adds any hold period on top of that, the reserve math breaks even faster than the waterfall model shows. A mezz position sized at 13 percent assumes the coupon is being earned against a schedule that actually closes, and when the draw compression stretches from 30 to 60 days per cycle, the reserve can be six to eight months short of what the deck implied without a single line in the pro forma changing. The coupon accruing instead of paying current is the tell that the structure was already in trouble before month seven, because most mezz instruments flip to accrual when the interest reserve hits a trigger threshold, and that threshold is almost always defined relative to the senior's draw mechanics, not the sponsor's. On a Phoenix construction deal specifically, the city's online portal shows not just permit status but the inspection history, so you can see whether the inspections that precede each permit milestone have been scheduled, which is a step earlier in the chain than most people think to check.

What did the interest reserve coverage look like in the sources and uses relative to the full projected draw period, assuming no delays at all?