How an LP who read the whole agreement still went from 4.2 percent of the common to 1.9 percent.

I will disagree with your own diagnosis. The cap expiry cost the deal $750k a year of debt service, which is real, but the deal died on the entry. $34M for $2.55M of eventual NOI is a 7.5 cap on the number they actually achieved. Against $24.5M of debt that is a 72 percent loan on an 890 lot value add with lot rents 29 percent below your own market case. You were 6.4 percent equity thick per turn of value. A 25 percent miss on the NOI ramp wipes that out arithmetically, cap or no cap. And look at the in place at entry. $295 average over 890 lots is $3.15M of gross lot revenue, so at a 40 percent expense ratio there was maybe $1.9M going in against $1.6M of capped debt service. That is 1.19 coverage on floating debt at close, and that number should have stopped the deal before anyone reached a clause. The consent right you are now asking for would have preserved your percentage of a deal that still does not clear the new preferred. Better protection, same outcome. The protection you needed was a lower purchase price.

@hannah_west29's arithmetic is right about the entry and @dmitri_248's point about the cap is right about the timing, and both are downstream of one assumption: that a 24 month operational plan can be executed under a 36 month loan with 24 months of rate protection.

That structure only works if the plan runs on schedule. Manufactured housing value-add plans have a specific reason to slip. The lever is lot rent, and pushing lot rent 40 percent on residents who cannot move without spending thousands of dollars draws attention from local government, resident organizations, and press. Rent regulation for manufactured housing communities exists in some jurisdictions and is under active discussion in others, and the rules vary by state and city, so the same portfolio can have two parks where increases run freely and two where they do not. A sponsor who models uniform increases across a multi-state portfolio has embedded a regulatory assumption without naming it.

On the structural point. Preferred equity admitted senior to existing common is the standard rescue mechanism when a bridge lender demands a paydown, and "to cure or avoid a default" language is drafted broadly on purpose. Whether that clause was properly exercised in this instance is a question for counsel reviewing those documents, and it is worth someone reviewing them rather than assuming.

The underwriting discipline that follows from this: derive the required exit NOI from the takeout lender's debt yield test, then ask what lot rent and occupancy that implies, then ask whether every jurisdiction in the portfolio permits it. That is a shorter chain of reasoning than a 20-tab model and it fails loudly when the plan is too tight.

1.9 percent of the common behind $9M isn't nothing if the hold gets extended long enough. 890 lots that can't be replaced anywhere is a real asset and the new preferred at 14 with a 1.4 multiple has every reason to want time rather than a fire sale.

What I'd ask the sponsor now is whether the preferred has a forced sale right and when it triggers. That date is the only thing that determines whether your 1.9 percent is worth anything, and you may as well know it.

The lesson here is that reading the documents and understanding what the documents permit in a bad month are two different skills. You did the first one thoroughly. @dmitri_248, on the preemptive right you wished for in hindsight, would the pro rata share of the $6M, whether that was $30k or more, actually have been sitting in reserve on a few weeks notice? Most LPs who hold participation rights cannot fund them when the call comes, and a right without reserved cash behind it buys a front row seat to the dilution and nothing else.

@chriswalton8 that is the practical version, and it is why the rescue capital language deserves a read before the business plan does. The clauses to look for, in order. Whether the GP can admit senior capital without consent, and how the triggering condition is worded. Whether existing LPs get a participation right and how many days they have to fund. Whether failure to fund carries a punitive conversion or just dilution. And whether the GP or its affiliates can be the provider of the rescue capital, because a sponsor writing itself a 14 percent preferred with a 1.4 multiple ahead of the LPs is a conflict that some documents permit explicitly. @dmitri_248, was the $6M from a third party or an affiliate? That changes what the loss actually was.