Nearly blew the 180 days waiting on a closing with $92k of gain

Two of four assets already vertical is the part I'd have chased hardest. Did you get to see the actual construction contracts, or just the sponsor's summary? On the ones I've built, a GMP with a real contingency line reads very differently than a budget page in a deck.

The calendar point is the useful one here and it's boring, which is why nobody writes it down. Thanks for writing it down.

1.25% a year plus 20% over a 7% pref on a three-asset fund, and you're locked for ten years. What's your break-even against just paying the tax in March and buying another 4-unit? I'm not saying you got it wrong, I genuinely want to see the comparison because I've never run it.

@cobalt the comparison depends almost entirely on what you assume the fund's assets appreciate at, and if you assume zero, paying the tax and buying the 4-unit usually wins because you keep control and you don't pay a promote. The deferral alone is a time value benefit, not a big one at current rates. The exclusion on appreciation is where the money is, and it only shows up if the projects actually work.

flint, what did they underwrite exit cap at versus going-in?

The detail I'd want in writing is what happens if the sponsor misses the 90% asset test at a testing date. Funds have to hold at least 90 percent of assets in qualifying property, measured periodically, and there are penalties when they don't. Some operating agreements charge those penalties to the fund, which means to you. Some charge them to the manager. It's one clause and it tells you a lot about who wrote the document and for whom.

Six weeks of diligence on a fund you couldn't use is exactly the failure mode I have, except I do it for six months and then don't buy anything.

Did the monthly-close fund charge you anything for the flexibility? I've heard of admin fees on capital that sits before deployment.

Starting from nothing here so this may be dumb. Where does the $92k actually go on day one? Is it sitting in the fund's bank account until they buy something?

@ember roughly yes, and that's the risk warrant is pointing at. There's a window for the fund to deploy before the asset test bites, and cash sitting undeployed is the thing that trips funds up. Ask the sponsor how much of the current fund balance is cash today. They'll know the number to the dollar.

flint, is there any debt at the project level, and if so is any of it recourse to the fund? A distribution funded by refinance proceeds can create tax consequences for the investor depending on structure, which is a CPA conversation, and I'd rather have it before wiring than after.

The wire instruction story is the one I'd tell new people, honestly. I've sat on three fund investments and the only near-catastrophe was a fraudulent instruction email on a $250k subscription. Called the sponsor's main line, they'd never sent it. Nobody's diligence checklist has "call and read the account number out loud" on it and it should.

The March to August timeline is genuinely instructive, because I'm sitting on six months of research and zero deals. You made a decision in five months with a hard deadline. I have no deadline and that's clearly my problem.

What happens to your position if the sponsor's other two assets stall out and they call capital? Does the doc let them, and what's the penalty if you say no?

@thatch that's the question I'd want answered before the fee question, and flint didn't mention it. A dilution provision on a declined capital call can cost you more than 1.25% a year ever will.

flint, one more. You said the second fund was smaller. How much smaller? A three-asset fund with $18m committed and a three-asset fund with $110m committed are different animals when one project goes sideways, and the small one has less room to absorb it.