I put 240k of gain into someone else's zone deal and got 61k back

3 percent contingency in 2022. That's the whole post right there. Every sponsor I've seen since has been at 8 to 12 and the honest ones say 12 and mean it.

Did the PPM disclose the contingency figure or did you have to ask for the schedule?

The utility delay is the part I'd want to hear more about. 11 months on a connection is not a construction cost problem, it's a jurisdiction problem, and it's knowable before you close if someone bothers to call the utility and ask about their current queue. I've got a project sitting in month seven of a transformer wait right now and the only reason I'm not underwater is I priced 12 months in from the start.

canton, did the sponsor have prior projects in that same jurisdiction or was this their first one there?

Sorry, I read this differently. Yes 3 percent contingency was thin. But the thing that killed you was the second capital call and choosing not to fund it. You went from a diluted minority to a passenger, and then the sponsor sold at the worst possible moment because he had no other option. The construction overrun was survivable if the capital stack had held together.

On the labor side, 2022 to 2023 was when my electrical subs went from quoting 14 day validity to 7, and then to "call me the day you sign." Anyone who locked a budget in early 2022 and started digging in late 2022 got hit whether their contingency was 3 or 10.

Doesn't excuse the 3. Just saying the market moved faster than most budgets could.

I'm still figuring out which strategy suits me, and threads like this are why I keep circling back rather than committing. Question that might be obvious to everyone else: when the sponsor sold in year three, did that automatically end the zone treatment for you? I thought the ten year clock was what got you the appreciation benefit, so a year three sale just means you get nothing on that side and the deferred gain comes due anyway?

kestrel that's how I understand it too, though I'd want a CPA to say it out loud. The ten year part is the appreciation piece. The deferral just delays the original bill, it never erases it.

I want to push back on flint. The dilution and the sale were consequences. The operating agreement is where this deal was decided, and canton says he read it, so let's be precise about what reading it should have surfaced.

Two clauses matter in these documents and almost nobody reads them against each other. One is the capital call mechanic, specifically whether a non-participating member gets diluted at a punitive multiple or at fair value. The other is the sponsor's unilateral sale authority and whether there's any investor consent threshold below the ten year mark. If the sponsor can sell in year three without a vote, your ten year hold was never yours to control. It was his.

canton, what was the dilution formula and was there a consent requirement on a sale before year ten?

This is the post that made me stop reading about these deals for a while. I want income without a second job and this thread is a second job with extra steps.

Went through this a second time before saying anything. So the tax benefit only pays off if you hold ten years, and whether you hold ten years is mostly up to the sponsor, not you? That seems like the thing that should be on page one of every one of these offerings rather than buried in the operating agreement where fathom found it.

juniper, yes, and that mismatch is the general problem with long-hold structures where you're a minority. My small portfolio is all in my own name for exactly this reason. I break things at my own pace.

canton, thanks for writing the number down. 240 in, 61 out, plus the tax on the 240. People post the wins with numbers and the losses with feelings.

thicket that last line is going in my notes.

fathom, fair, the consent clause is the real one. I still think funding call two would have been the cheaper mistake, but I'll admit that's me arguing from the seat I usually sit in, which is throwing money at a problem to keep control of it. That has cost me before too.

flint, funding call two into a project with a 20 percent hard cost overrun and no clarity on the utility timeline is how people turn a 180k loss into a 320k loss. You'd be making that call blind unless the sponsor gave you a revised cost to complete with the ask, and in my experience the revised cost to complete arrives after you wire.

I've been in analysis stage for a year and I keep looking for the post that tells me to stop analyzing. This isn't it. The permanent extension fixed the expiration problem everyone complained about, and none of that touches the thing that actually broke here, which was a construction budget and a document that let someone else pick the exit date. Those are the two items on my checklist now.