I put $300k into a pref piece on a 96-unit workforce housing deal in Memphis last year and got fully redeemed at month 19 with a 13.4 percent effective yield.

The intercredental structure you described is doing more work than the yield line suggests. A regional bank as senior lender, willing to engage on intercreditor terms, is a meaningful variable. CMBS pools rarely give a pref holder a real removal right regardless of what the document says, because servicer consent requirements and pooling agreements create friction that the contract language cannot fix. You essentially removed a whole category of execution risk before the deal started.

The assumption doing the most work in your 13.4 percent effective yield is the 19-month actual hold versus the 24-month hard redemption. That compression happens because the sponsor's refi cleared better than his original pro forma, which handed him both the motivation and the economics to call you early. That is the ideal exit, and it is also the one you cannot engineer in advance. It requires the rate environment to cooperate. On a deal sizing, a month-19 call on 10 percent current pay with a hard redemption cliff at month 24 looks clean in retrospect. The number would look different if the refi had stalled to month 23.

The risk you did not mention is the rent trajectory in that specific workforce submarket post-redemption. Memphis workforce rents held through your hold, and you note that. But pref positions in workforce deals carry a sensitivity that stabilized class-A deals do not: workforce tenants have limited ability to absorb rent increases, which caps the sponsor's NOI growth and therefore the refi proceeds. If the sponsor's exit cap had compressed less favorably, the refinancing gap could have eaten into whether the redemption hit at all, hard date or not. You were insulated by performance. The structure gave you a path; the submarket gave you the exit.

The operator observation is the part worth sitting with. Watching the 48-unit Whitehaven job finish before committing is the kind of track-record check that a paper review of a PPM does not replicate.

When you size the next pref position, what is your threshold on loan-to-cost before you treat the senior lender type as a dealbreaker?

The regional bank piece is what I keep getting hung up on when I read pref deal breakdowns. CMBS intercreditor is where I have seen people's removal rights basically dissolve in real time because the servicer cannot act without triggering a whole review process, so the right exists on paper and nowhere else. Month 19 on a 24-month hard is a clean exit by any measure. What I am curious about is whether the refi rate that let him out early was something he was tracking from the start as an exit path, or whether that was just the market handing him a door he had not planned on.

The cooperative intercreditor made the removal right real, but the refi timing is what actually let the sponsor exercise it voluntarily at month 19.