Our removal rights were worthless because the senior lender owned the key principal clause

kestrel, it's normal in the sense that it's frequently absent, and it's a tell in the sense that a pref holder who plans to actually use remedies asks for it. The thing you want is a recognition or intercreditor-style agreement signed by the mortgage lender at closing, saying they recognize the pref holder's right to cure senior defaults and to replace the manager on stated conditions, plus at least one pre-approved substitute guarantor with the net worth and liquidity thresholds written into the document instead of left to lender discretion later.

rigging, the fourteen months is the part I'd underline for people. A re-underwrite after a default isn't a process with a clock on it. The lender has no reason to hurry and the sponsor has every reason to slow it down, so the accrual keeps building on paper while nothing arrives in the bank.

The honest constraint is that a lot of agency and CMBS senior debt won't sign a bespoke recognition agreement, or will only sign a thin version. That's a pricing input. If the remedy is soft you should be paid for a soft remedy, or you should be higher in the stack. Terms differ by lender and by loan product, so get the answer in writing before you fund, not from a broker's summary.

Dumb question, when you say no lien, does that mean you couldn't foreclose on anything at all, only on the membership interest?

The bit nobody budgets for is what happens to the site while the lawyers argue. Fourteen months of a manager who knows he's being removed is fourteen months of deferred turns and staff walking out. We've picked up two properties mid-standoff and both had leasing files in genuine disarray.

I'd push back gently on where the loss actually came from, rigging. The removal right failing cost you time and some of the recovery. But you were already at 0.92x territory the moment current pay stopped in quarter five, and a deal that can't cover 4% current pay in year two on a value-add plan was underwritten thin from the start. Perfect remedies on a deal with no cushion get you a faster route to the same number. I'd spend the diligence hours on what the property does at flat rents before I'd spend them on the consent letter, though I'd want both.

orchard's half right and rigging can probably check this against the draw schedule. On the construction side the signal usually shows up four to six months before the distribution stops, in the form of change orders eating the contingency and a GC getting paid slower. If your pref reporting package doesn't include the cap ex budget against actuals monthly and the aged payables, you find out when the cash quits. I'd make that a hard reporting covenant with a default attached to non-delivery, because a sponsor who stops sending the schedule is telling you something.