Two pref term sheets and the one with less cash pay looks better on paper

Your last line answers your own spreadsheet. Accrual is a promise settled at exit, cash pay is money you already have. On the construction side I watched the same logic on a retainage argument, the number on paper was fine right up until the entity paying it couldn't. So the question isn't which multiple is higher, it's what B's exit actually depends on. What's the capex budget and who's holding the contingency?

New here so forgive the basic one. If B accrues 5% and compounds, does that compound on the accrued part only or on the whole $1.5M? Those give pretty different answers over three years.

rigging, it depends entirely on how the document defines the accrued amount and whether it gets added to the unreturned capital balance, which is where the fight ends up. bramble, worth pulling B's actual definition of unreturned capital contribution rather than trusting the summary.

On the substance, 80% last dollar versus 74% is six points of value that has to disappear before you get touched, and on a 74% position that's a cap rate move you can survive twice over. I run a small portfolio and the thing that broke on me at scale was insurance, not cap rates. Ask both sponsors what their renewal quote is, actual quote, not the trailing number.

The 12% cash on A is $180k a year hitting your account. B pays $135k. If you want income rather than a bigger number in 2029, that's the whole comparison and the multiples are noise.

I'd stress the B math at the duration that actually hurts, which is 30 months. 22.5 points of cash, roughly 13 accrued, so about 1.355x and the minimum barely covers you. The 1.35x is only worth real money if they take you out inside about 24 months. So B's advantage in your table is concentrated in the early exit case, which is also the case where things went well. In the bad case B has no guarantee and you're negotiating with a sponsor who's out of money.

What does the personal guarantee on A even reach? A guarantee from someone with two other deals in trouble is a piece of paper.

plumb's question is the one I'd want answered first. Has either sponsor given you a personal financial statement and a schedule of their other positions, bramble? I'm nowhere near this size but the screening logic feels the same, you're underwriting a person as much as a building.

B has a completion guarantee on capex, which tells me B has a real renovation scope. Ask for the scope by line item and the contractor's contract type. On the reno side, a $6,000 a door budget in a plan written eight months ago is a $7,500 a door budget today, and the sponsor eats that out of the same cash you're expecting to get paid from. Completion guarantees also tend to be capped at the budgeted amount, which does nothing for you when the overrun is the problem.

One thing on A that nobody's said. No accrual and no minimum multiple means if they refi you out at month 9 you got 12% for nine months and that's it, $135k, and your money is back on your desk looking for a home in the same market that produced these two term sheets. B's minimum multiple is partly a protection against your own reinvestment problem. That matters more than it sounds like when there's a maturity wall pushing deals through the door and you have to redeploy fast.

You're comparing pricing on two positions with different risk and finding one cheap. Usually that means the market saw something in B you haven't. 80% last dollar with no personal guarantee and only 9% cash pay is a structure that only gets funded when the sponsor has run out of better options. I'd go back and ask B who else they showed it to and what the feedback was. The answer to that has told me more than any term sheet has.