A private REIT with a repurchase queue is the wrong home for a renovation reserve, even when the fund performs exactly as written
An investor running several renovation projects at once typically carries a cash reserve for overruns. Parking that reserve, say $85,000, in a business savings account earning little can feel wasteful, which is what makes a Reg D non-traded REIT with a quarterly repurchase program look appealing. A stated repurchase rate of 5% of NAV per quarter and no hard lockup after year one can read as a 90 day liquidity window. That reading is the mistake, not the fund's actual terms. Here is why it matters. A renovation reserve exists for the moment a job goes sideways, say a 1920s gut where knob and tube behind the plaster turns out to require a full panel and service upgrade, pushing an overrun to $71,000 against a $40,000 contingency. Submitting a full repurchase request at the next window sounds like the fix, but when requests that quarter exceed the fund's repurchase cap, an investor can be prorated down to a fraction of what was requested, with the unfilled balance not automatically rolling to the front of the next queue. The result is a job that stops for days or weeks while a hard money draw fills the gap at double-digit interest and points, plus the risk of losing a subcontractor to another job and having to rehire at a higher price. The vehicle behaved exactly as written; the error was underwriting the liquidity an investor wanted rather than the liquidity the fund actually promised. Reserve capital earmarked for real deadlines belongs in something without a queue in front of it.
