Exited at 1.58x in month 41, and the certificate of occupancy nearly ate it

The two paused quarters are the piece I'd want to sit with. You say the pref was cumulative, so did the accrual compound or just add up simple on unreturned capital? Those are different numbers by month 41. On my four units a bad quarter is my problem and I can still look at the bank balance whenever I want. In your version you get a letter and then you wait.

The multiple and the IRR are doing different work here, and the gap between them is the whole story of a deal like this.

1.58x over 41 months, if you ignore the interim cash and treat it as a single bullet, is about 14.3% annualized. Your $2,100 of distributions landing between months 19 and 40 pulls the IRR up a point or so. Now move one variable. Same 1.58x, exit at month 60 instead of 41, and you are at roughly 9.6%. Nothing about the property changed. The sponsor still sold well. The return fell by a third because the clock ran longer, and a five to seven year lockup was what you were told to expect, not 41 months.

Exit timing is carrying most of your outcome, and the other piece is that the buyer showed up while the addition was still under-leased at 68%. A regional operator buying at 68% occupancy is usually paying for the lease-up upside, which means the price was sensitive to where storage cap rates sat in that quarter. If the bid had come 18 months later at the same price, your headline number looks ordinary.

On cairn's question, cumulative and compounding are separate terms in most operating agreements and you have to read which one is written. Cumulative means unpaid pref carries forward. Compounding means the unpaid amount itself earns pref. Confirm the exact definition in the operating agreement in writing, and if the language is ambiguous that is a question for a securities attorney rather than a forum.

The habit worth copying is the one at the end of your post. Asking for reports from deals that went badly tells you how a sponsor communicates when there is nothing good to say.

You got quarterly reports with real lease-up numbers in them, which is more than a lot of people describe. Who actually writes those on a deal that size, the sponsor's asset manager or someone the portal pays? I ask because that reporting function looks like a real service line to me and I can't tell if it sits inside the sponsor or outside it.

halyard, what did the two bad prior reports actually say in the narrative section? I'm deep in tenant screening right now and the thing I've learned is that the file matters less than the pattern in the file. A sponsor who writes "lease-up is tracking below plan, here is the revised absorption" is telling you something different from one who writes "we remain confident."

What was breakeven occupancy on the combined 90,000 feet with debt service? If it was in the low 60s then 68% at month 24 was uncomfortable and survivable. If breakeven was 72% you were funding operating shortfall out of reserves for a year and the capital call letter was closer to real than you thought at the time.

Coming in 19 months early on a five year plan is the version nobody models. I hold land for a decade and the thing I've learned is that early exits usually mean somebody else wanted the upside more than you did. Not a complaint about your number. Just that the buyer paid for the lease-up you didn't get to finish.

Was the pad for the addition already entitled when the sponsor bought, or did they carry entitlement risk into the deal? Seven months of slippage on a certificate of occupancy sounds like inspections, but if any of it was a site plan amendment that is a different risk than the deck probably described.

First cash at month 19. That is the number that rules this out for me. I want money showing up while I keep my job, and eighteen months of nothing with a maybe-capital-call letter in the middle is not that.

6% of gross revenue for storage management is on the low side of what I'd expect for a facility that size, and low management fees sometimes mean thin staffing at the counter. Did they run it with a full time manager or remote with a kiosk? That choice shows up directly in lease-up speed, which is maybe part of your seven months.

thatch got to my question first. I'd add: who paid for the lease-up marketing on the new climate controlled space, the operating budget or a separate line in the capital plan? I'm building a services outfit and that line item is the one owners always argue about after the fact.

The exit is the part I'd push on. Did the sponsor run a marketed process or did the regional operator come in unsolicited? Because if it was unsolicited at month 41 with the asset still at 68%, the sponsor's promote clock and your interests lined up by accident. A sponsor sitting below their pref hurdle has every reason to hold and lease up. Yours sold instead, which either means the price was strong or they had a debt maturity they didn't feature in the update letters.

Honest question since I'm saving toward a first duplex. Your $10,000 came back as $15,800 in three and a half years with zero phone calls. Same $10,000 as part of a down payment gets me depreciation, an amortizing loan and a tenant who texts at midnight. I genuinely don't know which one I'd rather have had, and I notice your version required no skills I don't have yet.

Had to go through this twice. Equity multiple is total cash back divided by cash in, so 1.58x, and IRR is that same result spread across time so it can be worse when the deal runs long? Rena's numbers above made it click that the exact same $15,800 would be a much weaker result at month 60.

juniper, that's it. Same dollars, more years, worse rate.

halyard, what I want from a deal is no surprises, and the pause letter would have been a surprise even if it turned out fine. Did the sponsor tell you in advance that pausing distributions was a normal step for them, or did the letter arrive cold?

Climate controlled additions on excess pad usually run into parking and impervious surface limits before they run into building code, and how that gets reviewed varies by state and even by county. Seven months of delay is very ordinary for that. If the sponsor budgeted contingency in time rather than only in dollars, that is worth noting about them.

Does any of this scale down? I look at towns of five and six thousand people and storage keeps coming up as the thing that pencils there, but a 90,000 foot facility with climate control is not what exists in those markets.

Two things I'd want before I ever wired into something like this. What did the debt look like, fixed or floating and when did it mature, because that answers sable's question about why they sold at 68%. And what happened to the investors who were in the sponsor's earlier addition deal that missed lease-up by 11 months, did they get their money back at all or did they just wait longer? A pattern of surviving badly is different from a pattern of surviving.

I didn't know ten grand got you into a storage facility. I assumed everything like this started at six figures.