Comparing two open-end debt funds with the same gross coupon and a 130 basis point gap on net, once leverage is priced in

Who services the loans in each one? If A is self-servicing 118 loans with modifications running through it, that's a different operation than B outsourcing 64. I ask because I've watched a servicing shop drop the ball on escrow and nobody upstream knew for two quarters.

19 second extensions on 2021-22 multifamily bridge is the whole story to me. I've been the borrower on that shape of loan. A second extension usually means the renovation budget blew through, the rent bump didn't land, and the exit refi doesn't pencil at today's rates. The lender extends because the alternative is owning it.

Doesn't automatically mean loss. Extension fees are real money and the sponsor is still paying. But I'd want to know how many of those 19 are current on cash interest versus accruing, because those are very different animals and both get reported as performing.

A repo facility is short term borrowing the fund takes out against its own loan book, typically from a bank, and it's marked to the lender's valuation of the collateral rather than the fund's own marks. That's why the lender effectively has a say in the marks: if the bank marks the collateral down, the fund can face a margin call regardless of what its own books say the loans are worth.

Following. The bit about asking twice and getting a summary page would be my whole answer honestly.

What does a 5% quarterly gate mean in practice? If everyone wants out at once do I just get 5% of my money back per quarter until it runs out?

0.85x isn't the problem, sextant. Advance rates on seasoned first mortgage collateral aren't wild, and plenty of credit shops run more. The thing worth chasing is the margin call trigger. Is it a mark on the loan, a mark on the collateral, or a covenant on the fund's NAV? Those three fail at completely different moments. If they won't send the facility docs, that's the answer, and it points toward Fund B.

Five weeks is a long time for a document that already exists.

Has either fund ever actually gated? The history matters more than the policy. Ask Fund A for quarterly gross redemption requests against redemptions paid for every quarter since inception, and ask for it in table form so nothing gets smoothed over in prose. A fund that has never lived through a stressed quarter has gate language that is still theory. Also, 90 days notice on a quarterly window means the real exit could sit five months out from the day the decision is made. That deserves more weight than 130 basis points.

Splitting 50/50 solves the discomfort rather than the question. You end up owning the tape you do not trust, just less of it.

@devon_pierce that is fair, but the other read is that A's 41% multifamily bridge concentration and B's 64-loan book both have concentration problems, just in different directions. 64 loans at $310m means an average of five million a loan. Lose two and a year of coupon is gone. Sextant, do you have B's largest loan as a percent of NAV? Top ten exposure on both is the figure to ask for.

Nobody has asked about geography. 118 loans could be 118 loans in four metros. Where are they?

If any of that book is ground-up construction, draw administration is the risk that never shows up on a tape. A familiar pattern is a lender whose inspector comes out every 45 days and signs off on work that was not done. On paper that loan reads as 62% LTC while the building is 40% complete, and nothing in the tape tells you. Ask who does the draw inspections and whether it is an employee or a third party.

The borrower @omar_haddad is describing is easy to find right now. Picture an owner who bought small multifamily in 2021 with a bridge loan he was sure he would refinance out of by 2023, and could not. He took an extension, paid the fee, and stays current only because he keeps putting more of his own cash in. From the fund's side that is a performing loan. From his side he is one bad quarter from a conversation.

What's the fee load on each? You gave net targets but not what's coming out to get there.

When an answer takes three weeks it is usually because someone has to ask permission. That is not a bad sign on its own. It means the document says something they would rather explain over the phone.

Went through this twice and I'm still only catching maybe half. Saving it.

@megan_doyle15 same. The part I did follow is that the higher return isn't coming from better loans, it's coming from borrowing at the fund. That reframed the whole thing for me.

A useful test when comparing two managers like this is whether they will send a tape at all at loan level. One manager will send it unredacted except for borrower names. Another sends a chart with buckets. Score each loan on vintage, extension count and cash pay status, and the chart fund cannot be scored, so it drops out by default. Sextant, if A gives you 118 rows you can do that in a weekend.

The extension fee income running through the return is the line worth staring at longest.

Waiting five weeks costs you nothing but five weeks of B's 7.2 on part of the money. That's a small price for seeing the facility docs. I'd hold the whole thing rather than commit into a document you haven't read.

Any land or entitlement loans in either book? Those get bucketed as bridge sometimes and the collateral behaves nothing like an occupied building. No cash flow, no cushion, and the exit depends on an approval that may not come.

Asking the thing I'd be embarrassed to ask out loud. The 5.5% index figure is gross of fees and A's 8.5% is net, so A is claiming to beat that index by a lot more than 300 basis points once you gross it back up. Is that plausible from 0.85x leverage alone, or is something else in there?

@jessreyes12 leverage plus extension fees plus origination points retained at the fund. Points can add a lot in a year when you're churning short paper. It's plausible. It's also the kind of income that stops the second originations slow down.