My storage JV is projecting 92% occupancy by month 18 but the comp set in Murfreesboro, TN is sitting at 79% and has been there for almost two years.

The promote-before-proof structure is what would kill it for me. I was in a industrial flex JV in Smyrna where the sponsor hit their promote at month 14 on paper occupancy that collapsed to 61% actual by month 20, and by then the waterfall had already paid out.

That 79% comp set sitting flat for two years is the number I keep coming back to. The sponsor assumption that always breaks first is the one about why their asset will outperform the submarket by 13 points. It is almost always "superior amenity mix" or "better digital marketing" and I have never once seen that close the gap in a market where street rates are already under pressure. What happens instead is they hit 82 or 83, declare stabilization close enough, and the promote clock starts anyway because the waterfall language is loose on the definition of stabilized occupancy. Murfreesboro had a real supply wave come in around 2021 and 2022, and that absorption hangover does not clear in 18 months if new deliveries are still in the pipeline within five miles. I'd want to know exactly how the waterfall defines occupancy, physical or economic, and what trailing window it uses, before I got comfortable with where that $340k sits.

That 11% rate drop on Climate Select is the tell. Sponsors almost never update street rate assumptions mid-hold because it would torch the promote math before the promote hits, so the pro forma just quietly stays wrong.

I've never seen a market claw back 13 points of occupancy in 18 months when the comp set has been glued at 79 for two years. What actually happens is the sponsor hits month 18, reforecast quietly, and the promote threshold gets waived or renegotiated in their favor.

Murfreesboro added a lot of supply off the I-24 corridor in 2022 and 2023, and that absorption drag is real. Ask them specifically what their stabilized comp is and whether it opened pre or post that supply wave.

92 to 79 is not a rounding error, that's a structural gap and a 18-month timeline in a market that's been stuck for two years doesn't close it. I'd go back to the sponsor and ask what the waterfall looks like if occupancy plateaus at 81 and street rates drop another 6 before stabilization, because that's closer to what Murfreesboro is actually telling you. If the promote still hits under that stress case, the deal is structured wrong and I'm out.

The flat street rate assumption is the one I keep staring at too. If the comp set has been at 79 for two years that's not a lease-up market, that's an equilibrium, and the sponsor is essentially betting they outperform a ceiling that nobody else has broken through. I looked at a deal in Smyrna about eight months ago where the underwrite had Climate Select at $1.18 per sq ft and by the time I was doing diligence actual asking rents were $1.04, which is almost exactly that 11% gap you're describing. The promote structure pulling $340k of value forward before stabilization is the part I couldn't get comfortable with either, because if month 18 comes in at 83% instead of 92% the sponsor has already been paid on a projection, not a result.