Steel and sitework overran 19 percent, so distributions stopped for six quarters

Went through this twice and the vocabulary is still tripping me up. What's a sleeve? And a capital call means they can ask for more money after you already wired the $200k?

@priya_n21 when they paused distributions, did the LPA actually let them, or did they just do it and tell you after? I'm asking because a friend got the second version and it turned into a very long email chain.

A deal shaped almost exactly like this came up in late 2022 and got passed on for a fairly small reason, no straight answer on who signed the contractor agreement. Felt overly cautious at the time. @omar_haddad's point about permit timing is the thing most people would miss entirely.

The absorption number is where the energy should go. 3.5 percent of net rentable per month to 90 percent is an aggressive but not crazy assumption for infill storage in a market with household movement. It's a fantasy in a market where existing homeowners aren't moving, because the life events that fill storage in year one are moves. What compounds it is filling into a declining street rate. A pro forma built on a $1.15 per foot street rate that discounts to $0.92 to hit occupancy doesn't just arrive later, it arrives at a lower revenue plateau, and the exit cap gets applied to that plateau. A 20 percent revenue miss at a 6.25 percent cap on a $4M asset is real money against basis. @priya_n21 worth asking whether the GP published a same-store or same-asset street rate series during lease-up, or just occupancy. Occupancy alone during lease-up tells almost nothing, an operator can buy occupancy with a $1 first month and free lock. The rate series and the discount percentage side by side, monthly, is the number that matters.

Mechanically, a paused distribution works one of two ways. Either the money is deferred, or it accrues as a liability owed to the LP, layered onto the preferred return balance. "Preferred return accrues" is meaningful when the documents track an accruing balance that compounds and gets paid ahead of the sponsor's promote later. It is decorative when nothing forces that catch-up. The operating agreement waterfall is where that lives, not the deck.

@chriswalton8 it depends entirely on the document, which is the unsatisfying answer, but the two shapes are cumulative and non-cumulative. Cumulative means unpaid pref piles up and has to be cleared before the GP gets promote. Non-cumulative means the quarter passes and it's gone. I only learned the difference because someone here made me go find the word in a doc I'd already signed.

@chriswalton8 it accrues if the LPA says it accrues, and the sentence you want is usually in the distributions article, not the definitions.

@priya_n21 the clause I'd go looking for in yours is whatever permits fund-level cash to cover asset-level shortfalls. Some funds ring-fence development assets so a shortfall there hits only that asset's reserve and then the GP has to choose between a call, rescue capital, or handing keys back. Yours plainly doesn't ring-fence. That's a design choice the GP made and disclosed somewhere, probably in one sentence you and I both skimmed.

The other document worth pulling is the fund's borrowing base or facility agreement if they have one. If stabilized assets are pledged to the same lender group financing lease-up, the paused distribution wasn't really a discretionary decision by the GP at all, it was a covenant. Different problem, different conversation to have with them.

The interest reserve exhaustion is the piece worth chasing from the debt side. On construction and bridge paper, the reserve is usually sized off the lender's own absorption view with a haircut, and when it runs out the deal moves into an extension test with a debt yield or a debt service coverage hurdle. Failing that test is what triggers cash sweeps and fresh equity requirements, and the sweep is often what actually stops distributions. Terms vary a lot by lender and by vintage, so anything specific about extension conditions is worth confirming in writing with the actual lender rather than taking it from a sponsor's summary. Asking the GP for the extension section itself is the right move. @priya_n21 worth checking whether there was a rate cap in place, and whether the cap cost got charged to the fund on extension. That's the line item that catches people off guard most often.

I'd read one more page before I decided how bad this is. In most of these documents there's a clause that says an overrun above some threshold, often 10% of budget, is a "cost overrun event," and it names who funds it. Sometimes it's the GP out of its own pocket up to a cap, sometimes it's the LPs pro rata, sometimes it's a mandatory GP loan to the fund at a stated rate that sits ahead of your pref. That last version is the one that costs you the most without ever looking like it (I've seen it written as a 12% GP loan with accrued interest payable before any LP distribution). @priya_n21 if your call was pro rata to LPs, then either the GP had no first-dollar obligation or it had one and waived it with LP advisory committee consent. Worth knowing which, because the second one means somebody voted for this on your behalf. And on @omar_haddad's point, the strongest version of it is that a 5% contingency plus a 20-month interest reserve are the same assumption written twice. Both are betting on the schedule. One document, one bet, two line items. You want them independent.