Seller note at 11.5 percent on a 96-unit active adult, or the same money in the equity below it

Sponsor is buying a 96-unit active adult property, ten years old, currently 93 percent occupied, in a second-ring suburb. Agency-style senior debt is in first position at roughly 60 percent of price. I've been offered a slot in the mezzanine piece at 11.5 percent, interest only, three-year term, or the equivalent dollars in the common equity, which they're showing in the mid teens on a five-year hold.

I'm still learning paper, so what I'm chewing on is what the mezzanine collateral actually is. On a conventional apartment building, if things go badly, the thing behind the debt is a building full of leases that anybody can operate. On senior housing, even independent living without care services, some of the value is the programming, the lifestyle director, the reputation with adult children in a three-mile radius. If the sponsor fails and I end up in the capital stack holding a remedy, I'm holding a business with a soft edge on it, and I don't know how to price that.

Against that, the independent-living end of senior living is the lighter version. No care licensing, much less labor than assisted living, and the demand picture is about as strong as anything I've read about, with supply growth at a two-decade low. If the demographics do what everyone expects, a mezzanine coupon in front of the equity looks like getting paid to be less exposed.

The assumption I can't test is whether 11.5 percent is enough spread over the equity's mid teens to compensate for giving up the upside in a supply-constrained sector heading into 2027. Also whether my remedies mean anything, which I'm told depends heavily on the intercreditor terms and on state law, so that's counsel's read and not mine.

Where would you put it?