First deal as GP, and I can't make the promote worth the guaranty

Your 585k NOI is the problem, not the exit cap.

Work it forward. 40 renovated at 1,180 is 47,200 a month. 24 classics at, say, 990 is 23,760. That's 70,960, or 851k a year. Add 5% other income and you're at about 894k gross. Take 7% for vacancy, concessions and bad debt and effective gross is roughly 831k.

To land on 585k of NOI you need operating expenses of 246k. That's 3,850 a unit on a 1983 garden asset with individual HVAC, current insurance pricing and a tax bill that gets reassessed after you buy. I don't believe it. 5,200 a unit is the number I'd start with, which is 333k, and NOI comes in near 498k.

At 498k and a 5.75 cap you're at 8.66M. Pay off 5.31M and you distribute 3.35M against 2.86M of equity plus whatever the pref has accrued. That's not a promote conversation. That's a break-even conversation. What's your actual expense line, item by item?

The five year exit is doing a lot of unpaid work in this model. Bridge debt with 36 months plus two extensions means the refinance or sale decision is made for you in year 3, not year 5, and it gets made in whatever market exists then. I'd want to see the version where you hold seven years because nobody will buy at your number in year 5. Does the structure survive that, and does your pref keep accruing the whole time?

Slow question. Cumulative non-compounding pref, does that mean if you can't pay the 8% in years one and two while units are down, it just stacks up as a number you owe them later with no interest on the unpaid part? And does that stacked amount get paid before your 70/30 split kicks in, or alongside it?

You've got 350k covering closing, financing costs and the rate cap all together. Get a live quote on the cap this week, in writing, because that's a real line item that has moved a lot and lenders size the strike where it protects them, not you. And ask what the extension tests are. Mine had a debt yield test on the second extension that I did not read carefully enough and I spent a very bad spring buying it down with cash I'd earmarked for roofs.

Backing ledger up with the specific lines. On 1983 garden product I'd model taxes on a reassessed value near your purchase price, not the seller's assessment, and in some states the reassessment on transfer is automatic so it hits your year one. Insurance on two-story frame in the southeast has been the single worst surprise in every set of books I've reviewed in the last two years, so get a bindable quote before you clear diligence rather than a broker's estimate. Then payroll, because 64 units cannot support a full time maintenance tech and a manager, so you're sharing staff or you're paying a management company that charges 4% on a small asset with a minimum fee.

Separately, your 10% return on cost on the interiors is thin for value-add. I look for 200 to 250 basis points over where the market caps trade before I'd spend 1.12M of somebody else's money on interiors, and yours is roughly 425 over your entry cap, which is fine if the premium holds. The risk is that 40 renovated units in one submarket is you competing against yourself on lease-up.

As the guy who reads these decks from the LP side: a 2% acquisition fee on a first deal with no realized track record gets me to no on its own. 128k off the top before a single unit turns, from a sponsor whose only closed deals are renovations, reads as fee-driven whether or not you mean it that way.

And ledger's expense point is the real answer to your question. You're asking whether to restructure the promote, and the numbers say there may be no promote to restructure. Fix the expense stack first, then decide what to charge.

What I'd actually pay attention to: your 150k co-invest is 5% of equity. Where did that money come from, and what happens to your ability to fund a capital call if the reno runs 200k over?

How are you modeling the second tier, deal level IRR or LP level IRR? Those give different promote numbers and I've seen decks that use one in the text and the other in the model. The 13% hurdle on which basis matters to your 480k figure.

Does the site have surplus land? Two-story walkups from that era often sit on more dirt than they need, and a pad or additional parking can be worth something at exit even if you never build. Worth pulling the survey and the zoning before you commit to a five year story that depends entirely on interior rents.

What happens if the raise lands at 2.1M instead of 2.7M? That's my question every time and it's usually the one that hasn't been answered. Do you have a backstop, a co-GP who takes down the balance, a hard deadline with the seller, and how much of your deposit is at risk on the day you go hard? A first raise takes longer than you think because every LP wants to talk twice.

On the documents, four things I'd want settled before the PPM goes out.

First, capital call mechanics. Is a shortfall funded by a member loan at a stated rate that repays ahead of the pref, or by dilution, and at what price. That clause decides who really owns the deal in year 3.

Second, promote crystallization. If you refinance in year 3 and distribute proceeds, does promote get paid then, and is there a clawback if the sale underperforms. Without a lookback you can get paid on a refi and the LPs eat the difference at exit.

Third, GP removal for cause, and how cause is defined. LPs who've been burned read that section first now.

Fourth, the affiliate fee schedule. If your own construction company is doing the 1.12M, the construction management fee and the markup both belong in the offering documents in plain numbers.

This is a securities offering, so the drafting belongs with a securities attorney, not a template.

Ask the bridge lender for the guaranty language before you fall in love with the deal. On a value-add bridge you're often looking at a completion guaranty on the capital plan plus a carve-out guaranty, and some lenders want a net worth and liquidity covenant maintained for the whole term. That last one is what makes the promote math irrelevant, because it constrains what you can do with your own money for three years. Confirm the actual terms in writing with the lender, they vary a lot by shop.

1.5% asset management on effective gross revenue is the line I'd argue with. On invested capital it's a fixed number the LPs can predict. On revenue it grows as you succeed, which sounds fair until you notice it also grows when you raise rents by cutting concessions and collections slip, because gross revenue and collected cash aren't the same thing. Define the fee on collected revenue if you keep that basis.

Also check the definition of distributable cash in your draft against the reserve replenishment clause. I've read two LPAs where the sponsor was allowed to top reserves to any level it deemed prudent before distributions, which means the pref never technically goes unpaid and never technically gets paid either.

How did you get comfortable signing a guaranty on 5.31M against a 150k co-invest? Genuinely asking, that ratio is the part I can't get past when I read these.

Pushing back a little on canton. A waived acquisition fee doesn't make a first-time sponsor credible, it just makes the deck cheaper. What made me commit to a first raise I looked at was the sponsor showing me his last four renovation jobs with the original budget next to the final invoice, including the one that went 31% over and why. harrow, you have exactly that record and it's more convincing than fee gymnastics.

Separate thing: who are the 2.7M of LPs? If it's twelve people at 225k each, one of them changing their mind is 8% of your equity and probably your closing date.

I'd rather see 1% acquisition, 300k of your money in, and a 50/50 above a 15% hurdle than the structure you drafted. That trade pays you more than 480k if the plan works and it tells me you believe the plan. As drafted you've built something where your downside is protected by fees and your upside needs a cap rate you don't control. Though ledger's expense number has to get resolved before any of this matters, and I notice nobody has heard your actual T12 yet.

Who buys 64 units in that submarket at a 5.75 in year 5? That's too small for institutional money and priced above what a local buyer with agency debt can carry unless rents land where you say. My rural deals have the same problem in miniature, thin exit buyer pool, so I underwrite the refinance as the base case and treat a sale as the upside. Might be worth running your promote off a refi-and-hold instead.

Reading this whole thread twice. The part that lands for me is that you're personally on the hook for millions and the certain money in it for you is a fee you're considering giving up. Is that normal for a first deal, or is that a sign the deal isn't good enough?