Lent $120k to a sponsor's GP entity so they could make their co-invest. Got $31k back.
I've been looking at the lending side rather than owning, and eighteen months ago that looked like an easy way in. A sponsor I'd met at a local meetup had a 96-unit under contract, all the LP money was committed, and he was short on his own co-invest. He asked me for $120k as a short-term note at 12%, interest only, balloon at 24 months, and he'd been very open about the deal all the way through. I said yes in about a week.
What I actually bought, which I understood much better later: an unsecured note to the GP LLC. Not the property. Not the borrowing entity. The GP LLC's only asset was its own membership interest in the deal, and I had no pledge of that interest, no UCC filing, no personal guaranty. If I'd asked for a pledge and he'd said no, that would have told me something. I didn't ask.
The deal itself hit a bad renewal cycle plus a floating rate that reset twice. Fourteen months in the sponsor ran a rescue round. New money came in senior to the existing equity, which means the GP's interest, which is the thing standing behind my note, got pushed down the stack. He stopped paying my interest in month sixteen. I'd received $19k of interest by then, and after a long and depressing negotiation I took $12k as a settlement and released the note. So $31k back on $120k.
What I'd do differently: take a pledge of the membership interest and have a lawyer paper it properly, and underwrite the actual deal rather than the person telling me about it. I never once built my own model of the 96 units. I lent against how comfortable I felt in a conversation, and comfort isn't collateral.