Went from 2.2% to 0.6% in a rescue round. The consent clause didn't stop it.

Every version of this story I've read starts in 2021 with a bridge loan and a rate cap. The document analysis is interesting but you'd have needed the same protective clause and a deal that didn't depend on a floating rate holding still. One of those two would've saved you and it wasn't the clause.

I've held things for eleven years that looked dull the whole way through and never once had a 20-day window to decide anything. That's the trade.

Can someone explain the 1.5x preference to me in order of payment? Is it that the rescue money gets $3.6M back on $2.4M before the original LPs see the first dollar, and the 15% accrues on top of that, or does the 15% count toward the 1.5x?

@vellum usually the 1.5x is a floor and the accrual counts toward it, so whichever is greater at exit. Either way the original equity is behind a big number.

@warrant I've been on the sponsor side of a call, smaller, 44 units, and I'll say the unpopular part. When the lender wants money in three weeks the alternatives are rescue capital at ugly terms or handing the keys back. I priced ours at 12% with a 1.25x and I still had two investors tell me I was stealing. The ones who wrote checks into the call are made whole today and the ones who didn't are diluted, and I don't know what else I could have done with the clock I had.

Where your sponsor was wrong, if they were, is the affiliate votes and taking units in lieu of fees without making that loud. That should be on page two of every offering.

The dilution was the symptom. The deal died in the underwriting file.

2021 bridge deals I reviewed were routinely written with exit caps 25 to 50 bps below going in, rent growth over 6% for three straight years, and a cap that only had to work for the term of the initial loan. Take any one of those back to a neutral assumption and the equity doesn't clear. You can't paper your way out of an exit cap assumption.

@warrant, the question that would've caught this in an hour: what happens to your DSCR at a 7% all-in rate, and who funds the gap. If the answer is a rate cap that expires 24 months before the loan matures, that's the whole risk in one sentence and it has nothing to do with consent provisions.

What I now ask for before any LP wire, built mostly from stories like this one:

Cap table with every class, holder type, and voting weight. Names redacted is fine, affiliate vs third party is not optional.

Whether the GP is taking any compensation in units rather than cash.

The rate cap: strike, term, expiry date next to the loan maturity date, and who pays for the replacement.

A written answer to "what is the plan if the lender asks for a paydown in month 30." I don't need a good plan, I need to see whether they've thought about it.

The last two full-cycle deals with original projections beside actual results.

@sextant is right that the underwriting mattered more, but @warrant's version of the failure is the one people can actually check in advance. Bad assumptions look reasonable in a deck. A cap table doesn't argue back.

@canton that list is going straight into my notes. The part I can't tell from outside is what a normal answer to the paydown question even sounds like. If a sponsor tells me they'd fund a gap from reserves plus a member loan at 10%, is that a good answer or a rehearsed one?

@warrant, did anything in the reporting between month 20 and month 31 hint at it, or was the call the first you heard?

I almost put money into something similar and passed for an unimpressive reason: the sponsor's quarterly reports came late twice and the second one didn't include the debt terms at all. Never got to the cap table.

A land syndication I did join has a clause that new capital can only come in on the same terms as existing capital unless 75 percent of unaffiliated members approve. That word unaffiliated is doing all the work and I only understand why after reading this.

@arbor unaffiliated is the word I'm going to look for from now on.

@warrant, the thing I keep sitting with is the 20 days. Slow decisions are basically my whole method, and a structure that can force me into a wire decision in under three weeks is a structure I can't participate in properly no matter how good the sponsor is. That's not a criticism of you, it's me realizing I need to ask what the shortest fuse in the document is before I care about the returns.