Flew out to walk the building, read the waterfall instead

I had a flight booked to look at a suburban office-to-medical conversion where I'd been offered a preferred equity slice. Sponsor was good on the phone, the market made sense, and the senior lender had already committed at a number that left a hole about the size of what I was being asked for.

Got there. Walked the building for about forty minutes. It was fine. Roof was newer than I expected, the parking was better than the photos, and the sponsor's project manager knew the mechanical systems cold, which usually tells me something.

Then we sat in the leasing office and I asked for the distribution waterfall. Not the summary in the deck. The actual language.

Spent three hours on it. The current pay was 9 with 4 accruing, which is fine at a 13 target. What stopped me was the order of operations after a capital event. The document paid accrued return after return of capital, and it paid the sponsor's promote off a number that didn't subtract the accrual first. In a good outcome that's a rounding error. In a mediocre outcome where the property sells for close to the debt plus my basis, the promote was getting paid ahead of money I was owed. Not by design as far as I could tell. Somebody drafted it fast and nobody read it in that order.

I marked it up, handed it back, and the sponsor's response was that no lawyer had ever raised it. Which I believe. Their lawyer wasn't the one who'd get shorted.

We fixed it. I'm in. The building was the least interesting thing I looked at that day, and I flew across the country to see it.