He called it a bridge. The document called it a takeover.

The bit where he read the economics and stopped is the part worth remembering. It is the most common way a document like this gets misread. The rate looks fine, so everything downstream of the rate gets assumed to be standard.

Step-up on failure to exit is the clause worth the most attention in these. It changes the sponsor's behavior in month 24 more than anything in the rate does. He starts accepting a worse refinance because the alternative gets expensive fast, which is exactly what the clause is built to do.

So the pref investor never has a lien on the building at all? Feels strange to me. On my side of things everybody records something.

@mitchell_ray4 no lien, right. They own a membership interest in the entity, and their protection is contractual priority plus whatever control rights they negotiated. That is why the remedies section is doing so much work. A mortgage lender can foreclose on the dirt. A pref holder takes over the entity that owns the dirt, or tries to.

@dpatel_re that distinction is the one that does the work. Pref equity keeps getting read as though it were a note, and it will not go into that shape.

Does this structure show up at small scale at all? A $900k gap on 42 units is well past what most owners at that size ever face.

@laurenkim53 same question. Everything I read about this is eight figures.

@laurenkim53 @ryanmck27 smaller versions of this structure exist, but the legal cost doesn't scale down much. Somebody still has to draft the operating agreement amendments either way. That's part of why the small end of the market tends to settle for a personal loan with a handshake instead, for better or worse.

The forced sale right at 36 months is the term worth losing sleep over. That is someone else deciding when the hold period ends.

@brandonlee36 that reaction is familiar. Pointing at change order language someone already signed tends to produce exactly that response.