2 Capital calls in 2 weeks! Ouch

[Solomon Rosenberg]

Within the past 2 weeks I got 2 capital calls from different sponsors, I'm assuming that there are many deals in similar situations.

The sponsors are saying, If they have enough capital to bring occupancy to 90% they will have better options to refinance or sell. That's true, however what if they can't deliver on the occupancy in a short period.

They say it's not a good market to sell now. True again, but what if interest rates stay volatile for longer than expected, and the market stays locked up longer.

Meanwhile the property is bleeding 6 figures monthly, and the added capital will only go so far, unless there is a major change in the interest rates soon, and that doesn't seem likely.

They also say if we don't infuse more capital we may lose our principle too, as they will be forced to sell at a loss. That is possible, but this may end up happening anyway.

So, what's the call? Do I put more money into these deals, or do I accept a dilution of my shares and put my money elsewhere?

Here is the thing - our brains are wired to be more sensitive to a loss compared to the possibility of even a much larger gain and we are biased to try and stop a loss.

I think I need to take a step back and think about this like it's a totally new deal, and I have no stake in it, would I invest in this deal now based on all the facts?

What do you think?

[Chris Seveney]

@Solomon Rosenberg

I was on a call a month ago with about 50 people and someone asked similar question, one of the people commented

“Has anyone ever had a capital call and the project turn around”

You could hear a pin drop. Before I would provide any capital I would want to see an updated proforma based on current situation and interest rates remaining where they are for the next 36 months. Also an analysis of if they have to sell now

Also is the sponsor waving their fees and reducing equity split for any calls?

Unfortunately in both scenarios you are probably getting wiped or losing almost everything