WHEN THE DEBT SHOWS ITS FACE

A 200-Unit Multifamily Drill Using the Three Moves

Written by Jai Thompson

I manage a small private equity operation deploying 13–18 million per quarter across multiple asset classes. We move quietly, structure conservatively, and we tithe back into the communities we invest in.

This article walks through a realistic 200-unit multifamily scenario where the asset looks fine at first glance, but the debt is the real issue.

I’ll show:

• the exact initial messages

• how the conversation unfolds

• the math that kills or saves the deal

• the three outcomes

• and how I settle it cleanly every time

No hype.
Just structure.

THE ASSET (NO ADDRESS)

• Units: 200

• Asset class: Multifamily

• Market: secondary growth market

• Issue: existing debt looks “workable” until you run the math

MOVE 1 — SET THE FRAME (INITIAL OUTREACH)

Initial Broker Message (Email or Text)

Quick context before I look at the OM.
I manage a private equity platform deploying 13–18 million per quarter.
Before I review marketing materials, what changed operationally that caused this asset to come to market?

No pitch.
No credentials beyond capital.
Straight to why now.

BROKER RESPONSES (3 COMMON ONES)

Response A — Soft Transparency

“Seller fatigue. Expenses went up and coverage tightened.”

Response B — Defensive

“Everything is in the OM. Strong market, good upside.”

Response C — Honest but Guarded

“Debt maturity is coming and they don’t want to refinance again.”

YOUR RESPONSES (CALM + CONTROLLED)

To Response A

I hear that. When expenses increased, did urgency increase or did they try to hold on?

To Response B

Understood. I’ll review the OM, but debt and income decide quickly for me. If those are tight, it won’t fit my structure.

To Response C

That helps. Debt pressure changes everything. Let me see the numbers and I’ll tell you quickly if this is real for me.

You’re still in Move 1 — pulling truth.

THE NUMBERS (THIS IS WHERE IT BREAKS)

Broker Sends:

• FMV: $38,000,000

• Existing debt: $26,500,000

• Interest rate: 6.25%

• Annual debt service: $1,900,000

• Gross income: $3,600,000

MOVE 2 — APPLY STRUCTURE (RUN THE MATH)

Step 1: Leverage Test

Debt ÷ FMV
$26,500,000 ÷ $38,000,000 = 69.7% leverage

❌ Fail
Target for clean structure: ≤ 55%

Step 2: NOI Estimate

Conservative rule: 50% of gross

$3,600,000 × 0.50 = $1,800,000 NOI

Step 3: DSCR

NOI ÷ Debt Service
$1,800,000 ÷ $1,900,000 = 0.95 DSCR

❌ Fail
Target: ≥ 2.0

Step 4: Lender Yield Test

Lender position standard: 24% of FMV

$38,000,000 × 0.24 = $9,120,000

Yield = NOI ÷ Lender Position
$1,800,000 ÷ $9,120,000 = 19.7%

❌ Fail
Target: ≥ 25%

MOVE 3 — CONTROL (DON’T CHASE)

What I Say to the Broker

Thanks for the numbers.
Leverage screens near 70% and DSCR is under 1.0 using conservative NOI.
That’s too tight for a clean structure.

If the seller can reduce the debt position or demonstrate stronger net income, I’m happy to re-run it.

Then I stop.

No arguing.
No counter-offers.
No chasing.

EMAIL TO THE LENDER (TRANSPARENT + PROFESSIONAL)

Subject: Screening a 200-Unit Multifamily — Debt Constraint

Hi [Lender Name],

I’m evaluating a 200-unit multifamily where the asset itself is stable, but the existing debt is constraining the structure.

Quick snapshot:

• FMV: $38,000,000

• Existing debt: $26,500,000

• NOI (conservative): $1,800,000

• DSCR: ~0.95

• Effective leverage: ~70%

At these levels, the risk sits in the debt, not the operations. Unless the seller reduces debt or NOI materially improves, I’ll step back.

Wanted to keep you in the loop before bringing anything forward.

Best,
Jai

THE THREE OUTCOMES (ALL WINS)

Outcome 1 — They Open Up

Seller admits debt is the problem and explores a payoff or reset.

Next step:
You model a debt-relief + recorded price reset and re-screen.

Outcome 2 — They Commit

Seller agrees to restructure or bring cash to closing.

Next step:
You move to a full 85 / 45 / 24 stack and engage title.

Outcome 3 — They Disqualify

Seller insists on price and current debt staying intact.

Next step:
You step back clean and stay credible.

HOW THIS DEAL WAS SETTLED

This one failed cleanly.

• Asset was fine

• Market was fine

• Debt killed it

No money lost.
No reputation damaged.
No time wasted.

That is a successful outcome.

WHY THIS PROCESS WORKS

• You never argue valuation

• You never guess upside

• You let math decide

• You protect capital first

• You move fast without rushing

This is how institutional capital behaves.

FINAL THOUGHT

Most deals don’t fail because of price.
They fail because of structure denial.

I don’t negotiate with denial.

Structure over sacrifice.
Stewardship over struggle.
Every deal builds legacy.