Six Peak IC Weekly Meeting

• The meeting focused on material deal retrades, contingency requirements tied to the GC contract and JV documents, and the resulting financing exposure across multiple projects.
• The team reviewed tax credit repricing, GP loan sizing, audit/disallowed cost treatment, and asset-specific closing items while discussing market headwinds in Los Angeles development and construction capacity.
• R4 lowered tax credit pricing from $0.83 to $0.80, materially worsening the equity gap and increasing reliance on GP loan and cash equity.
• The expected GP loan size is now roughly $2M–$5M, with current contingencies and retrades driving it toward the high end.
• R4 is insisting on effectively double contingency: a $1.1M contingency inside the GC contract plus a separate, highly restricted $2M owner contingency that the team cannot practically access; this structure would inflate the GP loan and likely require additional equity or guarantees.
• Kathy has been engaged because of the potential $2M cash exposure.
• The JV negotiation with MRK centers on treatment of auditor-disallowed costs.
• MRK proposes charging 6% as the cost of capital on any repayments from the waterfall; the internal position is closer to 12% and questions the reasonableness of 6% based on precedent and principle.
• There is no firm auditor identified; one estimate of potential disallowed costs is $200k–$400k but the ultimate amount is unknown.
• Asset-level updates: Wilton requires final payoff details plus minor property repairs before an anticipated late-August/early-September close.
• Loanoak is likely to close in August with a ~$2M cash-out refinance that will remove recourse.
• Riverton is expected to close next Monday after a two-month delay.
• Third Street was discussed from an underwriting and scoring perspective (191 units with 76 parking can score competitively due to neighborhood transit benefits), and the team debated buying R4 out of projects to avoid partnership costs and constraints if operational and guarantee risk is assumed.
• Market context and operations: Participants expressed frustration with repeated retrades, delays, limited tax credit investor appetite, high cost of capital, and structural contingency demands in the California affordable housing market.
• Leasing in Los Angeles is materially soft—three-bedrooms and studios are taking longer to lease—raising inventory and rent risk in neighborhoods with multiple new deliveries.
• Construction execution shows operational positives (GMPs progressing, Ramsgate on-budget and topped out), and faster-build, lower-cost product is currently capturing better pricing.
• The team discussed potential geographic diversification (Orange County, Northern areas outside the city, Arizona) without having completed market-level research.

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