Cash or a 12% piece for my interchange parcel, and I can't value the piece

Rough frame on what they're implying. If the project costs $19M and you're contributing land they'd otherwise pay $1.35M for, and they're giving you $600k of that in cash, then $750k of land value is your contribution. $750k on a $19M project is about 4% of total cost. Equity in these is usually a chunk of that, say $5.5M to $6.5M. Your $750k against $6M of equity is around 12.5%.

So the 12% is roughly your land value expressed as an equity share, not a premium for taking the risk. That's the first thing I'd push on.

"Non-diluting for the first round" usually means your 12% stays 12% through the initial equity raise. It says nothing about later rounds. If construction goes over and they raise more, that's a later round, and you either write a check or your 12% shrinks. Ask them to say in writing what happens to your percentage if the project needs another $2M.

Two weeks isn't a deadline, it's a negotiating tactic. Ask for the partnership agreement and the pro forma and see if the two weeks survives contact.

I run property management, hotels aren't my side of it, but the piece I'd want to see is who the operator is going to be and what they're getting paid. A dual-brand build is two brands under one roof sharing back of house. It's efficient on paper and it's a lot of moving parts in practice. If they haven't named a management company yet, the deal isn't as far along as the two week deadline suggests.

I'd disagree with the general instinct in this thread to take the cash. You bought interchange land nine years ago because you thought hospitality would land there. It landed. The equity slice is the only version where you get paid for being right about the location rather than just getting paid for the dirt.

Even so, @lantern's dilution point is the whole thing. If they can wash you out with a capital call you can't fund, the 12% is decoration.

$19M over 110 keys is about $173k a key all in including your land. From the trades side that's tight but not fantasy for select service, depends heavily on where you are and what the site work looks like. 6.1 acres at an interchange might have detention, utility runs and a deceleration lane in it. Ask whether their $19M includes offsite work, because that's where I've seen budgets go sideways and you'd be eating 12% of the overrun.

@parcel made a point and then talked past it, and it's the one that sticks with me after five years of running a service business. He's a land person. Hotels reprice every single night and live or die on how a management company performs when nobody's watching. Taking a minority stake in an operating business you have no ability to influence, in the most cycle-sensitive property type there is, is a different life than owning dirt.

$1.35M and go buy two more parcels you actually understand.

@solder is right about the number and I'd add the schedule. 18 months of construction is a real 18 months only if they have permits and a GMP contract. If they're quoting 18 months off a concept plan, add six. Every month of delay is interest carry on the construction loan and it comes out of the equity before anybody's preferred return, including the pile your 12% sits behind.

Documents to ask for, in this order:

The partnership agreement. Specifically the capital call section, the dilution mechanics if you don't fund, the waterfall, and whether you have any consent rights on a sale or a refinance.

The preferred return terms. You said you're behind their pref. Find out the rate, whether it compounds, and whether it's cumulative. A cumulative compounding pref on $6M of equity accruing through a two year construction period plus a three year ramp is a large number that eats first.

The promote. After the pref is paid, the sponsor typically takes an outsized share of what's left. Your 12% is 12% of what's left after two haircuts.

Contributing land into a partnership rather than selling it has tax consequences that differ a lot by how it's structured and by state, and that's a conversation for your CPA before you sign anything.

I'm still learning this stuff so tell me if I've got it wrong. Does the pref mean they get paid a return on their money before parcel sees anything at all, even though the land was there first? That seems backwards for the person who supplied the site.

@vellum, yes, that's how it usually works, and it isn't backwards. The land got converted to equity at closing, so it's treated the same as cash equity of the same size. Whether parcel sits at the same level as their cash or behind it is exactly the question to ask.

Parcel, the underwriting question I'd want answered before any of the document stuff. Yield on cost versus exit cap. $19M all in, what's their stabilized NOI assumption? If they're saying $1.9M, that's a 10% yield on cost, and if hotels of that type trade at an 8.5% cap, there's $3.4M of created value before fees. If their stabilized NOI is $1.55M, that's 8.2% on cost and there is no spread, and the deal only works if cap rates move in their favor. Ask for the stabilized NOI and the exit cap in the same sentence. Their answer tells you whether the 12% is worth reading documents about.

Also ask what occupancy and rate they need in year three, and then go count the hotels already at that interchange.

Nine years of holding a parcel says something about how you like to own things. The equity slice gives you six years of somebody else's construction schedule and a hotel's occupancy report. @sextant's spread question is the right filter, and if the answer is thin I don't think you'll enjoy the ride even if the money works out.