Exited a 74-key co-invest at 1.72x after four years, with the PIP nearly eating it
Posting this because I've mostly been the person asking what a first deal costs, and this one closed and I can show the whole shape of it.
Sponsor was a regional operator with in-house management, which mattered more than anything else here. 74-key select service, interior corridor, secondary market with a hospital and a state university campus about a mile apart. Purchase was $6.2m, so about $84k a key. Equity was $2.4m, of which $600k was a co-invest sleeve and my check was $25k of that. Debt was fixed for five years, which I did not appreciate the value of at the time and now think was the single best decision in the deal.
In-place NOI at closing was $455k. PIP budget was $1.1m, about $15k a key, mostly soft goods, bathrooms, and the lobby. Model said stabilized NOI of $790k in year three.
What actually happened: the brand expanded the PIP scope in year two, added corridor and elevator work, and the budget went to $1.42m. There was a capital call for $290k. My share was about $3,000 and I paid it, which was not fun but also not the disaster it could have been because the sponsor called early rather than letting the work stall. Rooms were out of service for a longer stretch than planned and year two RevPAR came in 11% under model.
Stabilized NOI landed at $748k, a bit short of plan. Sold in year four at $9.4m, roughly a 7.95% cap on trailing. After debt, fees and the promote, distributions plus sale proceeds got me to 1.72x on $28k in.
What I'd keep: sponsors who run their own hotels, fixed-rate debt, and a PIP number I've stress tested at 30% over. What I'd change: I'd have asked when the license renewal fell relative to our hold, because that's what triggered the scope expansion and I didn't know to look.