Six weeks modeling extended stay against full service and I still haven't picked

They won't share the source on the number the whole thesis rests on. That's the answer on B for me, and it isn't about the number being wrong. If they're guarded now, they'll be guarded in year two when the PIP is over budget.

14,000 square feet of meeting space and a restaurant means a full food and beverage operation with its own management, purchasing, and loss potential. F&B departmental margins are thin at the best of times and negative at plenty of full service hotels. Does the sponsor's $3.1M break out F&B departmental profit separately, or is it buried in a blended number?

$110k a key for a 1998 full service with $41k a key of PIP puts you at $151k all in, which is the same basis as the 2016 extended stay that needs nothing. You're paying identical money per key for a building 18 years older with four times the operating complexity.

$8.6M PIP on a 210-key full service is where I'd spend my worry. Renovation side, that's not a soft goods refresh. Meeting space, public areas, guestrooms, and probably back of house on a 1998 building. Questions I'd want answered in writing before anything else:

How many rooms out of service at peak, and for how many months. If they're taking 60 rooms offline for six months, revenue during construction isn't trailing revenue, and displacement is the line sponsors underestimate most.

Is the $41k/key the brand's issued scope or the sponsor's estimate of what the brand will issue. Big difference.

What's the contingency, and is it inside the $8.6M or on top. On a 27-year-old building I'd want 10% minimum and I'd expect to use it. Anything mechanical or ADA-related in public space has a way of expanding once walls are open.

Also, who's carrying overruns. If it's the joint venture pro rata, you're signing up for capital calls you can't size yet.

I want income without a second job, so the way I see it is simple and maybe too simple. A is 7.5% in place today from a building that doesn't need anything. B is 6.2% in place and then you write another check and wait four years. Why is B even in the running?

@marlow because if the group business shows up, B goes from 6.2% to over 13% on original basis and the exit is on a much bigger NOI number. That's the trade. Whether it's a good trade depends entirely on the assumption @windlass can't verify.

@windlass, you can partially verify it. The convention facility's booking calendar is often available or obtainable, and city or county tourism bodies publish room night data in a lot of markets. Call the facility and ask about definite bookings for the next 24 months. Also pull the hotel's own group rooms on the books versus same time last year. If group is really at 88% of 2019, the hotel's group segment should show it and that's in the P&L segmentation the sponsor already has.

Naive question, but what does length of stay 5.8 nights do for the extended stay economics specifically? Is it just fewer check-ins?

@wren fewer arrivals and departures per occupied room, so less front desk labor per room night, and stayover service is lighter than a full clean, so housekeeping hours drop. Linen and amenity costs drop too. That's most of why @windlass sees labor per occupied room at roughly half. It also means the guest base is different, project workers, relocations, medical stays, and that base tends to be somewhat less volatile than transient leisure. Somewhat, not immune.

The service side of B is what I'd look at hardest. A 1998 full service with a restaurant and banquets needs a general manager, a director of sales, a food and beverage director, an executive housekeeper, and an engineer, and in a secondary metro those five hires are genuinely hard to make right now. Ask the sponsor who the operator is and whether that team is identified or hypothetical. A great pro forma with an unhired sales director is a document.

What stands out here is that @windlass said the return in B depends on group business returning to 2019 levels, which means the base case is that a pattern from seven years ago comes back. In A the base case is that the current numbers keep happening. Those feel like very different kinds of bet even before the construction.

Secondary metro, interstate-adjacent, project-driven demand. I'd want to know what's under construction within five miles of each. New supply is what kills a stabilized extended stay, since it's the cheapest product to build and everyone builds it at the same time. A's 79% occupancy at $150k a key is attractive to exactly the developer who'll put 110 new keys up the road.

@hollow is naming the risk in A that this thread otherwise skipped. @windlass, the extended stay downside isn't operations, it's supply. Pull the pipeline. Building permits and the local planning agenda will show you more than the sponsor's market study, which was probably commissioned to support the deal.

Running a small team, the other thing I'd check in A is who actually operates it. Extended stay is simpler, which tempts sponsors to self-manage or use a thin third party. Simpler still means revenue management, and at 79% occupancy the upside is rate, which takes a real revenue manager.

I'll ask the embarrassing one. @windlass, you said you don't trust that you're leaning A for the right reasons. What are the wrong reasons you think you might be leaning A for? Because from outside it reads like you're leaning A because you can verify A's numbers and you can't verify B's, and that seems like the right reason.

The other thing nobody's said directly: neither is your only option. You've met the sponsor twice. Six weeks of modeling and you still can't get the source on the one assumption that carries the deal. Maybe this quarter's decision is another two references on the sponsor and the pipeline data @hollow and @cobalt are pointing at, and the money moves next quarter.