The dilution on a second capital call cost me more than the operating miss

Four years, no distributions, and a call on top. I don't understand why anyone signs up for construction risk and calls it an income position. That's a job with extra steps and no paycheck.

I've been on the other side of the 14-day notice. Not hotels, an 8-unit gut where the JV needed another $180k and my share was $44k I didn't have. I borrowed it at 14% for eleven months instead of taking the dilution, which cost me about $5,600 in interest. The dilution formula in that deal was 2x, so I'd have given up roughly $70k of exit value. Easy call once I actually did the arithmetic, which took me an evening because the formula was written in prose and not as an equation.

thicket, did you run that comparison at the time, or was there just no lender who would touch it in 14 days? Because that's the real trap. The math might say fund it and the calendar says you can't.

Slightly lost on the mechanics. When your percentage went from 3.1 to 1.7, does that mean your $200k stopped counting, or just that your share of the profit shrank while the capital account stayed the same?

harrow, I read it differently. The budget overage was $2.4M on a deal that sold for around $17.5M. The exit was $28k a key under underwriting, which on 148 keys is $4.1M. That's the bigger hole and it came from the income, not the concrete.

RevPAR 23% short of plan and GOP margin seven points light means the asset never earned the value the exit assumed. A hotel is worth its trailing income divided by whatever cap rate the market gives you that quarter, and thicket got a bad number on both halves. You can absorb a construction overrun on an asset that hits its operating plan. You cannot absorb an operating miss with a tighter construction budget.

thicket, was the comp set assignment ever renegotiated? An index of 88 sometimes means the brand put you against a set you don't actually compete with, and sometimes it means you're losing share. Those are different problems and only one of them is fixable.

The operator change in year three is the part I want to hear more about. Two operators in four years on a 148-key select service seems like a big deal on the service side. Was that the sponsor's decision or did the brand force it after a quality score problem?

I ask because every transition I've read about involves rehiring most of the department heads, redoing the training, and a few months where the guest scores go down before they go up. If the sponsor swapped operators hoping for a fast revenue lift, the first two quarters usually go the other way.

I had to read this twice. What does a RevPAR index of 88 mean? Is 100 the average of the comp set, so 88 means the hotel earned 88% of its fair share of revenue?

juniper, that's it. 100 is your fair share against whatever hotels the brand decided are your competition.

Which is exactly the soft spot in small and secondary markets. Out where I look, a highway property's comp set can include two hotels 14 miles apart on different interchanges serving completely different demand. One gets the crew business, one gets the weekend traffic, and the index comparing them tells you almost nothing about whether either one is well run. thicket's number might be real underperformance or it might be the brand's mapping.

14 days is normal, sometimes 10. That's the part LPs keep getting surprised by and it's in every doc I've read.

On the seven points of GOP margin: I run a small team and labor is the whole game at that size. Select service pencils in housekeeping at a certain minutes-per-room and a certain wage, and if you can't hire at that wage you either pay more or you run rooms out of order, and out-of-order rooms kill occupancy in the exact months you need it. Both roads lead to the same margin. When I see a 41% GOP assumption on a conversion opening into a market where somebody has to actually staff it, I want to see the wage rate the operator used and the local rate they'll really pay, side by side. thicket, was that in the deck at all?

Question I'd have kept to myself a year ago. thicket said the final distribution came after a preference to the sponsor's co-invest. Why does the sponsor's money get paid before the LP money? I thought the sponsor was behind everyone as the tradeoff for the promote. Is that a thing that got negotiated in, or is it standard when the sponsor funds a call the LPs skip?

compass, in a lot of these the money that funds a shortfall gets a priority return, and whoever wrote the check is ahead of the original capital. Sometimes it's structured as a member loan instead of equity, in which case it's ahead of everything including the preferred.

thicket, what number did the docs give for the maximum additional call? You said 25% of committed capital. That's the single line I now model as an actual scenario rather than a footnote, because it turns a $200k commitment into a $250k commitment on a two-week fuse. I'd rather size the position at $160k and hold $40k liquid than commit $200k and hope.