Capital call on a 78-key mountain leisure hotel where the pref has been accruing for five quarters

Notice came Friday. The sponsor on a 78-key leisure-destination hotel wants $1.1M of new money across the LP class, $780k of it for working capital through shoulder season and $320k for a roof section and two boilers. My share pro rata is $61k on an original $250k position from 2023. Non-participating members get their units converted at a formula that works out to roughly 1.5 to 1 against them, which by my math takes me from about 5.5 percent to just over 3.6 percent if I sit out.

What I actually know. Occupancy 61 percent trailing twelve, ADR $214, so RevPAR around $130. Last year RevPAR was about $143 on the same key count, so down 9 percent. The 8 percent pref has been accruing unpaid for five quarters, cumulative and compounding per the operating agreement. Reporting is quarterly and arrives about 75 days after quarter end, so the most recent numbers I have are five months stale, and the capital call notice contains no cash flow statement at all. It has a paragraph describing "seasonal working capital needs consistent with prior years" and a use of proceeds table with two lines.

What I don't know is the burn. I can't tell whether $780k is eight weeks of payroll and utilities or whether it's covering a debt service shortfall that the notice has folded into a friendlier word. The loan is floating over an index with a cap that I believe expires next year, which I need to reconfirm from the loan documents rather than from the sponsor's last annual letter.

Decision in front of me is fund at $61k, sit out and take the dilution, or ask for the underlying detail and let the funding deadline pass while I wait. Deadline is 21 days.

2 replies

2karen_whitfieldPG4APRO7

@wren has the right two questions. I'd add that a use of proceeds table with two lines is not a request, it's a summary, and you're entitled to ask for the thing behind it. What I'd want is a 13-week cash flow projection with weekly opening and closing balances, the debt service line shown separately from operating expenses, and the current cash position as of last week rather than as of a quarter that ended five months ago. If the sponsor can't produce a 13-week forecast for a seasonal hotel in shoulder season, they're running the property without one, and that tells you something on its own.

On the dilution math, 5.5 down to 3.6 percent is a real haircut but it's survivable if the asset recovers. What isn't survivable is funding $61k into a hole and then getting a second call in nine months when the rate cap rolls off, so ask directly whether this call is sized to carry the property past the cap expiration or only to the end of shoulder season. Those are different amounts of money.

My own habit with long holds is that I fund when I can see the path and I take dilution when I can't. Twenty-one days is enough time to get a straight answer, and asking on day two rather than day eighteen is what makes the deadline manageable. If they stall past day ten, the stall is the information.

Capital call on a 78-key mountain leisure hotel where the pref has been accruing for five quarters

2 replies