Trending Content
| +52 | Leave brokerage to be GP | 12 | 2d | |
| +46 | New Comp Database - Google Form (Now with Data Validation) | 24 | 2d | |
| +24 | Seeking Career Guidance in Real Estate Development Post-Graduation | 3 | 3d | |
| +23 | Going out on your own | 4 | 2d | |
| +23 | Spreads over SOFR/UST | 5 | 17h | |
| +22 | REPE/Development GPA | 15 | 4d | |
| +21 | Real Estate = complicated + underpaid | 15 | 2d | |
| +20 | High achiever that doesn’t want to work weekends | 12 | 20m | |
| +17 | Fisher Brothers | 6 | 2d | |
| +17 | MSRE/MSRED with no RE experience; Naive to think I’ll land a job afterwards? | 4 | 6d |
Career Resources
Most JV agreements contain dilution clauses for this reason, the question is how punitive the dilution is. For example other investors that fund overruns may end up with priority distributions over you in addition to the dilution of your distirbutions. Need to see the docs to be able to answer that.
Ok, thanks. I'll see if I can get my hands on the docs. Let me ask you this: is it normal for a development project not to have exited after 10 years? This capital call is coming 10 years in and it's for "debt service and insurance obligations". I'm too small a ticket to bother the GP with too many questions, but at the same time wondering whether any more money I put into this is just good money after bad..
I wouldnt say 10 years is normal, however if the exit was supposed to be in 2019/20 which would be a more normal timeline it makes sense as its been a shitshow since the pandemic started. Begs the question of why he didnt' exit in 22 though. Might take years to get back to 22 values with how things are going.
Ugh. It was supposed to be a condo or mixed use initially then they reconfigured it into a mix of condo and hotel. Condos all pre-sold 4 years ago but hotel part just opened last year and not exactly doing great in terms of occupancy.
Ah ok thats different. Hotels take at least 3 years to stabilize. What’s the capital call for? If condos are all sold, hotel is already a year into ops it should be cash flowing enough to cover debt service at this point especially if leverage is low which it should be given condo proceeds.
Capital call is for debt service and insurance obligations, though it's a pretty small amount. Yeah not sure why the hotel's NOI isn't covering debt service...
Sorry for the legalese, but this is the language I found in the docs. It sounds like a 1x dilution, which isn't punitive - do you agree?
If any Member fails to timely fund any Additional Capital Contribution (such Member, a “Non-Contributing Member”), the Manager shall give notice (the “Deficit Notice”) of such failure to the other Members, which notice shall state the amount of the Capital Contribution not funded by the Non-Contributing Member (such amount is hereinafter referred to as a “Failed Capital Contribution”). In such event, any Member that shall have funded the applicable Additional Capital Contribution may, on or before the fifteenth (15th) day after receipt of the Deficit Notice (the “Funding Due Date”), fund all or part of such Failed Capital Contribution (each such funding Member is hereinafter referred to as a “Contributing Member”). If there is more than one Contributing Member, such Contributing Members shall fund the Failed Capital Contribution pro rata in accordance with their respective Percentage Interests, unless the Contributing Members agree otherwise. Without limiting the provisions of Section 5,5, if all Failed Capital Contributions are not funded by Contributing Members, the Manager shall be permitted to fund such remaining Failed Capital Contributions by obtaining a Loan to the Company or its subsidiaries or by raising additional equity in the Company. On the day following the Funding Due Date, the Percentage Interests of the Members shall be adjusted in the following manner: each Member’s Percentage Interest shall be the percentile equivalent of a fraction the numerator of which shall be the total amount of Capital Contributions made by such Member through and including the Funding Due Date (including any portions of any Failed Capital Contributions funded by such Member) and the denominator of which shall be the total amount of Capital Contributions made by all of the Members through and including the Funding Due Date (including any portions of any Failed Capital Contributions funded by the Members).
Looks like standard dilution language, super simple calculation. If the % of the capital call as a component of equity already funded into the deal is small, your dilution won't be material. Keep your relationships in mind here though, is defaulting going to burn any bridges here with people you see as valuable future partners? If not, then if you truly don't believe in the hotel's success.
If you don't really know how to underwrite hotels at all, make sure this isn't just a ramp up period. Ask for the monthly STR reports, it should be obvious based on the occupancy rates & RevPAR over the trailing months whether operations are have been ramping up or there is a larger issue and the hotel or operator is just underperforming. Seasonality can be a huge factor in hotels, so pay special attention to the months of peak demand in the market. Its very possible for a stabilizing hotel project to not hit NOI if you are in ramp up and in the slow season, a lot of well performing stabilized hotels will have months that they barely break even or actually loss money and others where they crush it so hard its enough for the entire year.
Just keep in mind that hotels are extremely dependent on the quality of the operator, if the trends aren't lining up with the compset and income variances just month to month just aren't making sense be very careful. I personally would never invest in any hotel project where I hadn't fully vetted and had confidence in the hotel management team.
Thanks, appreciate it. When I first invested, this was pitched as a condo project. At a later point, they changed the use to a mix of condo and hotel, so I was already invested before the developer's decision to convert some of the project into hotel. The problem I have is that my ownership % is too small to ask for all the info you mentioned - I don't have that kind of leverage with the GP. I don't know if it helps, but this is a property in downtown Miami, and the hotel is a 3.5-4 star.
PM me the address if you're comfortable doing so, I've got limited data for the MSA but can at least point out any red flags for you.
Defaulting will draw more ire than asking for the most recent STR report. You've got nothing to lose asking for the STR report first if you already plan on hitting the big red button.
Every hotel has them, it's like as performance data for exchange club. You share your stats for the month and in exchange you get to see the comp set and how segments of the market are doin high level.
Better yet if they say no or we don't get them, your decision just got made for you! GTFO.
You are a partner and deserve just as much information as anyone else in the transaction. Influence may come with scale, but their fiduciary duty and financial regulations don't give 2 shits about what your equity % is.
If you're still resistant to ask after my spiel, consider pinging a lower tier member of the team like an analyst or associate instead of going through their main IR channel. Or if you know another investor with more sway, or better yet knows hotels ask them for their POV.
That's pretty much all you're gonna get outta me. Surprised I went as deep as I did, I should be invoicing for this
Short answer is no, no one can make you do anything you don't want to.
But you'll absolutely be diluted at the very least. You should at least ask your sponsor for a copy of the operating agreement; there is no compelling reason they should keep it from you
Thanks. So just to confirm, it's called an "operating agreement" and not something else (like the subscription agreement or some other lp/gp agreement)? This was an investment into a specific deal SPV, not a fund.
You likely signed both a sub agreement and an operating agreement, although a sponsor may choose to "combine" them into a single document. Generally, for a retail $ raise there is going to be a subscription agreement and an operating agreement that outlines the terms of the company. The operating agreement is where you want to look.
Listen, I feel for you. This is not typical for a development ten years in, but once you said hotel development that opened in the last year or two I cringed because that is going to be a slog for a while. Happy to jump on a call with you to help you think it through if that's helpful. Feel free to DM.
Aut quibusdam quod laboriosam hic cumque ea. Nesciunt nihil illo in possimus quam omnis vel.
Officiis earum error rem mollitia. Tempore quaerat tenetur at fugiat suscipit dolorem aperiam.
Veritatis amet tempore quis iusto. Repellat illum possimus ut nam facilis iusto necessitatibus modi.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...