Debt conversion to equity or not?

[Reese Newell]

I have financed the acquisition of a property that was to be converted in to a retirement home.  The term of the investment went a little longer than expected, and I was just paid out my interest for the initial debt of ~1.1MM that went for about 8 months at a 10% rate and 0 points.  The structure to our deal was that my debt would be fully paid back sans a downpayment left in the property upon refinancing (~$360k) and I would then retain 25% equity in the deal as a preferred partner.  At the conclusion of each year, I would get a preferred payback of $36k until I had been paid back $180k of the $360k over a 5 year window.  This payback each year would drop my equity 1% each year until I hit 20%, at which point the preferred payback would end and the rest of the money would stay in.

At this point, we needed to take out loan of ~$670k to finish renovations.  The banks wanted my lien to be moved to a 2nd position.
In turn, we negotiated my rate of 12% on my money now until the completion of the renovation and refinancing from the bank.  My partners believe that the $180k that I am leaving in long term for equity should convert now from debt to equity.  I argued that it should remain debt since the house is not operational yet.  What would be your opinions on this portion of the debt and if it should convert now?