UNDERWRITING & RISK CONTROLS
Our underwriting philosophy is capital preservation first, yield second, upside third.
Each opportunity is evaluated through a standardized normalization and stress-tested modeling framework before capital alignment.
Platform Overview → Investment Strategy → Underwriting Framework → U.S. Pipeline → Capital Alignment
NOI Normalization Methodology
We do not rely on broker-provided pro forma projections.
Each asset is underwritten using:
A. Trailing 12–24 Month Financial Review
Revenue segmentation (room, F&B, events, ancillary)
Expense ratio benchmarking vs comparable assets
Identification of non-recurring income
Identification of owner-specific expenses
B. Expense Normalization
Market-based payroll adjustments
Management fee inclusion (even if owner-operated)
Replacement reserves provision (2–4% of revenue depending on asset class)
Property tax reassessment where applicable
Adjusted / Normalized NOI reflecting true operating performance under institutional management.
Revenue Stress Testing
Each asset undergoes downside sensitivity modeling prior to capital structuring.
Standard stress scenarios include:
10% Revenue Reduction
20% Revenue Reduction
ADR compression scenario (hospitality assets)
Occupancy volatility stress case
We evaluate:
DSCR impact
Break-even occupancy threshold
Fixed vs variable cost elasticity
Liquidity runway under stress
Capital is structured only if debt service coverage remains defensible under stress.
CapEx Separation Framework
All capital expenditures are segmented into:
A. Maintenance CapEx
Life-safety
Deferred maintenance
Brand compliance
Structural preservation
B. Value-Add CapEx
ADR expansion initiatives
Repositioning enhancements
Amenity upgrades
Revenue-generating expansions
Maintenance CapEx is excluded from return projections.
Value-add CapEx must demonstrate measurable yield-on-cost.
Debt Sizing Logic
Debt is structured conservatively using the lesser of:
Target LTV thresholds
DSCR-based sizing
Stress-tested DSCR scenario
Market cap rate compression risk
Standard Guardrails:
DSCR ≥ 1.30–1.40 at stabilization
Sensitized DSCR ≥ 1.15 under stress case
Senior LTV typically ≤ 60–65% (asset dependent)
We underwrite to the lender’s credit committee standards before engagement.
Stabilization Assumptions
Stabilization is defined as:
Sustainable occupancy level consistent with market comps
Normalized expense ratios
Fully implemented operational efficiencies
CapEx program completed
Minimum 6–12 months consistent performance
No “Day 1 pro forma stabilization” assumptions are used.
Stabilized NOI must be supported by operational evidence.
Capital Stack & Sensitivity Model
Every acquisition flows through the same modeling sequence:
Acquisition NOI
↓
Normalized NOI
↓
Stabilized NOI
↓
Debt Capacity (DSCR & LTV constrained)
↓
Equity Requirement
↓
Return Sensitivity (Base / Stress / Upside)
IRR & Exit Sensitivity Analysis
Return projections are evaluated under:
Base case cap rate
+50bps cap rate expansion
+100bps cap rate expansion
Exit multiple compression scenario
Equity is committed only where returns remain defensible under conservative exit assumptions.
Risk Mitigation Principles
We prioritize:
Fixed-rate or rate-capped debt where appropriate
Sponsor-aligned equity structures
Limited reliance on aggressive terminal values
Operating margin improvement before leverage expansion
Closing
Our underwriting framework is designed to ensure that capital partners are protected on the downside while retaining disciplined upside participation through operational execution.
Review U.S. Pipeline Development Strategy →
Geographic focus, broker network development, and relationship-based sourcing model.