The operator is responsible for the hotel’s condition. The capital that maintains it sits with the owner. The operator is on the hook for keeping the hotel in shape — brand standards, guest experience, competitive position, and the performance thresholds that ride on all three. The FF&E reserve is the money that does it. And … Read more

Operators fear the performance-test termination. The one that happens more often is the clause they treat as boilerplate. Most operators worry about performance-test termination. The contract allows it, the thresholds aren’t always met, and the threat feels close. But the reality runs the other way — performance test termination is rare because it’s expensive for … Read more

A favorable ruling sounds like good news. For the operator’s incentive fee, it can be the adverse event. On a hotel financed with tax-exempt bonds, everyone on the deal waits for one determination to come back favorable. When it does, it can switch on a two-gate incentive the operator can’t earn. Its absence leaves a … Read more

The performance test grades the operator on RevPAR Index. The operator doesn’t control RevPAR Index. RevPAR Index is a relative measure — the property’s revenue per available room against its comp set’s average, as a percentage. Most performance tests require the operator to hold that number above a threshold — 85%, 90%, 92%, depending on … Read more

The performance test grades the operator against a comp set. On some deals, the owner owns part of that comp set — and the benchmark stops being independent. An HMA performance test grades the operator on RevPAR Index — the subject hotel’s RevPAR against its comp set’s average. Clear the threshold, usually 85% to 92%, … Read more

The operator puts up key money to win the deal. The contract promises it back if the deal ends early. On paper, the capital is safe. The clawback is a payment promise from the owner entity. Hotel owners hold each property in a single-purpose entity whose liability stops at the hotel’s own assets. So the … Read more

A model reads a contract for its numbers. The clause that decides the deal often doesn’t have one. The provision that decided whether the incentive fee was worth millions or worth nothing carried no number. No percentage, no threshold, no dollar figure — just a contingency, buried in the financing terms, easy to miss on … Read more

Performance tests aren’t pass/fail thresholds. They’re option contracts. The performance test in the term sheet reads like a gate. Two prongs, tested each year, termination if the operator misses both. Read that way, it looks like the sharpest risk in the deal. Read as an option, it’s a different risk — and usually a smaller … Read more

An incentive fee can be structured so it never pays out. That isn’t a loss. It’s leverage — if the operator sees it in time. The incentive fee in the term sheet promises a percentage of GOP above a threshold. On some deals, the threshold is calibrated so the incentive prices to zero across the … Read more