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