But in hospitality, macro matters.

Travel is discretionary. Currency, policy, and border dynamics can make or break a hotel’s performance. Yet most models treat these factors as static or qualitative.

Bay Street Hospitality’s approach is different. Through the Bay Macro Risk Index (BMRI), the firm integrates quantified country-level risk into deal-level IRR projections and portfolio construction.

This paper introduces the methodology behind BMRI, shows how it adjusts financial projections, and explains how LPs can use it to better understand relative risk.

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What Is BMRI?

BMRI = Weighted composite score of macroeconomic risk signals. It’s used to:
• Discount IRR projections in fragile markets
• Adjust Bay Score downward for macro drag
• Inform portfolio-level geographic exposure

BMRI is expressed on a 0–100 scale, where:

• 0–30 = Stable macro (e.g. U.S., Singapore)
• 31–60 = Monitored (e.g. Portugal, Mexico)
• 61–100 = High-risk (e.g. Sri Lanka, select ASEAN)

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BMRI Formula Components

• Sovereign Spread to U.S. Treasuries (30%) - Source: World Bank, IMF

• Currency Volatility (90d stddev) (25%) - Source: Bloomberg, FXCM

• Inbound Tourism Growth Delta (20%) - Source: UNWTO, Oxford Economics

• Political Risk Rating (15%) - Source: OECD, WEF, EIU

• Capital Repatriation Restrictions (10%) - Source: FATF, Country Compliance Index

Formula:
BMRI = 0.3*Spread + 0.25*FXVol + 0.2*ΔTourism + 0.15*PR + 0.1*CapRep

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Example: Portugal vs. Vietnam

• Portugal: Spread = 1.2%, FX Vol = 1.5%, Δ Tourism = +2%, Political Risk = Low, Cap Rep = Clean → BMRI = 29.3

• Vietnam: Spread = 2.8%, FX Vol = 5.6%, Δ Tourism = +11%, Political Risk = Moderate, Cap Rep = Somewhat restricted → BMRI = 64.8

Impact:
• Vietnam IRR is discounted by 200bps to reflect macro drag
• Portugal gets no adjustment

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How BMRI Affects IRR and Bay Score

IRR Adjustment Curve:

• 0–30 → Illiquidity Premium Add-On: 0% → IRR Discount: 0bps

• 31–50 → Add-On: +50bps → IRR Discount: -100bps

• 51–70 → Add-On: +100bps → IRR Discount: -200bps

• 71–90 → Add-On: +150bps → IRR Discount: -300bps

• 91–100 → Add-On: +200bps → IRR Discount: -400bps

This flows directly into Bay Score and AHA calculations. Riskier markets = lower adjusted return = lower Bay Score.

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Using BMRI in Portfolio Optimization

• Allocations are capped in BMRI > 60 countries unless counterbalanced by yield premium

• Region Risk (R) component of Bay Score is directly derived from BMRI

• Scenario: If Mexico’s BMRI rises from 48 to 62, the optimizer:
 - Reduces weight
 - Increases illiquidity premium in AHA
 - Recalculates adjusted IRR, possibly removing the deal

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Why BMRI Outperforms Static Country Risk Ratings

• Traditional: Uses binary tags (e.g., Emerging vs Developed)

• BMRI: Tracks real-time macro deltas

• Traditional: Ignores FX, tourism shocks

• BMRI: Integrates volatility and policy risk

• Traditional: Not linked to underwriting

• BMRI: Direct input into Bay Score / IRR

BMRI is dynamic, not static. It’s recalculated monthly to reflect capital market signals, FX shocks, policy shifts, and tourism sentiment trends.

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Strategic Use Cases for LPs and Sponsors

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Institutional Allocators

• Set BMRI max thresholds by fund sleeve (e.g., no >60 BMRI in Core portfolio)

• Require BMRI-adjusted IRR in underwriting memos

• Use BMRI to align international allocations to tourism trend leadership

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Sponsors & Developers

• Use BMRI to justify yield premiums when raising LP capital

• Build structured liquidity into deals with BMRI > 60 (e.g., offshore co-invest)

• Monitor for regime changes that could improve exit IRR

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Conclusion: Modeling the Macro Is No Longer Optional

The world is volatile. Hospitality investing is global. Yet most real estate underwriting ignores this reality.

With BMRI, Bay Street brings quantified, dynamic macro risk modeling into every stage of deal evaluation, scoring, and optimization.

This ensures that macro drag doesn’t become portfolio drag.

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