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13
May
Post Category

🏨 Portfolio Engineering: Optimizing Hospitality Allocations Across Beta, Liquidity & Alpha

Last Updated
I
May 13, 2025

Traditional cap-weighted or vintage-year methods miss the dynamic nature of hospitality. Bay Street Hospitality's platform optimizes across a globally diversified universe of REITs, developers, operators, and tech platforms—balancing alpha generation with liquidity management and macro risk sensitivity.

The Streamlit-powered optimizer maximizes a composite utility function blending Bay Score, AHA, and BAS, subject to real-world fund constraints such as position size, regional caps, liquidity stress limits (LSD), and minimum ESG thresholds.

Key Data Inputs

- Projected IRR
- Adjusted Hospitality Alpha (AHA)
- Bay Adjusted Sharpe (BAS)
- Bay Score
- Volatility Estimate
- Region & Asset Classification

Constraints

- Max 10% per asset
- Max 30% per region
- Minimum Bay Score 70+
- Liquidity stress (LSD) thresholds

• IC Memo Optimization: Tests pipeline impact on current allocations.
• Public Equity Construction: Optimized REIT/operator baskets.
• Private Deal Screening: Simulates risk contribution of private transactions.
• Macro Rebalancing: Adjusts weights dynamically during market shifts.
• Stress Testing: Runs drawdown and liquidity crisis simulations.

Bay Street’s optimizer enables:
- Systematic alpha capture.
- Transparent allocation justifications.
- Liquidity-aware capital pacing.
- Dynamic public-private integration.
- Institutional-grade downside preparation.

• Every IRR is liquidity and volatility adjusted.
• Every asset, public or private, is evaluated by the same scoring architecture.
• Portfolio construction, not selection, drives long-term alpha.

Appendix: Metrics & Benchmarks

Bay Score: Weighted composite of IRR, AHA, BAS, ESG, co-investment strength, liquidity stress.

AHA = Return − Benchmark − Illiquidity Premium

BAS = AHA ÷ Volatility

Utility Function: Maximize Weighted Sum of (Bay Score + AHA - Liquidity Drag)

The Bay Street Hospitality Index (BSHI) integrates STR, CoStar, NCREIF, FTSE Nareit, MSCI, and S&P data for private and public benchmarking. Dynamic illiquidity premiums (1–7.5%) modeled from liquidity stress factors ensure realistic return assumptions.

Bay Street uses CoStar Method Tags for inferred data points, Forecast Confidence Scores for grading forecast robustness, and STR-conformant RevPAR modeling protocols.

Copyright Notice and Legal Disclaimer

Materials by Bay Street Hospitality are for informational purposes only. Past performance is not indicative of future results. Reproduction or distribution without permission is prohibited. © 2025 Bay Street Hospitality Fund I GP LLC.

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