In traditional real estate investing, risk is often measured by leverage and projected downside. But in hospitality, risk behaves differently. It can be embedded in illiquidity traps, masked by sponsor reputation, or exposed through macro dislocations. Bay Street Hospitality approaches this problem through a quantamental lens. The objective is not just to identify risk, but to measure, price, and hedge it through bespoke, real-time analytics.

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Liquidity Stress Delta (LSD)

A proprietary risk metric designed to capture the implied value deterioration under delayed exit or liquidity impairment scenarios. LSD incorporates capital lock-up duration, FX volatility, repatriation friction, and liquidity constraints to drive a dynamic illiquidity premium, modeled as a range between 1% and 7.5%.

Formula: LSD = (IRR_target − IRR_stressed) / IRR_target

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Volatility Modeling (Private-Public Bridge)

Volatility in private hospitality deals is modeled using public market proxies (e.g., REITs) adjusted for leverage and market dispersion.

Formula: σ_adjusted = σ_REIT × (1 + Leverage Multiplier) × (1 + Dispersion Factor)

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Macro Mispricing Overlays

Key macro inputs include:

• Currency devaluation probabilities

• Tourism inflows and RevPAR recovery gaps

• Sovereign risk spreads

• Monetary tightening exposure

• ESG-driven capital flight risk

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Use Cases & Applications

• Underwriting Discipline: LSD is embedded into all underwriting models to test exit fragility under base and stressed cases.

• IC Memo Standardization: All deals include volatility-adjusted IRR and LSD disclosures.

• Public Screens: Volatility overlays discount headline yields in fragile FX environments.

• Scenario Testing: Macro overlays are used to evaluate shocks (e.g. political, tourism, FX).

• Portfolio Stress Mapping: LSD and volatility data are aggregated at fund level to visualize downside clusters.

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Quantamental Advantage

• Cross-Market Comparability

• Exit-Dependent Risk Management

• Real-Time Macro Integration

• LP Risk Transparency

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LP Takeaways

• Don’t Just Ask for IRR—Ask for LSD

• Volatility Isn’t Just for Stocks

• Macro Risk Is Mispriced

• Stress-Tested from Day One

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Appendix: Formulas & Benchmarks

Liquidity Stress Delta (LSD)

Used in IC memos and underwriting models. Measures return fragility to exit timing.

Adjusted Volatility

Sourced from REIT comparables. Adjusted by leverage and dispersion.

Macro Mispricing Overlays (BMRI)

Inputs: Sovereign spread, FX volatility, tourism delta, policy risk. Output: Discount multiplier.

Example:
Deal IRR = 16%
BMRI Multiplier = 0.85 → Discounted IRR = 13.6%

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Benchmark Methodology Integration

• STR Global RevPAR Index (TRI method)

• NCREIF Hotel Index (TWR)

• Cambridge Associates (fund-level PE data)

• FTSE Nareit Lodging Index (free-float REIT)

• MSCI GPFI Hotel Composite (TWR consistency)

• S&P Global Hotels Index (GICS-aligned)

• Dynamic Illiquidity Premium (range 1–7.5%)

VIII. CoStar Methodology Integration & Forecast Notes

Bay Street integrates CoStar data and methodology throughout all scoring logic.

• CoStar Method Tag for modeled vs observed values

• Forecast Confidence Score for STR/market sufficiency

• Bay Score Trajectories with CoStar-powered base/bull/bear cases

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Copyright Notice and Legal Disclaimer

The materials provided by Bay Street Hospitality Fund I GP LLC (“Bay Street Hospitality”) are for informational purposes only. They do not constitute investment advice, an offer, or a solicitation. No guarantees of accuracy or performance are made. Reproduction or distribution without permission is prohibited. © 2025 Bay Street Hospitality Fund I GP LLC. All rights reserved.

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