Hotel Acquisition – Waterfall Modeling
Financial modeling and scenario analysis for a hotel acquisition, focused on evaluating three distinct equity waterfall structures. Work supported negotiations between the sponsor, lender, and equity partner to determine the most balanced capital structure.
Client
Lender
Time Spanned
2 Weeks
About Project
Project Overview
Mayer Property Group provided financial modeling and scenario analysis for the acquisition of a cash-flowing hotel asset. The engagement centered on evaluating multiple equity waterfall structures to support capital alignment between the general partner, senior lender, and incoming equity investors. The client engaged us to model potential return structures, stress test performance outcomes, and prepare materials for capital partner review.
Project Objectives
Build a full acquisition model with detailed equity waterfall mechanics
Compare return profiles under multiple capital structures
Support in negotiations between sponsor and capital partners
Modeling Approach
We developed a detailed underwriting model that incorporated revenue assumptions, operating margins, debt sizing, and three distinct equity waterfall scenarios. Each scenario reflected different promote tiers, preferred return thresholds, and capital event distributions. The model included a clear breakout of cash flows by partner class and was structured for real-time comparison across scenarios.
Key Focus Areas
Waterfall Structures
Three equity waterfalls were modeled with varying pref returns, catch-up provisions, and promote hurdles — allowing the sponsor to assess alignment between parties and optimize upside participation.
Capital Alignment
Return scenarios were tailored to highlight the impact on both the GP and LP under base, downside, and upside cases — enabling transparent discussions during capital structuring.
Scenario Testing
Stress testing was performed to evaluate the sensitivity of returns under fluctuating occupancy, ADR shifts, and cap rate movements. Identifying risk points and deal resilience.
Outcome
The model helped the client identify the most favorable capital structure that balanced return potential with capital partner expectations. It also supported clear communication during lender and LP conversations, reinforcing the sponsor’s command of the deal and ability to adapt structure to fit partner needs.
Impact
This engagement demonstrated Mayer Property Group’s ability to structure, model, and communicate complex equity frameworks with clarity. Our work positioned the client to move forward with confidence in both financing negotiations and capital partnership alignment.
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