ROOK
REAL ESTATE DEAL ANALYSIS & FINANCIAL MODELING
Riverbend Select-Service Hotel — Hospitality
“An 8.3% trailing coupon today, a PIP-driven RevPAR ramp tomorrow — hospitality with margin expansion.”
§1 · Investment Highlights
Why this deal, in six lines
96-key flagged select-service · $140,625 / key
8.34% trailing in-place cap
PIP lifts NOI margin 29% → 33%, NOI to $1.65M
14.9% LP IRR · 2.24x · DSCR 1.86x
Chattanooga leisure + convention demand
9.0% exit cap — wider than entry, conservatively
§2 · Executive Thesis
Buy a flagged select-service hotel at a trailing coupon and reposition through a brand PIP
The deal in brief. Riverbend is a 96-key flagged select-service hotel in Chattanooga acquired at an 8.34% trailing in-place cap, with a brand-mandated PIP repositioning that lifts ADR/occupancy and improves the NOI margin from ~29% to ~33%. The deal returns a 14.89% LP IRR and 2.24x equity multiple over a 7-year hold, clearing the 14% hospitality hurdle.
Cash-Flow + Reposition
A flagged select-service asset delivers an 8.3% going-in coupon while the PIP repositioning drives RevPAR and margin gains.
RevPAR Ramp
ADR and occupancy lift through the renovation and re-merchandising, growing total revenue from ~$3.88M to ~$4.45M at stabilization (RevPAR ~$100 → higher).
Flag & Demand
Brand affiliation, Chattanooga leisure/convention demand, and a ~3% national RevPAR growth backdrop support the stabilized cash flow and exit.
§3 · Headline Returns — Base Case
Base-case returns, clearing the institutional hurdle
LP IRR
14.9%
Hurdle ≥ 14%
LP Equity Multiple
2.24x
7-year hold
Project IRR
15.2%
> LP IRR
DSCR · Year 3
1.86x
stabilized
Entry Cap
8.34%
in-place
Exit Cap
9.00%
disposition
§4 · Value Creation
A PIP-driven RevPAR ramp expands the NOI margin from 29% to 33%
A $1.5M brand-mandated PIP drives ADR and occupancy, expanding the NOI margin from ~29% to ~33% and lifting NOI from $1,126,048 to $1,652,810 over the hold.
| NOI bridge | Year 1 | Year 3 (stab.) | Year 7 (exit) | Lift |
|---|---|---|---|---|
| Net Operating Income | $1,126,048 | $1,468,500 | $1,652,810 | +47% |
Capital Stack — total project cost $15,552,500 · 60.0% loan-to-cost
Sources & Uses
| Uses | Amount |
|---|---|
| Purchase Price | $13,500,000 |
| Closing & Acquisition | $202,500 |
| Brand-Mandated PIP Renovation | $1,500,000 |
| Reserve | $350,000 |
| Total Uses | $15,552,500 |
| Sources | Amount |
|---|---|
| Senior Debt | $9,332,000 |
| LP Equity | $5,598,450 |
| GP Co-Invest | $622,050 |
| Total Sources | $15,552,500 |
§5 · Scenario Matrix — Six Capital & Exit Cases
The same acquisition under six structures — base, upside, downside, all-cash, refinance-and-hold, and early exit
One asset, modeled six ways: the base case, an upside and a downside stress, an unlevered all-cash case, a cash-out refinance-and-hold, and an early exit. The spread frames the risk envelope around the base case.
| Scenario | Structure / Exit | LP IRR | LP EM | Project IRR | DSCR | Hold |
|---|---|---|---|---|---|---|
| Base Case | Levered 60% LTC · sell Year 7 · exit 9.00% | 14.9% | 2.24x | 15.2% | 1.86x | 7-yr |
| Upside | Income +5% · exit 8.65% · Year 7 | 17.3% | 2.52x | 18.0% | 1.95x | 7-yr |
| Downside / Stress | Income -8% · exit 9.75% · Year 7 | 10.1% | 1.75x | 9.7% | 1.71x | 7-yr |
| All-Cash (unlevered) | No debt · sell Year 7 · exit 9.00% | 10.8% | 1.82x | 10.6% | n/a | 7-yr |
| Refinance & Hold | Cash-out refi Year 3 · hold to Year 10 | 15.7% | 2.85x | 16.1% | 1.72x | 10-yr |
| Early Exit | Levered · sell Year 5 · exit 9.00% | 14.0% | 1.78x | 14.2% | 1.86x | 5-yr |
Read-through. Even the downside stress and the unlevered all-cash case hold positive double-digit-adjacent returns, while the refinance-and-hold compounds the multiple over a longer hold — the deal is resilient, not leverage-dependent.
§6 · Replacement-Cost Arbitrage — Cost-to-Build vs. Acquisition
Acquired below the cost to build it new
Replacement-cost-new indicates a $14,250,000–$18,900,000 band (mid $16,200,000), before any value for the in-place income or operating platform. At $13,500,000 the buyer acquires -17% versus mid replacement cost — structural downside protection independent of the income thesis.
| Component | Low | Mid | High | Basis |
|---|---|---|---|---|
| Land / Site (2.1 ac) | $1,700,000 | $1,900,000 | $2,200,000 | $/ac hospitality-zoned |
| Building / Structure (96 keys) | $10,500,000 | $12,000,000 | $14,000,000 | $110–$150k/key replacement cost new |
| FF&E (post-PIP) | $1,500,000 | $1,650,000 | $1,900,000 | Replacement cost new |
| Site Improvements & amenity (pool/parking) | $550,000 | $650,000 | $800,000 | Replacement cost new |
| Total Replacement Cost (new) | $14,250,000 | $16,200,000 | $18,900,000 | Sum, undepreciated |
| Acquisition Price | $13,500,000 | $13,500,000 | $13,500,000 | Rook primary offer |
| Acquisition vs. Replacement Cost | $-750,000 (-5%) | $-2,700,000 (-17%) | $-5,400,000 (-29%) | Green = below replacement (value); red = above |
Why it matters. Buying below the cost to reproduce the physical asset is a floor under value that rises with construction inflation over the hold.
§7 · Market Overview
Chattanooga lodging: drive-to leisure, convention rebound, ~3% RevPAR growth
Executive Summary. Chattanooga is a secondary leisure-and-convention hotel market with steady drive-to demand, a revitalized riverfront, and growing corporate activity. Flagged select-service assets offer durable cash flow with repositioning upside via brand-mandated PIPs.
Cap-Rate Environment. Stabilized U.S. hotel cap rates sit near 8.0–8.5% with exit caps ~100 bps wider; secondary-market select-service assets clear ~8.5–10% depending on flag and trailing performance. Underwriting assumes a 9.0% exit cap — wider than going-in — reflecting hospitality exit risk.
RevPAR & Demand. HVS raised its 2026 U.S. RevPAR growth forecast to ~3.0% on resilient domestic travel and a convention rebound; the industry RevPAR average is ~$100. A PIP repositioning lifts the subject above its current ADR/occupancy through re-merchandising and product improvement.
Implication for the Subject. An 8.34% trailing in-place cap plus a PIP-driven RevPAR ramp drives the NOI lift; the return is earned through repositioning and operating improvement, with a conservative 9.0% exit cap and an FF&E reserve sized into the capital stack.
Cap-Rate Framework
| Chattanooga (Tier 2/3) Select-Service Lodging | Stabilized | Value-Add / In-Place |
|---|---|---|
| Full-service (Marriott/Hilton/Hyatt) | 7.00 – 9.00% | — |
| Select-service (Courtyard/Hampton) | 7.50 – 9.50% | 8.50 – 9.50% |
| Budget / extended-stay | 9.00 – 11.00% | — |
| Subject — flagged select-service, secondary | 9.00% exit | 8.34% trailing in-place |
§8 · Highest & Best Use
The maximally productive use
Flagged select-service hold + PIP
~14.9%
Maximally productive — coupon plus repositioning lift.
Hold without PIP
~10–12%
Brand non-compliance risk; forgoes the RevPAR ramp.
Conversion (extended-stay/MF)
~contingent
High cost and entitlement risk; rejected.
§9 · Valuation — Triangulated CMA
Reconciled at $14.0M; we enter at $13.5M ahead of the PIP
Low
$12.6M
cost-floor weighted
Midpoint
$14.0M
reconciled opinion
High
$15.2M
stabilized-income weighted
Income approach (60%) · Sales comparison (30%) · Cost (10%). Rook primary offer $13.5M.
Comparable Sales — illustrative composites
| # | Status | Location | Detail | $/key | Cap | Adj. Note |
|---|---|---|---|---|---|---|
| 1 | Sold | Knoxville, TN | 110-key select-service, 2010 | $132K/key | 8.6% | Similar; no adj. |
| 2 | Sold | Chattanooga, TN | 88-key select-service, 2005 | $128K/key | 8.9% | Older; +4% adj. |
| 3 | Sold | Asheville, NC | 104-key select-service, 2014 | $152K/key | 8.2% | Superior leisure; −6% adj. |
| 4 | Active | Chattanooga, TN | 96-key select-service, 2008 | $145K/key | 8.5% | Direct comp (post-PIP). |
| 5 | Sold | Huntsville, AL | 120-key select-service, 2007 | $125K/key | 9.1% | Scale; +3% adj. |
§10 · Financial Projections
NOI, levered cash flow, and coverage
| Year | EGI / Revenue | NOI | Levered CF | DSCR |
|---|---|---|---|---|
| Year 1 | $3,882,923 | $1,126,048 | $472,808 | 1.72x |
| Year 2 | $4,180,000 | $1,295,800 | $642,560 | 1.98x |
| Year 3 | $4,450,000 | $1,468,500 | $677,020 | 1.86x |
| Year 4 | $4,583,500 | $1,512,555 | $721,075 | 1.91x |
| Year 5 | $4,721,005 | $1,557,932 | $766,452 | 1.97x |
| Year 6 | $4,862,635 | $1,604,670 | $813,190 | 2.03x |
| Year 7 | $5,008,514 | $1,652,810 | $861,330 | 2.09x |
Sensitivity — LP IRR by price × exit cap
| Price \ Exit Cap | 8.50% | 8.75% | 9.00% | 9.25% | 9.50% |
|---|---|---|---|---|---|
| $12,420,000 | 18.4% | 17.9% | 17.4% | 16.9% | 16.5% |
| $12,960,000 | 17.2% | 16.7% | 16.2% | 15.7% | 15.2% |
| $13,500,000 | 16.0% | 15.4% | 14.9% | 14.3% | 13.8% |
| $14,040,000 | 14.8% | 14.2% | 13.6% | 13.0% | 12.5% |
| $14,580,000 | 13.5% | 12.9% | 12.4% | 11.8% | 11.2% |
Green ≥ 14% · Yellow 10–14% · Red below. Base case shaded center.
§11 · Annual Distributions to LP & GP
How the European waterfall splits each year's distributable cash
| Year | Distributable | To LP | To GP |
|---|---|---|---|
| Year 1 | $472,808 | $425,527 | $47,281 |
| Year 2 | $642,560 | $578,304 | $64,256 |
| Year 3 | $677,020 | $609,318 | $67,702 |
| Year 4 | $721,075 | $648,968 | $72,108 |
| Year 5 | $766,452 | $689,807 | $76,645 |
| Year 6 | $813,190 | $731,871 | $81,319 |
| Year 7 | $10,075,874 | $8,856,166 | $1,219,709 |
| Total | $14,168,981 | $12,539,961 | $1,629,020 |
§12 · LP Waterfall — European Structure
An 8% preferred to the LP — the GP promotes only above a 16% hospitality hurdle
| Tier | Mechanics | Split (LP / GP) |
|---|---|---|
| 1 · Return of Capital | Pro-rata to LP & GP | 100% capital |
| 2 · Preferred Return | 100% to LP until 8% LP IRR | 8% pref |
| 3 · First Promote | To a 16% LP IRR | 80 / 20 |
| 4 · Second Promote | To a 22% LP IRR | 70 / 30 |
| 5 · Residual | Thereafter | 60 / 40 |
Outcome. LP 14.9% IRR / 2.24x · GP 17.6% IRR / 2.62x (promote earned only above the hurdles) · Project 15.2% IRR. LP and GP distributions reconcile to total distributable to the dollar.
§13 · Risk Register
PIP scope, trailing STR performance, and flag transfer
| Risk / Exposure | Adverse Impact | Mitigant |
|---|---|---|
| PIP scope & cost (brand mandate) | −$400K to −$900K | Brand PIP can exceed the renovation budget. |
| Trailing-12 STR & operating statements | −$350K to −$800K | RevPAR ramp depends on verified trailing performance. |
| Franchise license transfer & terms | −$250K to −$600K | Flag approval and term remaining drive value. |
| Management contract / labor | −$150K to −$400K | Operating margin is labor-sensitive. |
| Property condition / FF&E age | −$150K to −$400K | Deferred FF&E beyond PIP budget. |
§14 · Asset Inventory
Component value — Cost Approach
| Component | Value | Basis |
|---|---|---|
| Land / Site (2.1 ac) | $1,900,000 | $905,000/ac hospitality-zoned |
| Building / Structure (depreciated) | $9,300,000 | $97,000/key replacement less depreciation |
| FF&E (post-PIP) | $1,650,000 | Furniture, fixtures, equipment |
| Site Improvements & Pool/Amenity | $650,000 | Replacement less depreciation |
| Total | $13,500,000 | — |