Hotel operating income is predictable but rarely securitized. Owners monetize cashflows indirectly through debt or equity, episodically through refinancing or sales.
Limited Investment Options
Investors must choose between illiquid private equity (multi-year lockups) or public REITs (equity market beta with limited asset-level visibility).
Missing Instrument
No direct, standardized, risk-adjusted, tradable claims on hotel income streams exist in the market today.
What Is an HIU?
Asset HIU
First-priority interest in a defined percentage of property-level NOI for a named hotel or tight pool. Senior claim after taxes and essential OpEx.
Direct NOI exposure
Defined cash waterfall
Reserve protections
Operator Performance Note
Pass-through interest in management and franchise fees from defined contract sets with step-down protections based on performance thresholds.
Base + incentive fees
Score-based protections
Contract diversification
Cash Waterfall Structure
1
Gross Hotel Receipts
All revenue from hotel operations including rooms, F&B, and ancillary services
2
Statutory Taxes
Required tax payments and regulatory fees
3
Essential OpEx
Critical operating expenses needed to maintain operations
4
Reserve Accounts
Seasonality and CapEx reserves with formulaic funding requirements
5
HIU Distribution
Pro-rata distributions to HIU holders
6
Equity Residual
Remaining cash flows to property owners
Bay Street's Quantamental Framework
AHA (Alpha-Hospitality-Adjusted)
Deal IRR minus hospitality benchmark minus illiquidity premium. Measures risk-adjusted returns against sector performance.
BAS (Bay Adjusted Sharpe)
AHA divided by NOI volatility adjusted for brand and market dispersion. Quantifies risk-adjusted performance.
LSD (Liquidity Stress Delta)
Haircut for exit timing risk, CapEx shocks, FX drag, and lender refinancing constraints under stress scenarios.
BMRI (Bay Macro Risk Index)
Weighted composite of sovereign spread, FX volatility, tourism trends, and political risk factors.
Market Opportunity & Sizing
$2.4M
Typical Securitized NOI
Annual cashflow from stabilized hotel at 60% securitization rate
$30M
Average HIU Valuation
Present value at 8.0% investor yield for quality assets
30-60%
Securitization Rate
Percentage of annual NOI securitized, leaving buffers for CapEx and covenants
Serviceable market focuses on stabilized, branded, select-service assets in data-rich markets (U.S., UK, EU, Singapore, UAE). These assets offer tighter RevPAR variance and cleaner OpEx patterns than development or seasonal resort properties.
Regulatory Pathway
01
Phase 1: Private Placements
Reg D 506(c) U.S. and Reg S offshore offerings. Fast time-to-market with accredited investors using standardized PPMs.
Optional public venue preparation with enhanced disclosure frameworks and investor relations programs.
Budget: $1.5-2.5M (listing counsel, transfer agent scaling, IR programs)
Technology Platform Investment
Total Platform Investment: $8.0-12.1M for production-grade issuance, reporting, and trading infrastructure with bank-level security standards.
Revenue Model & Financial Projections
Revenue grows from $1.89M in Year 1 to $20.60M in Year 3, driven by increasing float from 6 initial issuances to 61 cumulative HIUs. EBITDA margins expand to 46% by Year 3 as high-margin listing and admin fees scale.
Implementation Roadmap
1
Months 0-3: Program Ignition
Hire core team, define HIU templates, establish vendor contracts. Build operator pipeline of 15-20 candidates.
2
Months 4-6: MVP Development
Build issuance portal, integrate PMS data, complete PPM templates. Achieve SOC 2 Type I readiness.
3
Months 7-9: Pilot Launch
Launch 2-3 HIUs, close subscriptions, run first distribution cycle. Execute secondary trades via BD partner.
4
Months 10-12: Scale Motion
Expand to 6 total issuances, tune market-making, submit ATS filing package. Establish monthly reporting cadence.
5
Year 2: Growth Phase
20+ new HIUs, upgrade to SOC 2 Type II, add FX hedging. Target $750M float with institutional investors.
6
Years 3-5: Maturity
ATS approval, live order book, operator fee streams. Achieve $1.5-2.0B float with 40-60% EBITDA margins.
Risk Management Framework
Regulatory Delay Risk
ATS approval delays of 12-18 months mitigated through private placements, BD partnerships, and pre-filing regulatory dialogue.
KPI: Regulator RFI cycles < 2 per filing
Adoption Shortfall Risk
Low issuer/investor participation addressed via anchor program with fee discounts and guaranteed market-making presence.
KPI: ADV/float ≥ 0.20% by Month 18
Income Volatility Risk
Distribution variability managed through dynamic reserve algorithms and transparent "deferral mode" triggers.
KPI: Distribution coverage ratio ≥ 1.20×
Macro Shock Risk
BMRI spikes handled via FX hedging requirements, IRR haircuts at pricing, and country allocation caps.
KPI: Hedged % of BMRI>50 flows ≥ 80%
Competitive Advantages
First-Mover Regulatory Credibility
Establishing regulatory precedent and relationships creates significant barriers to entry for competitors in this nascent market.
Proprietary Quantamental Scoring
Bay Score framework integrated into legal terms provides unique risk assessment and pricing capabilities competitors cannot replicate.
Music Royalties: Hipgnosis and KKR/Blackstone ABS demonstrate SPV cashflow securitization works
Insurance-Linked Securities: Parametric triggers and modeled frameworks prove institutional appetite for event risk
Consumer ABS: Standardization and trustee oversight create secondary liquidity
Creator Securitization: GigaStar shows SEC approval for fractionalized future income streams
Key Lessons Applied
Valuation transparency and independent audits are non-negotiable
Predictability and market-making are essential for liquidity
Template term sheets and identical reporting schemas enable scale
Robust disclosures and KYC/AML standards mirror public-quality requirements
Strategic Execution Paths
46%
Path A: In-House Build
Full control and margin capture. Year-3 EBITDA margin with complete fee stack retention and roadmap control.
35%
Path B: Exchange JV
Faster ATS access with revenue sharing. Lower risk profile but reduced upside through partnership economics.
25%
Path C: REIT/Fund First
Familiar wrapper for LPs to build track record. Delays liquidity vision but provides credibility foundation.
Modeling favors Path A with near-term BD/ATS partnership to accelerate liquidity, then graduate to full ATS control. Decision criteria prioritize time-to-credibility, capital efficiency, and long-run margin preservation.
Investment Thesis & Next Steps
Market Transformation
HIUs convert structurally illiquid hotel NOI into transparent, risk-scored, tradable securities addressing a multi-billion dollar market gap.
Proven Economics
Year-3 base case produces $20.6M revenue with 46% EBITDA margins, demonstrating sustainable unit economics and scalable growth.
Recommendation: Proceed with Phase-1 private placement program, secure 2-3 anchor issuers and 3-4 anchor LPs, target $750M float by Year 2 and $1.9-2.0B by Year 3 with EBITDA breakeven in late Year 2.