Club deals are becoming an increasingly relevant structure in real estate and hotel investment transactions.

The logic appears straightforward: several investors pool capital to acquire an asset that would otherwise require a significant financial commitment from a single investor.

However, a hotel club deal is not simply a way of splitting the acquisition price among multiple parties.

It is an investment structure in which several elements must be assessed simultaneously:

  • asset quality;

  • business plan;

  • financing structure;

  • governance;

  • investor rights;

  • operating model;

  • return distribution;

  • conflicts of interest;

  • exit mechanisms.

It is precisely at the intersection of these factors that the quality of the transaction is determined.

At InvestimentiAlberghieri.it, we frequently analyse transactions where the key question is not simply whether the hotel itself is attractive, but whether the entire club deal structure is consistent with the investors’ risk-return profile.

A Club Deal Does Not Eliminate Risk: It Distributes Exposure

One of the most common misconceptions is that participating in a club deal automatically reduces risk.

In reality, the economic risk of the underlying asset remains.

What changes is the amount of capital exposed by each individual investor.

Investing €2 million in a €30 million transaction results in lower individual exposure than acquiring the entire asset directly.

However, if the transaction is poorly structured, even a minority investment can generate disappointing returns or a material loss.

It is therefore essential to distinguish between:

diversification of exposure

and

quality of the investment

They are not the same thing.

1. First Question: Who Is Really Leading the Club Deal?

In every transaction, it is essential to understand who acts as the sponsor or lead investor.

The sponsor may be responsible for:

  • sourcing the opportunity;

  • negotiating the acquisition;

  • structuring the SPV;

  • raising equity;

  • arranging financing;

  • selecting the operator;

  • preparing the business plan;

  • managing the investment;

  • executing the exit.

The first due diligence exercise should therefore focus on the sponsor itself.

Key areas to assess include:

  • track record;

  • hospitality sector experience;

  • capital invested directly;

  • organisational structure;

  • management team;

  • execution capabilities;

  • previous exits;

  • potential conflicts of interest.

A club deal in which the sponsor commits a meaningful amount of its own capital generally creates a different level of alignment compared with a structure in which the promoter earns fees regardless of the outcome.

The principle is straightforward:

those making the decisions should also have meaningful capital at risk.

2. Skin in the Game: How Much Is the Sponsor Investing?

One of the most important elements is skin in the game.

The sponsor should have direct economic exposure to the transaction.

This creates alignment between:

  • those structuring the deal;

  • those making decisions;

  • those providing capital.

Investors should therefore ask:

  • how much capital is the sponsor investing?

  • on what terms?

  • does it have the same rights as the other investors?

  • does it benefit from preferential terms?

  • does it earn fees regardless of performance?

A sponsor investing meaningful equity may have materially different incentives from one whose economics are driven primarily by acquisition, management or exit fees.

3. The SPV: Where Is the Investment Actually Held?

Most club deals are structured through a Special Purpose Vehicle — SPV — which acquires the asset either directly or indirectly.

The investor may not be acquiring a direct interest in the hotel itself.

Instead, the investor often acquires an equity interest in an entity that owns:

  • the property;

  • the operating business;

  • a holding company;

  • an operating company;

  • or a combination of these.

It is therefore essential to understand:

  • what the SPV actually owns;

  • what debt it assumes;

  • what guarantees it provides;

  • what contracts it enters into;

  • what costs it incurs;

  • what cash flows it receives.

The legal structure must always be analysed alongside the economic structure.

4. Governance: Who Decides What?

Governance is one of the most important — and most underestimated — aspects of a club deal.

An investor may hold a meaningful economic stake while having very limited decision-making rights.

The following should be analysed carefully:

  • board composition;

  • appointment rights;

  • quorum requirements;

  • voting thresholds;

  • veto rights;

  • reserved matters;

  • reporting;

  • information rights.

Reserved matters should generally include, at a minimum:

  • new financing;

  • additional leverage;

  • extraordinary CAPEX;

  • asset sale;

  • material changes to the business plan;

  • operator replacement;

  • related-party transactions;

  • capital increases;

  • admission of new shareholders;

  • material amendments to key agreements.

Governance rights should be proportionate to the size and nature of the investment.

5. Economic Ownership and Decision-Making Control Are Not the Same

In a club deal, the sponsor may retain governance control even with a minority economic interest.

This is not necessarily a problem.

It may be necessary to ensure efficient decision-making.

However, investors need to know precisely:

  • which decisions they can influence;

  • which decisions they cannot block;

  • what information they will receive;

  • what protections are available in the event of disagreement.

An illiquid investment with weak information rights or limited minority protections can become particularly problematic when performance diverges from the original business plan.

6. Deadlock: What Happens When Shareholders Cannot Agree?

Good governance should not only regulate ordinary decision-making.

It should also determine what happens when shareholders fail to agree on a material issue.

A deadlock may arise in relation to:

  • new financing;

  • capital increases;

  • extraordinary CAPEX;

  • operator replacement;

  • refinancing;

  • disposal of the asset;

  • material changes to the business plan.

If the shareholders’ agreement does not provide a mechanism for resolving deadlock, the transaction can become paralysed precisely when decisive action is required.

Potential mechanisms may include:

  • escalation to shareholder level;

  • mediation;

  • casting vote;

  • buy-sell provisions;

  • Russian roulette clauses;

  • Texas shoot-out mechanisms;

  • put/call options;

  • asset sale.

There is no universally superior solution.

The real question is:

does the deadlock mechanism protect the value of the investment, or create additional execution risk?

7. Analyse the Asset Before the Financial Structure

A well-designed club deal cannot compensate for a weak underlying asset.

Before assessing equity allocations, governance or waterfall mechanics, the hotel itself must be analysed.

Key areas include:

  • location;

  • demand;

  • competitive set;

  • ADR;

  • occupancy;

  • RevPAR;

  • seasonality;

  • positioning;

  • scale;

  • category;

  • brand;

  • CAPEX;

  • management quality.

At Hotel Management Group, hotel investments are analysed by integrating market dynamics, operating performance and value-creation strategy.

8. Returns Must Be Calculated on the Capital Actually Invested

One of the most common mistakes is to assess returns solely on the purchase price of the asset.

The correct calculation should include:

Purchase Price


Transaction Costs


CAPEX


Working Capital


Pre-opening Costs


Financing Costs

=

TOTAL INVESTED CAPITAL

Consider, for example:

  • asset purchase price: €25 million;

  • CAPEX: €5 million;

  • transaction costs: €1 million;

  • working capital and other costs: €1 million.

The actual investment becomes:

€32 million

If the club deal raises €15 million of equity and finances the balance with debt, returns should be measured on the equity actually invested and the cash flows effectively distributable to investors.

Not simply on the property value.

9. Equity Return: What Is the Investor Actually Earning?

A club deal may generate returns through several channels:

  • periodic distributions;

  • operating cash flow;

  • refinancing;

  • capital appreciation;

  • eventual disposal.

Relevant metrics include:

  • Cash-on-Cash Return;

  • Equity Multiple;

  • IRR;

  • Yield;

  • Payback Period.

However, no single metric should be viewed in isolation.

A high IRR may be driven by:

  • significant leverage;

  • a short holding period;

  • an aggressive exit multiple;

  • extraordinary distributions.

It is therefore essential to distinguish between:

operating return

and

financial return.

10. The Waterfall: Who Gets Paid First?

One of the most sensitive aspects of a club deal is the mechanism used to distribute returns.

Typical structures may include:

  • preferred return;

  • hurdle rate;

  • carried interest;

  • promote;

  • waterfall;

  • catch-up.

These mechanisms can be perfectly reasonable, but they must be assessed in terms of net return to the investor, not merely gross return at asset level.

11. Practical Waterfall Example

Assume a club deal raises:

Total Equity: €10 million

Of which:

  • investors: €9 million;

  • sponsor: €1 million.

After five years, through operating distributions and the sale of the asset, the SPV generates:

€16 million available for distribution

The waterfall provides for:

  1. return of capital;

  2. an 8% preferred return to investors;

  3. additional proceeds split 80% to investors and 20% to the sponsor.

In simplified terms:

Step 1 — Return of Capital

€10 million is returned to the shareholders.

Remaining distributable proceeds:

€6 million

Step 2 — Preferred Return

Assume the cumulative preferred return amounts to €3 million.

A further:

€3 million is distributed to investors in accordance with the agreed terms

Remaining amount:

€3 million

Step 3 — Promote

The remaining proceeds are split:

  • 80% to investors = €2.4 million;

  • 20% to the sponsor = €600,000.

At this stage, the sponsor is not only earning a return in proportion to its invested capital.

It also receives additional economics because the transaction has exceeded the agreed return threshold.

This can be an entirely appropriate incentive structure.

However, investors must clearly understand:

  • hurdle rate;

  • preferred return;

  • catch-up;

  • promote;

  • calculation methodology;

  • timing of distributions.

A project-level gross return and the investor’s actual net return can differ significantly.

12. Fees Can Materially Change the Net Return

All fees should be analysed carefully.

Common examples include:

  • acquisition fee;

  • structuring fee;

  • asset management fee;

  • development management fee;

  • financing fee;

  • property management fee;

  • disposal fee;

  • performance fee.

Investors need to understand:

  • who receives each fee;

  • when it is paid;

  • how it is calculated;

  • whether it is contingent on performance.

A transaction can perform well at asset level and still generate mediocre investor returns if the fee structure is excessively burdensome.

13. Well-Structured Club Deal vs Weak Club Deal

Two transactions involving the same hotel may produce very different outcomes depending on how they are structured.

A Well-Structured Club Deal

Typically includes:

  • meaningful sponsor co-investment;

  • clear governance;

  • well-defined reserved matters;

  • transparent fees;

  • understandable waterfall mechanics;

  • realistic business plan;

  • CAPEX contingency;

  • sustainable leverage;

  • periodic reporting;

  • clear capital call rules;

  • deadlock mechanisms;

  • defined exit framework.

A Weak Club Deal

May instead feature:

  • minimal sponsor co-investment;

  • high fees unrelated to performance;

  • unbalanced governance;

  • underestimated CAPEX;

  • aggressive business plan assumptions;

  • excessive leverage;

  • inadequate reporting;

  • poorly regulated capital calls;

  • unclear exit provisions;

  • excessive dependence on exit multiple expansion.

The difference is not merely legal or procedural.

It is economic.

A weak structure can turn an attractive asset into a mediocre investment.

14. Debt: Return Enhancer or Source of Fragility?

Leverage can increase equity returns.

It can also increase the volatility of outcomes.

Key metrics should include:

  • Loan-to-Value;

  • Loan-to-Cost;

  • interest rate;

  • amortisation;

  • DSCR;

  • covenants;

  • maturity;

  • refinancing risk.

The issue is not whether debt is used.

The issue is whether the transaction only works if:

  • interest rates fall;

  • hotel performance exceeds budget;

  • CAPEX remains exactly on plan;

  • the exit occurs at the expected multiple.

The quality of the underwriting is best tested in the downside case.

15. The Business Plan: The Real Core of the Club Deal

The business plan must explain how value will actually be created.

Potential value-creation levers include:

  • ADR growth;

  • occupancy improvement;

  • rebranding;

  • improvement in distribution mix;

  • lower OTA commissions;

  • new management;

  • expansion;

  • renovation;

  • repositioning;

  • F&B development;

  • new spa facilities;

  • GOP margin expansion.

A business plan that simply assumes higher revenue without explaining how that growth will be achieved is insufficient.

At Investhotel.it, transactions are assessed first on their industrial and operating sustainability, and only then on their financial engineering.

16. CAPEX: One of the Easiest Risks to Underestimate

In hospitality, CAPEX can materially alter investment returns.

It is important to distinguish between:

Maintenance CAPEX

required to keep the hotel competitive.

Deferred CAPEX

investment postponed by the previous owner.

Compliance CAPEX

expenditure required for regulatory and safety compliance.

Strategic CAPEX

investment intended to reposition the asset.

A club deal may appear attractive at closing and still require substantial additional capital at a later stage.

For this reason, investors should assess from the outset:

  • CAPEX budget;

  • contingency;

  • timing;

  • potential overruns;

  • investor funding obligations.

17. Capital Calls: What Happens if More Equity Is Required?

One of the most important issues is what happens if the transaction requires additional capital.

Investors should understand:

  • who must fund the shortfall;

  • in what proportion;

  • what happens if an investor does not participate;

  • whether dilution applies;

  • whether penalties apply;

  • whether new investors can be admitted.

This becomes particularly relevant in the event of:

  • CAPEX overruns;

  • operating performance below budget;

  • more expensive refinancing;

  • delayed opening;

  • market shocks.

18. Hotel Operating Risk

Hotels differ materially from many traditional real estate assets.

Their value depends heavily on daily operating performance.

A hotel must:

  • sell rooms every day;

  • manage pricing;

  • control costs;

  • preserve reputation;

  • manage staff;

  • maintain the property;

  • distribute inventory effectively.

A long-let office asset typically has a very different operating risk profile.

Hotel risk must therefore be assessed through:

  • operator quality;

  • track record;

  • management structure;

  • control systems;

  • revenue management;

  • distribution strategy.

19. The Operator and the Investor Must Be Aligned

The relationship with the operator is critical.

Potential structures include:

  • lease;

  • management agreement;

  • franchise;

  • owner-operated model;

  • hybrid structure.

Investors should understand:

  • contract duration;

  • fees;

  • incentives;

  • performance tests;

  • termination rights;

  • budget approval rights;

  • CAPEX responsibilities.

An excessively rigid management agreement may reduce future flexibility.

Likewise, an overly aggressive lease may increase operator risk and, indirectly, asset risk.

20. Conflicts of Interest

Club deals can give rise to a number of potential conflicts.

For example, the same party may simultaneously act as:

  • sponsor;

  • advisor;

  • asset manager;

  • property manager;

  • intermediary;

  • operator.

This does not automatically mean that the structure is inefficient.

However, conflicts must be identified and appropriately governed.

Related-party transactions should be transparent and subject to clear procedures.

21. Reporting: Investors Must Be Able to Understand What Is Happening

An illiquid investment requires a high standard of reporting.

Investors should ideally receive periodic information on:

  • revenue;

  • occupancy;

  • ADR;

  • RevPAR;

  • GOP;

  • EBITDA;

  • CAPEX;

  • liquidity;

  • debt;

  • covenants;

  • variance versus budget.

Governance is not only about voting rights.

It is also about receiving timely and reliable information on actual performance.

22. Exit: How Do You Leave a Club Deal?

Exit is often one of the most sensitive issues.

An investor should understand:

  • expected duration;

  • minimum holding period;

  • ability to sell its interest;

  • pre-emption rights;

  • drag-along rights;

  • tag-along rights;

  • lock-up provisions;

  • valuation mechanisms.

In an illiquid investment, the right to exit can be just as important as the right to invest.

23. Drag-Along and Tag-Along

Two provisions deserve particular attention.

Drag-Along

Allows the majority shareholder, subject to agreed conditions, to require the other shareholders to participate in a sale.

Tag-Along

Allows minority shareholders to participate in a sale on the same terms offered to the majority shareholder.

Both can be useful.

However, they must be structured in a way that appropriately balances the interests of all investors.

24. Exit Multiple Risk

One of the most significant sources of error in investment models is the assumption made regarding the future valuation of the asset.

If the investment case only works because the market is expected to pay a higher multiple at exit than at entry, part of the value creation depends primarily on future capital market conditions.

A more robust strategy should generate value through:

  • EBITDA growth;

  • GOP expansion;

  • product improvement;

  • lower asset risk;

  • improved asset quality.

The exit multiple should be one component of the return.

Not the only one.

25. The Real Test: What Happens in the Downside Case?

Before investing, it is useful to test at least the following scenarios:

  • ADR down 10%;

  • occupancy below budget;

  • CAPEX up 15%;

  • higher interest rates;

  • delayed opening;

  • delayed exit;

  • lower exit multiple.

At that point, investors should ask:

is the capital still adequately protected?

does the DSCR remain sustainable?

are further capital calls required?

is the return still acceptable?

This is where the true quality of the investment structure becomes visible.

26. The Questions Every Investor Should Ask

Before entering a hotel club deal, an investor should obtain clear answers to at least the following questions:

Who is leading the transaction?

How much capital is the sponsor investing?

How is governance structured?

What are the reserved matters?

How are deadlocks resolved?

What fees are charged?

How does the waterfall work?

What is the real CAPEX requirement?

What is the leverage level?

Who operates the hotel?

What does the downside case look like?

What happens in the event of a capital call?

What is the exit strategy?

Can I sell my interest?

How are conflicts of interest managed?

If the answers are vague before the investment is made, they are unlikely to become easier after closing.

Hotel Club Deals: Splitting the Capital Is Not Enough

The advantages of a club deal are clear.

It can allow investors to:

  • access larger transactions;

  • diversify capital exposure;

  • combine expertise;

  • participate in institutional-quality assets;

  • build investment platforms.

However, a club deal becomes genuinely effective only when there is alignment between:

asset

sponsor

governance

capital

debt

return

risk

exit

A club deal does not automatically turn a good opportunity into a good investment.

More importantly, it does not turn a poor investment into a good one.

The true quality of the transaction lies in its ability to create operating value, protect capital and maintain alignment among all stakeholders.

The work developed through RobertoNecci.it, InvestimentiAlberghieri.it, Investhotel.it and Hotel Management Group is based precisely on this approach: assessing hotel investments through an integrated view of the asset, operating business, capital structure and governance framework.


Are You Considering Participating in or Structuring a Hotel Club Deal?

Before committing capital, an independent analysis of the transaction can be developed covering:

  • asset;

  • market;

  • business plan;

  • governance;

  • corporate structure;

  • invested capital;

  • debt;

  • fees;

  • waterfall;

  • CAPEX;

  • expected returns;

  • downside scenario;

  • operating risks;

  • exit mechanisms.

Contact:
info@investimentialberghieri.it

Further insights:

InvestimentiAlberghieri.it
Investhotel.it
HotelManagementGroup.it
RobertoNecci.it



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