Don’t Pay for Your Own Business Plan
A Lesson on Entry Price Discipline in Operational Real Estate
At Brave Corp, we recently walked away from acquiring a small portfolio of hospitality-led, trading real estate assets that were marketed as stabilised, with further upside through a roll-up strategy.
Context, this was a multi-asset operating platform opportunity in a major UK city. We are keeping the details anonymous for confidentiality.
The assets were strong, the underlying product had quality, and there was a clear platform thesis. A roll-up strategy would have created genuine economies of scale, centralised revenue management, procurement leverage, and operational optimisation. In short, a realistic path to expanding EBITDA through better execution.
So why did we walk away?
Because we couldn’t agree on the one thing that matters most in value-add, the entry price.
Why value-add only works if you buy today’s cashflow
In operational real estate, there are two different numbers that should not be blended together in a negotiation.
In-place EBITDA, what the business is producing today
Stabilised EBITDA, what it could produce after the buyer executes improvements
In this case, the vendor (seller) anchored to (future) stabilised EBITDA and priced the assets accordingly. We underwrote in-place EBITDA and treated stabilised EBITDA as value we would have to create.
That difference makes or breaks the entire deal.
If you pay a price that assumes stabilised EBITDA before you have delivered it, you are paying the seller for your own business plan.
Why should they be in the economics of your upside?
The roll-up thesis was real, but it had to be earned
We liked the platform logic.
In a multi-asset operating platform, scale can create real value:
Portfolio-level revenue management and distribution strategy
Shared operating infrastructure and SOPs
Procurement savings and vendor renegotiation
Standardised staffing models and training
Faster learning loops and performance benchmarking across sites
Those levers are why roll-ups can work in operational real estate.
They are also why the buyer must have room in the entry price to fund execution and earn a return.
If the seller prices the deal as if those levers have already been pulled, the buyer is left taking execution risk without being compensated for it.
But what about “vendor financing”?
During negotiations, the vendor proposed bridging the valuation gap via deferred consideration, structured as a vendor loan.
Deferred consideration can be helpful, but it doesn’t change the basic economics unless it is structured correctly.
If the total consideration still reflects future performance rather than current performance, the buyer is still paying for upside up front. A vendor loan can reduce cash at completion, but it doesn’t reduce the amount the buyer is ultimately paying.
Worse, if the vendor loan is structured like senior secured debt, fixed cash-pay interest, tight default triggers, and restrictions that block dividends or refinancing flexibility, it can make the deal harder to underwrite, not easier. It shifts liquidity risk to the buyer at precisely the moment the buyer needs flexibility to execute the value-add plan.
Rule of thumb:
If the seller wants to be paid on stabilised EBITDA, the uplift portion should be contingent on performance actually being delivered.
What would have made the deal work
We did not deny there was upside.
We agreed the upside existed.
But there is a difference between acknowledging upside and paying for it on day one.
The fairest solution in value-add operational real estate is simple:
Price the acquisition on today’s cashflows
Pay for upside only once upside is delivered
There are multiple tools to do this properly:
Earn-outs tied to audited EBITDA milestones
Performance-linked deferred consideration that only becomes payable once targets are reached
Contingent payments triggered by refinance proceeds after performance is stabilised
These structures align incentives.
They ensure the vendor is not paid for value they did not create, and the buyer is not underwriting execution risk with no margin for error.
How we underwrite these opportunities at Brave
We run every opportunity through an IC-style model with conservative exit assumptions and a hard walk-away price.
A few principles drive our underwriting:
Entry price anchored to in-place EBITDA and current risk
All-in underwriting, taxes, SDLT, fees, reserves, CapEx, and exit yield sensitivity
Any vendor paper must be refinanceable and cannot block sensible distributions during the hold period
Upside paid only when delivered, via contingent structures rather than headline pricing
Priority given to situations where operational levers are controllable and measurable within 12–24 months
These guardrails are what protect capital, and they are what allow us to compound returns when the operating plan performs.
The takeaway
Operational real estate can be a powerful value-add strategy, especially in a platform context.
The upside can be real.
But value-add only works if entry price reflects current performance and current risk.
If the vendor prices in the uplift, the buyer loses the upside.
At that point, the buyer is no longer investing in value-add, they are financing the vendor’s exit at the buyer’s expense.
We walked away not because we disliked the assets, but because the price and structure asked us to pay today for value that would only exist tomorrow.
And in value-add, paying twice is the fastest way to destroy returns.
What this means for Brave
At Brave Corp, we’re applying this underwriting discipline across acquisitions, asset-light partnerships, and selective development, always focused on operator-led value creation.