Loss of Principal

An investor may lose all or a substantial portion of their capital investment. Hotel investments are subject to market cycles, property-level performance fluctuations, financing constraints, and economic cycles. There is no guarantee of returns, capital preservation, or recovery of investment.

Liquidity Risk

Fund I and Waco Fund are closed-end funds with limited liquidity. LP units are not freely transferable and may not be redeemed prior to the end of the fund's term (typically 5 years plus extensions). Secondary market sales, if available at all, may be at significant discounts to NAV. Investors must be prepared to hold their investment for the full fund term and cannot rely on liquidity for emergencies.

Market & Hospitality Industry Risk

The hospitality industry is cyclical and sensitive to economic downturns, travel restrictions, labor costs, and consumer spending trends. Market recessions, pandemics, fuel prices, and employment levels can dramatically impact hotel RevPAR, occupancy, and profitability. The fund may be unable to refinance or exit properties during market downturns, leading to extended hold periods or forced sales at depressed valuations.

Concentration Risk (Waco Fund)

The Waco Fund invests in a single property in a single market. This creates significant concentration risk: a single property failure, market disruption, or local economic shock could result in total loss of capital. Diversification, which mitigates risk, is not available in single-asset structures.

Interest Rate & Financing Risk

All acquisitions are financed with debt. Rising interest rates increase debt service costs, reducing net operating income available for LP distributions. If rates rise significantly, refinancing at maturity may be difficult or expensive, extending the fund's hold period. Lender defaults, covenant breaches, or forced refinancing at higher rates could impair returns.

Operational Risk

Fund performance depends on successful execution of the operating plan: labor cost reduction through deskless technology, revenue management, brand compliance, and guest experience improvements. Any failure to execute—technology adoption delays, staff turnover, guest acceptance issues, or operational mistakes—could negatively impact property performance and returns.

Key Person Risk

Fund success depends on the efforts and expertise of Allencrest's management team. Departure of key personnel, illness, or management turnover could impair decision-making, operational execution, and investor relationships.

Brand & Franchise Risk

All properties operate under Hilton, Marriott, or other brand franchises. Franchise agreements can be terminated for brand standard violations, financial defaults, or brand owner discretion. Brand termination could reduce property value, require costly remediation, lead to flag conversion, or result in operational restructuring. Franchisors continuously upgrade standards, requiring capital expenditures that may exceed projections.

Acquisition Risk

Fund I is a blind-pool vehicle with no properties identified at launch. The fund may fail to identify, acquire, or close suitable transactions within the target timeline, leading to delayed capital deployment, extended hold periods, or deployment at less favorable terms than projected. Seller financing unavailability, appraisal issues, or acquisition failures could impact returns.

Regulatory & Compliance Risk

Changes in securities law, tax law, labor law, franchise regulation, environmental regulations, or hospitality-specific rules could increase costs, reduce returns, or require strategic changes. Regulatory violations could result in fines, remediation costs, or legal liability that impacts LP returns.

Cybersecurity & Technology Risk

The fund relies on cloud PMS platforms, kiosk systems, and network infrastructure. Cyber attacks, data breaches, system failures, or technology disruptions could disrupt guest operations, compromise data, trigger regulatory action, or result in costly remediation. Technology vendors may discontinue service, require costly upgrades, or increase fees.

Valuation & Refinancing Risk

The fund's exit strategy depends on refinancing stabilized properties at acceptable loan-to-value ratios and debt service coverage multiples. If property valuations decline, refinancing may not be available at targeted terms, forcing longer holds or asset sales at depressed prices. Appraisers may value properties below acquisition basis, impairing projected returns.

Lender Risk

Properties are financed with third-party lenders. Lender default, changes in lending appetite, tightening of credit standards, or aggressive enforcement of covenants could impair fund operations. Lenders may impose reserve requirements, accelerate amortization, or call notes early, affecting liquidity and distributions.

Environmental & Insurance Risk

Physical properties are subject to natural disasters (floods, hurricanes, earthquakes), environmental liabilities, mold, asbestos, or other hazards. Insurance may not cover all events, or premiums may increase beyond projections. Environmental contamination could require costly remediation or render properties unusable.

General Partner Conflict of Interest

Allencrest Group LLC, as general partner, and its affiliated entities earn management fees and carried interest, creating potential conflicts with LP interests. The GP may have investments in competing funds or properties. Although the PPM describes governance protections, conflicts of interest could arise in asset management decisions, refinancing timing, or exit timing.

Tax Risk

The fund structure is designed for certain tax treatment under partnership and real estate rules. Changes in tax law, IRS interpretation, or the fund's actual operations could result in unexpected tax consequences. Passive loss limitations, depreciation recapture, unrelated business taxable income, or state tax issues could affect LP tax returns and tax liabilities.

No Secondary Market

There is no secondary market for LP units. If an LP needs to exit before the fund term ends, they must sell to another accredited investor at whatever price the market will bear—likely at a significant discount to NAV. Forced liquidity needs cannot be accommodated.

Preferred Return Is Not Guaranteed

The 9% preferred return is a target return only. It is not guaranteed, not a promise, and subject to the fund's operating performance. If the fund underperforms, LPs may receive no preferred return or lower distributions than expected. Past performance of Allencrest properties or other funds does not indicate future results.

Economic Recession

Severe economic recession, widespread unemployment, credit tightening, or loss of consumer confidence could dramatically reduce hotel demand, RevPAR, occupancy, and pricing power. The fund may be unable to refinance or achieve targeted exit multiples, requiring extended holds or asset sales at loss.

Labor Cost & Staffing Risk

Labor cost inflation, wage pressures, benefits obligations, and staffing difficulties could outpace revenue growth. Minimum wage increases, union organizing, or labor market tightness could make target labor savings through automation unachievable or require higher technology investment.

Blind-Pool Risk (Fund I)

Fund I investors do not know which properties will be acquired or in which markets. The GP has broad discretion in acquisition decisions. Properties acquired may not meet all investor expectations for location, asset quality, financing terms, or market fundamentals. There is no approval mechanism for individual acquisitions.

No Guarantee of Distributions

The fund is not required to make distributions. Capital is deployed into properties without a scheduled return timeline. Distributions depend on property performance, refinancings, and GP discretion regarding distribution timing.