Confidential / Internal — Redline Working Memo

DoubleTree Galleria PSA: Section-by-Section Review

Three internal lenses (COO, CFO, Deal/Tax) over the seller's draft Purchase & Sale Agreement. Built to hand to real-estate counsel for the July 8 best-and-final markup.

H150 DoubleTree by Hilton Houston by the Galleria

476 keys full-service, 1981, 26 floors

Seller: REDUS DHG, LLC Wells Fargo REO

Broker: Alchemy (Joe Cuomo)

Offer ~$24.5M $1.0M earnest, hard at execution

Due: Wed July 8 offer + marked-up PSA

The structural reality

This is a bank REO dirt-conveyance form, not a hotel form. It conveys the building and FF&E but excludes the three things that make a 476-key hotel actually run: the management agreement, the franchise flag, and the liquor license. And it is economically one-sided by design:

Your $1.0M is real. Their exposure is theoretical.

Earnest goes hard at execution, immediately earned and non-refundable, with only $100 of true independent consideration. There is no financing out and no diligence out. On the back end the seller caps its total liability at 1% of price, roughly $245,000 (PSA Limited Liability clause), reps survive 6 months, covenants 30 days. So: you have $1,000,000 fully exposed from day one; the bank has ~$245,000 exposed, recourse limited to sale proceeds. On top of that you self-fund the entire PIP from operations (real self-GC $4,617,916; market-GC defense number $15,242,234; hidden equity delta $10,624,318, per THM's model) with zero seller contribution.

That asymmetry is the bid you are choosing to make to win the asset. The redline does not try to undo it. It spends a small number of chips to (a) widen the narrow earnest-refund offramps, (b) close the operating gaps before money goes hard, and (c) cap the unquantified cash traps. A motivated REO desk gives these back because none of them reintroduce a financing or diligence contingency.

Where all three lenses converged

These were independently flagged by more than one reviewer. Highest-confidence targets.

Franchise flag: termination vs assignment (Sec. 5, "Termination of Franchise Agreement [or possibly assignment, TBD]"; Exhibit A excludes the franchise from conveyance). COO: #1 day-one deal-breaker. Deal/Tax: the single most valuable lever in the document. CFO: who pays the Hilton termination fee. A DoubleTree that loses its Hilton flag at the closing instant loses Hilton.com, central reservations, GDS, Honors, and signage. The whole asset value rests here.

Hard money + remedy asymmetry (Sec. 3 earnest; Sec. 6 remedies; 1% liability cap). All three. CFO and Deal/Tax both want earnest to go hard on day 7-10, not at execution, plus a funded seller-default remedy and a fix to the self-judging specific-performance escape.

Liquor license excluded + TABC gap (Exhibit A excludes Liquor License; Sec. 5 terminates the concession; Sec. 32 credits seller for liquor inventory). COO #2 deal-breaker and CFO both flag it: day one you own bars, restaurant, room service and banquet with no alcohol permit, and you are paying for liquor you cannot legally sell.

Casualty threshold set at 50% of price (Sec. 31). COO and CFO both: ~$12.25M of damage before you can walk. A $5M fire and you still close at full price. Lower to 10-15% or tie to keys out of service / loss of life-safety systems.

Prorations final with no true-up + property-tax reassessment (Sec. 32). CFO's "big one," echoed by Deal/Tax: you prorate off the stale distressed assessment, it is locked final, then Harris County reassesses to $24.5M and you eat the jump with no credit, while seller keeps the appeal refunds.

Existing Security substitution, unquantified (Sec. 35). All three: an open-ended LOC/cash requirement you must post before closing or forfeit the $1M, with no dollar amount disclosed. Force disclosure and a cap.

The silent tax holes (absent from the form). Deal/Tax: undefined FF&E allocation risks 8.25% Texas sales/use tax. CFO: no Texas Comptroller tax-clearance certificate, so successor liability for the seller's unpaid sales/occupancy taxes can land on you. Both are cheap to fix, expensive to ignore.

Priority tiers for the markup

Tier 1 — must win (protects the $1M and the asset value)

Franchise flag certainty. Resolve assign-vs-terminate; no unflagged gap (assignment, or termination simultaneous with the new Hilton license going effective); seller cooperation on re-flag/PIP; push any Hilton termination fee onto seller or take it as a price credit. Do not make closing contingent on the new franchise (reads as a financing out), but extract the cooperation and the fee economics.
Earnest hard on day 7-10, not at execution, paired with a tight title-and-survey-only confirmatory review. Keep the $100. Highest-probability "yes" from an REO desk.
Funded, symmetric seller-default remedy. Earnest plus capped pursuit costs (~$250K to mirror their 1% cap); narrow the specific-performance carve-out to actual governmental orders, not counsel's discretionary opinion; escrow a holdback behind the 1% cap so recourse is real.

Tier 2 — high value (operating continuity + hidden cash)

Liquor bridge: temporary beverage concession until your TABC permit issues, or file/prioritize the permit now; do not pay for liquor you cannot sell.
WARN Act: require an employee census, get pre-closing transition access to make conditional offers, and narrow the WARN indemnity to your own hiring decisions.
Ordinary-course operating covenant through closing (maintain insurance, inventory pars, staffing, no FF&E stripping). Conspicuously absent from this form.
Casualty threshold down to 10-15% / keys-out trigger; full insurance proceeds plus business-interruption, no "sums expended" deduction.
Property-tax reproration: carve taxes out of proration finality; you control the go-forward protest and keep go-forward refunds.
Cap the cash traps: disclose and cap Existing Security (Sec. 35); require a Texas tax-clearance certificate or proceeds holdback.
Entity + tax bundle: assignment to an entity "controlled by / under common control with" Purchaser (not "100% owned," so you can fund the SPE with partners); FF&E occasional-sale exemption; reciprocal 1031 cooperation; FIRPTA self-help if seller fails to deliver.
Assumed service contracts: attach a schedule, make assumption elective so you are not stuck with above-market REO-era contracts.

Tier 3 — concede gracefully (standard bank-REO armor)

As-is / no-reps posture and the no-financing-contingency (this is why your bid wins, do not touch it).
The 1% liability cap, jury-trial waiver, no-consequential-damages, no-recording. Concede these so the Tier 1-2 asks read as reasonable to a credit committee.
Texas "transfer tax to seller" (hollow, Texas has none) and the $100 independent consideration. Do not spend a chip on either.

Clause-by-clause detail

COO operations / continuity CFO economics / cash Deal leverage / tax / structuring

PSA section	Issue	Redline ask
Intro & Sec. 13 Purchaser / Assigns	Purchaser name is blank. No-consent assignment is limited to an entity "100% owned by Purchaser," so bringing in any equity partner kills the free assignment and drops to seller's sole-discretion consent. Deal	Fill as "THM LP, a Texas LP, or its permitted assignee"; close into a fresh single-purpose LLC (H150 PropCo). Broaden assignment to "controlled by, under common control with, or majority-held by Purchaser or its principals." Ask that the original signer's residual liability be capped at the same 1% the seller enjoys.
Sec. 3 Earnest / Independent Consideration	Whole $1M "immediately fully earned and nonrefundable" one business day after execution; only $100 independent consideration. Interest ownership unstated. CFODeal	Earnest goes hard on day 7-10, not at execution, framed as a short title/closing-mechanics window (no DD or financing out). Keep the $100. State that interest follows principal to whoever is entitled to the earnest.
Sec. 4 Diligence waiver / access	Irrevocable waiver of any diligence termination right. Bar on entering the property or interviewing staff/management. Refund is conditioned on first returning all reports and DD materials, with a seller "acceptance" gate. COOCFO	Accept as-is posture to stay competitive, but add a pre-closing transition-access carve-out (escorted: meet GM/department heads, make conditional offers, inspect MEP/life-safety/PMS) that does not reopen a termination right. Strike or time-box the "return materials before refund" gate so escrow releases same business day.
Sec. 5 Closing deliverables	Terminations of franchise ("[or assignment, TBD]"), management (Crescent), valet (Mile Hi), liquor concession; HCID-1 notice; buyer must obtain its own governmental consents but still close or forfeit; open-ended "such other documents as Seller deems necessary." COOCFODeal	Resolve the franchise bracket (Tier 1). Any termination/penalty fee on the franchise, management, or valet agreements is seller's sole cost, not prorated. Make buyer's required governmental consents a condition to buyer's obligation (refund if unobtainable despite reasonable efforts). Qualify catch-all documents to "customary, no increase to Purchaser's liabilities/costs."
Sec. 6 Default / remedies	Buyer default: seller keeps $1M. Worse, for "any other" buyer breach seller keeps earnest AND has all remedies at law/equity (double-dip). Buyer's specific performance is defeated by seller's own legal-department opinion letter. CFODeal	Make retention of earnest seller's sole and exclusive remedy for buyer default across the board. On seller default, refund plus documented pursuit costs capped (~$250K). Narrow the SP carve-out to governmental orders already issued, not discretionary "could result" opinions.
Sec. 7 Seller reps / interim ops	Reps survive 6 months, covenants 30 days, knowledge = one WF officer "without inquiry," every rep knocked out by anything buried in DD materials. The only interim covenant protects leases/licenses: no ordinary-course operating covenant at all. COOCFO	Add an ordinary-course covenant through closing (insurance, inventory pars, routine maintenance, no FF&E removal, no non-cause staff terminations, brand-standard compliance). Push reps survival to 9-12 months. Fight only for two reps with real dollars: no unpaid hotel occupancy/sales tax, and no special-district assessment beyond disclosed HCID-1.
Sec. 8 Employees / WARN / Bookings	Buyer must hire "a sufficient number" to avoid WARN and indemnifies seller for WARN, but gets no employee census and (per Sec. 4) cannot interview staff. Buyer must honor all bookings but is not guaranteed the booking file or the deposits. "Limited service hotel" mislabel in Exhibit A. COO	Require an employee census as a closing deliverable (refreshed near closing); pair with transition access; make WARN indemnity reciprocal/narrow (seller owns its own pre-closing termination notices). Require delivery of the full bookings/group/BEO file with deposits actually transferred. Fix the "limited service" definition.
Sec. 11 Title & survey	Seller pays only the base owner's premium; all endorsements on buyer. No survey ordered; survey facts swept into Permitted Exceptions. Conflict with the closing-cost clause, which says buyer pays "the premium for the New Title Policy." CFO	Preserve the new-title-exception refund right (Sec. 11(d), one of only three offramps). Reconcile the premium conflict so seller clearly pays base premium, buyer only endorsements. Order a current survey before going hard. Ask seller to fund standard owner's endorsements or budget them.
Sec. 31 Risk of loss	Termination only if casualty/condemnation exceeds 50% of price (~$12.25M). Below that, close at full price with a credit only for proceeds actually collected "less any sums expended by Seller." COOCFO	Lower threshold to 10-15% of price, or any closure of life-safety/major systems or a material number of keys out of service. Full assignment of insurance plus business-interruption proceeds, credit for the deductible, no unilateral "sums expended" deduction.
Sec. 32 Prorations	All prorations FINAL, no post-closing true-up. Property tax prorated off the stale distressed assessment, then you absorb the post-sale reassessment to $24.5M with no credit; seller keeps appeal refunds. Seller credited for liquor inventory you cannot yet sell. Consumables credit with no minimum-par requirement (incentive to run inventory down). COOCFODeal	Carve real-estate taxes out of finality; require reproration at the final assessed value; buyer controls the go-forward protest and keeps go-forward refunds. Add a 60-90 day reconciliation for taxes/utilities/opex. Cap or exclude the liquor-inventory credit until the TABC permit is in place. Require inventory maintained at normal pars with a joint count at closing.
Sec. 35 Existing Security	Buyer must post substitute bonds/LCs/cash escrows before closing or it is a default that forfeits the $1M. Amount undefined. COOCFODeal	Require seller to attach a schedule of all Existing Security (type, beneficiary, dollar amount) before you go hard. Carve substitution failure out of liquidated damages, or make it a refundable termination right if the required security exceeds a stated cap.
Tax (absent) FF&E / successor liability / FIRPTA / 1031	No purchase-price allocation, so an undefined FF&E line risks 8.25% Texas sales/use tax. No Texas tax-clearance certificate, so successor liability for seller's unpaid sales/occupancy taxes can follow the asset. No 1031 cooperation language. CFODeal	Add a tax-allocation section reciting the occasional-sale/bulk-sale exemption (no sales/use tax due) with cooperation on certificates, plus buyer's right to allocate for cost-seg. Require a Texas Comptroller certificate of no tax due or a proceeds holdback. Add reciprocal 1031 cooperation at no cost to seller. Add FIRPTA self-help: if seller fails to deliver the affidavit, buyer may withhold and remit without default.

The July 8 action plan

Engage real-estate counsel this week. Hand them this memo as the redline brief so they mark up the form fast instead of starting cold. The $1M going hard at signature is exactly why this is not a self-serve markup.
Lock the bid price. The model carries an offer of $24,500,000 against a financed walk ceiling of $30,500,000, so there is room. Decide where you actually bid; that drives everything else.
Keep the Hilton re-license thread warm. It is your differentiator and de-risks closing for the seller. The franchise sequencing in the redline has to match what Hilton will actually approve and by when.
Confirm the seller is completing the ~$516K parking-garage structural pre-close (Cuomo, 2026-06-19, per the model) so it stays off your basis.
Submit offer + redline together by Wed July 8. A clean, well-reasoned markup signals a credible closer and can win the asset even against a higher but messier bid. Concede Tier 3 gracefully so the Tier 1-2 asks read as reasonable to the bank's credit committee.

Sources: seller's draft Doubletree Houston - Form Purchase Contract - ND.docx (Cuomo email, 2026-06-26, thread 177990); THM underwriting model H150 DoubleTree Galleria Model 2026-06-24.xlsx (PIP and price figures); deal-process context from the Cuomo emails (best-and-final due July 8, parking structural pre-close 2026-06-19). PIP figures: self-GC $4,617,916 (cell E33), market-GC $15,242,234 (E31), hidden equity delta $10,624,318 (E34). Seller 1% liability cap of ~$245,000 is 1% of the $24.5M offer per the PSA Limited Liability clause. Casualty ~$12.25M is 50% of the $24.5M offer per Sec. 31. Internal working memo synthesized from three review lenses (COO / CFO / Deal-Tax). Not legal advice; for counsel's use in preparing the markup.

Reviewer attributions reflect which internal lens raised each point, not separate outside opinions.