Ashford Hospitality, PREI Form $300 JV

Ashford Hospitality Trust Inc. and Prudential Real Estate Investors have created a joint venture to invest in and originate mezzanine debt secured by hotels, and buy equity hotel investments.  The JV, which will be funded over the next two years, will ultimately be capitalized to the tune of about $300 million, according to the partners. “Ashford got out of the lending business about 18 months ago, because spreads for mezzanine debt had compressed too much,” a spokesperson for Ashford told CPN this morning. “The compensation for the risk just wasn’t enough. But now spreads have widened, and it’s a good time to get back into the business.” He added that the demand for this kind of financing is still strong, and the JV anticipates it to remain that way for the foreseeable future. “We see in current market conditions an opportunity to meet that demand among hotel borrowers and lenders,” the spokesperson said. Ashford and PREI will contribute the capital required for each mezzanine investment on a 25 percent/75 percent basis, respectively, with Dallas-based Ashford collecting management and sourcing fees. Ashford will seed the JV with its recent $21.5 million mezz loan secured by interests in the Westin La Paloma Resort & Spa in Tucson, Ariz., and the Westin Hilton Head Resort in Hilton Head, S.C. The maximum single-asset investment size for the JV will be $50  million, but more typically in the range of $10 million to $25 million, and up to $75 million for a diversified portfolio. Mostly the properties involved will be full-service hotels and resorts in upper-upscale to luxury segments, along with branded select-service hotels in upscale and mid-scale segments. Some extended-stay and economy assets may be involved as well, provided they constitute a minority position in a portfolio.