UNITED STATES - Pramerica Real Estate Investors has formed a new joint venture with Ashford Hospitality Trust to invest in hotel properties through structured debt and equity.

Total capital in the venture is $400m (€273.3m) split 75/25 so Pramerica invests $300m and Ashford Hospitality contributes $100m, according to Jim Walker principal with PREI on the transaction side for its capital markets group.

"We think there is an opportunity in the marketplace for investing in hotels in this way.  By making a straight equity investment in a hotel, the return would be in the single digits.  But the mezzanine deal structure will allow us to achieve double digit returns."

The project's investment strategy will be to invest in full-service and resort type properties based in the US, said Walker.

"It's our opinion that these kind of properties will perform well in the near future as there hasn't been a great amount of new construction over the past couple of years."

There is one transaction already held within in the joint venture: a $21.5m mezzanine loan secured by interests in the Westin La Paloma Resort & Spa in Tucson, Arizona and the Westin Hilton Head Resort in Hilton Head, South Carolina.

The joint venture will primarily acquire or originate loans and make preferred equity investment, where the capital structure is in the 60-85% loan-to-value range.

The investments made by Pramerica for the JV could come from a variety of sources of capital such as the investment firm's own commingled funds - PRISA II or PRISA III - as well as some assets from pension fund separate accounts.

The venture is the first time that PREI and Ashford Hospitality have invested together but it is part of $1bn worth of capital PREI is looking to place in the mezzanine debt arena over the next 12 months - three times as much capital as it would typically invest in the mezzanine deals over the same time frame.

The next investment in mezzanine area is expected to be in the core property types of office, industrial, retail or apartments so Pramerica is looking to sign a venture of similar size to the Ashford Hospitality relationship.

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