UNITED STATES - Rothschild Realty and Shaner Hotel Group have formed a new investment entity called Shaner Mortgage REIT, which will invest $200m (€135.1m) in the purchase of whole loans secured by US hotel properties.

Rothschild Realty made a $57m equity investment into the REIT on behalf of its Five Arrows Realty Securities V commingled fund, so financing may be gathered in invest in deals carrying equity and seller financing.

The real estate manager believes there are going to be strong investment opportunities given the debt issues many hotel owners and lenders are still facing.

Rothschild is aware that there is a great deal of capital looking to invest in debt assets, with more to follow. But officials say they expect to benefit from the niche strategy of focusing on hotels as many other sources of capital are pursuing financing on multiple property types which have a broader tenant/user interest.

The private non-traded Shaner Mortgage REIT will be used to buy the hotel loans at a significant discount to the current size of the loan but will not act as a ‘loan-to-own' programme.

Rothschild has projected the venture could produce a leveraged IRR with a current yield in the range of 9-12%.

The two parties would not have considered this deal had the two firms not previously worked together. Rothschild made a $65m investment with Shaner in November 2007 to invest equity in new Marriott Hotels being development by Shaner. All but around $5m of this equity has been invested and this was the last transaction that Rothschild completed for its Five Arrows Realty Securities IV LP.

Rothschild has now invested approximately $167m of the $840m of equity it raised for Five Arrows V.