UNITED STATES - Waterton Associates is set to create a hotel investment fund for the first time in the company's history.

The company has yet to come up with an official name but has been dubbed the hotel tactical fund at this stage.

Rich Silverstein, vice-president of acquisitions, told IPE Real Estate there are going to be good investment opportunities in the hotels sector this year.

"We think that there is going to be some strong investment opportunities in value-added and adaptive re-use plays. We are aware of how hotels will be impacted on a short-term basis by the economy but we do like the prospects of the sector on a long-term basis," he said.

Prior to its move into the hotels market, Waterton was better known as an apartment investor, having created several investment partnerships through equity supplied by the California State Teachers Retirement System (CalSTRS).

Its most recent activity was the Waterton Residential Properties fund X, created in the fourth quarter of 2007 with a total capitalization of $317m (€204.5m).

Waterton does have some experienced investing in hotels as its existing portfolio holds six such properties.

This new hotel fund, however, is expected to have a total capitalization of $300m, with 65% leverage and it's understood there will be just one major institutional investor supplying the $100m equity component seeking mid teens leverage IRRs.

Waterton is now working on the first transaction to seed the fund: a property in the northeast of the US. But it is anticipated the fund will eventually hold a total of six US hotel properties.

"The deals could be a wide variety. This would include an adaptive re-use of another property type, to rebrand an existing property or the acquisition of an asset that needs a renovation.  Both limited- and full-service assets will be considered," said Silverstein.

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