Ashford Launches Novel Funding Program For Acquisitions

Ashford Inc. has launched a $50 million funding program for its externally-advised REIT Ashford Hospitality Trust that is expected to be parlayed into $500 million of hotel acquisitions over the next 12 months. The company announced the funding program Tuesday afternoon, along with the news that Ashford Trust has used the program to support its pending acquisition of a 252-key hotel in Alexandria, Va., for $111 million.

Under the program, Ashford Inc., which is the asset manager for the REITs in the corporate family, will provide 10% of a hotel’s purchase price to Ashford Trust free and clear without any rights to the property. In the case of the hotel is it buying now, the Hilton Alexandria Old Town, Ashford Inc. provided $11.1 million.

In exchange, Ashford Trust will give all of the project management work to Ashford Inc., which earns fees on this activity. “All the renovation work, we earn fees on that,” Rob Hays, co-president and chief strategy officer of Ashford Inc., tells GlobeSt.com. “We also have an audiovisual company and it gets fees as well. We also do debt placement and a whole host of other services for the hotel.”

Both entities, in short, will earn returns or generate revenue from the arrangement.

Depending on the size of the individual deal, that 10% of funding should represent about one-third of the equity that Ashford Trust typically puts into a deal, according to Hays. “As you can imagine that will materially improve the equity returns on the transaction,” he says, possibly by as much as 700 to 1,200 basis points. As for Ashford Inc., “to the extent that we continue to buy other services and businesses, which we plan to, that means that we will continue to generate even more fees from these assets.” Not for nothing the formal name of this platform is the Enhanced Return Funding Program.

The program becomes a virtuous circle in that the more fees Ashford Inc. generates the more capital it will be able to provide Ashford Trust, reducing the cost of its capital and making it easier to close deals. “If Ashford controlled enough of the services side, there is theoretically a chance that Ashford Trust wouldn’t even have to raise equity,” Hays says.

Hays adds that this structure has not be tried in real estate before and that it was only made possible because of Ashford’s corporate structure and because it is the hospitality sector.

Ashford Inc. hopes that the $50 million will be completely dispersed within the next 12 months. “We want to show people how this works. How it can improve returns and then, to the extent it is well received, we will try to expand it.”