Driftwood Capital Targets New Mezz Lending Fund for Hospitality
The firm intends to raise $100 million from investors to source mezzanine loans and preferred equity transactions in the hospitality sector.
With COVID hitting tourism and travel hard, hotels are struggling right now. The expectation is that many of them will need an injection of capital in Q4 and into 2021.
Driftwood Capital is attempting to fill that gap with a new Mezzanine Lending Fund. The privately held real estate firm specializing in hospitality investments intends to raise $100 million from investors to source mezzanine loans and preferred equity transactions in the hospitality sector.
“A prolonged downturn for hotels worldwide, along with dislocation in the traditional financial markets, has created a huge need for ‘rescue capital’ in the industry, and as experienced hoteliers, we have unique strength in this space,” says Carlos Rodriguez Sr., CEO of Driftwood.
The fund will originate loans and preferred equity positions in the $3- to $50-million range across the United States and its territories, according to Rodriguez Sr. Driftwood expects lending opportunities to increase as the year progresses.
“There are some distressed hotel assets coming to market now, but we anticipate the vast majority of opportunities will hit towards the end of the fourth quarter this year and first quarter of 2021, as hoteliers use up the proceeds from the PPP loans and whatever excess cash they had in their balance sheets,” says David Steiner, managing director of Capital Markets for Driftwood.
Right now, Driftwood sees 20- to 30-percent discounts on hotel assets, with some variation depending on the market location and the type of asset. “For example, a resort in a good location will not be as heavily discounted as, say, a convention hotel because the leisure sector of the hotel business is ramping up a lot faster than the business sector post-COVID,” Steiner says.
Earlier this year, Driftwood announced it had launched two new funds focused on hospitality development and acquisitions of existing hotels. It raised a combined $250 million in those vehicles, which target deals with a hotel component across the U.S. in the $30 million to $150 million range.
Driftwood isn’t alone seeing opportunity in hospitality. Mark Fogel, ACRES CEO and Exantas Capital Corp. President and CEO, thinks there are a lot of opportunities in the hard-hit hospitality and retail sectors to support good sponsors who know their markets well and are buying properties at the right price. “That [having a good sponsor] allows us to come in and back somebody in a well-constructed loan,” Fogel says.