ACORE Makes $225M Pref Equity Investment in AJ Capital’s Graduate Hotels

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A few months after compiling a $1 billion bucket of capital to deploy into the troubled hotel sector, Los Angeles-based real estate financier ACORE Capital has made a $225 million preferred equity investment in AJ Capital PartnersGraduate Hotels.

The preferred equity investment went toward supporting loan paydowns in exchange for maturity extensions, and it added some liquidity to the platform in anticipation for any operating shortfalls, according to marketing materials seeking the equity provider obtained by CO that detailed the purpose of the financing. The equity will also help push a number of current, unfinished development projects across the finish line.

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A source familiar with the transaction said that the investment was structured to ensure that AJ Capital would not need to give away equity ownership or associated residual value in its large Graduate Hotels portfolio — which sports 35 properties in the U.S. and the U.K. and is valued at roughly $1.9 billion, per the marketing memorandum. 

Bloomberg first reported news of the investment.

Graduate Hotels invests in and operates boutique hotels near major universities, targeting guests who are visitors to those universities. The company is headquartered in Nashville, Tenn. and its portfolio is made up of 5,841 rooms, per the marketing materials. 

ACORE launched its $1 billion rescue capital fund earlier this year to deploy a mix of debt and equity into hotels in the U.S. as the hospitality sector emerges from the depths of the COVID-19 pandemic. It was reported that the firm was going to be targeting opportunities to acquire existing or originate new senior mortgages, mezzanine loans and preferred equity.

Newmark‘s Jordan Roeschlaub, Dustin Stolly, Mark Schoenholtz, Larry Wolfe, Nick Scribani, Miles Spencer and Adam Etra were tapped by AJ Capital to secure the equity investment. A member of the team confirmed Newmark’s involvement but declined to comment on the preferred equity investment itself. 

In February, Bloomberg reported that AJ Capital was seeking as much as $300 million in debt and/or equity from a capital partner to grow the business and pay down existing debt on its Graduate Hotels collection, which likely experienced significant stress from school closures and travel restrictions that resulted from the pandemic. 

An official at ACORE Capital declined to comment on the deal. AJ Capital could not immediately be reached.