AUSTIN, TX-American Campus Communities Inc. is taking advantage of its access to capital and is now providing mezzanine loans to private developers. The student housing REIT outlined its new strategy during its first quarter 2011 earnings conference call.
During the first quarter, ACC made a $4 million mezzanine loan to a private student housing developer for the acquisition and rehab of a condominium complex near Miami University in Oxford, Ohio.
ACC will earn a 10% interest on the loan, compounded monthly, and upon completion in 2012, the REIT can elect to acquire the asset at a pre-negotiated price or pass on the opportunity and take a return of its capital. Repayment of the mezzanine loan is guaranteed by the developer, according to William Talbot, senior vice president of investments for ACC.
“This structure is very attractive to other developers within our sector who do not have the financial wherewithal and access to capital that we do,” Talbot said during the conference call. “It also provides us the opportunity to expand our pipeline of growth opportunities that meet our investment criteria.”
When asked by an analyst during the call if mezzanine lending could become a significant activity for ACC and how large the program could get, Bayless answered: “It’s something we’re very excited about. It’s something that makes a lot of sense for the smaller developers – being able to utilize our mezzanine equity and for us it gives us the chance to lock up and tie in exclusivity on assets that meet our investment criteria.”
Bayless noted that ACC is so excited about the opportunity to provide mezzanine loans that the company “has been out there touting it.” He added that certain members of the executive team have been meeting with developers to source possible lending opportunities.
“We would love to see it turn into something more meaningful than this one transaction,” Bayless concluded.
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