Colony Capital’s mortgage REIT has fully invested its $292 million IPO proceeds in 20 deals, the firm confirmed today in a third quarter conference call.
Colony Financial president and chief executive officer Richard Saltzman said the REIT had invested in, or committed to invest in, 20 different transactions since going public in September 2009.
Some of the largest deals include a $50 million portfolio of first mortgages acquired for 75 cents on the dollar from a US life insurance company and a $48 million participation in a $206 million first mortgage to Southern California homebuilder William Lyons Homes. Colony Capital funds also invested in the homebuilder loan origination.
However, Saltzman – who is also president of the Los Angeles-based private equity real estate business – said it was also the right time to look for opportunities “where the air is thinner”, including eyeing repeats of Colony Financial’s recent mezzanine loan to Extended Stay. 
In October, the REIT closed on a $37.5 million mezzanine loan that was used to finance the recapitalisation of Extended Stay, after The Blackstone Group, Centerbridge Partners and Paulson & Co. acquired the hotel business out of bankruptcy for $3.9 billion. Speaking on a third quarter earnings call, Saltzman said the Extended Stay recapitalisation involved a $2.7 billion financing package and $1.2 billion of equity funded by Blackstone, Centerbridge and Paulson.
The Extended Stay deal is the third largest transaction Colony Financial has closed to date, with the loan expected to generate a 12.2 percent yield-to-maturity, with a debt service coverage ratio of 1.4x.
Saltzman said the competitive landscape for first mortgages had increased over the past year, with yields coming down roughly 250 basis points. As a result, Colony Financial would “focus in those places where there is less capital and where the air is thinner”.
Describing the Extended Stay mezzanine loan as a deal having taken place “where the air is thinner”, Saltzman added: “We are not going to the place where things appear to be getting a little over-heated already.”
He also echoed comments by Starwood Capital chairman Barry Sternlicht yesterday that “undisciplined” lending by financial institutions was helping fuel another real estate credit bubble. “I think it’s a very difficult situation that we are in right now to the extent that if the [US] government keeps rates artificially low long enough there’s the potential for another credit bubble similar to the one we went through just a few years ago.”
He continued: “If you keep rates at zero long enough, it’s an accident waiting to happen.”
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