Q2 Insights: Capitalizing on Disruption

Disruption is not the end of stability; instead, it is the catalyst for innovation, growthand the evolution of industries.

This sentiment was evident during the disruption that rattled traditional financial institutions during the Global Financial Crisis (GFC), causing, among other things, banks to restrict lending.

During the tumultuous aftermath of the crisis, banks recalibrated their lending strategies, leaving a void in the market. This vacuum was swiftly filled by the emergence of private credit, a dynamic sector that embraced innovation to navigate the disruption. This shift provided commercial real estate ownership groups with the flexible and tailored financing solutions they needed to weather the uncertainties of the time.

In the wake of these changes, private credit witnessed exponential growth, with assets under management tripling to approximately $1.5 trillion. This rise underscores the resilience and adaptability of this sector in meeting the evolving needs of borrowers.

Peachtree Group has been an integral player in private credit since the GFC, with our investment strategies evolving as conditions change.With a holistic view of the market, we understand real estate owners' issues and canstructure and close loans that meet owners' complex and unique needs, regardless of the sector.

It has been a period of prosperity on the credit side of Peachtree Group. We have more than doubled credit transactions over the past three years, and there's more opportunity ahead for Peachtree Group to play a meaningful role in the commercial real estate lending landscape.

Current data would indicate that the market is facing a maturity wave that would make the 2015-2017 wave nearly insignificant by comparison. In that timeframe, approximately $1.1 trillion of loans were scheduled to come due amidst a period of relatively low-interest rates. The current projections diverge markedly as an estimated $2.75 trillion of loans are set to mature between this year and 2027. This accounts for nearly half of the $5.67 trillion in outstanding loans, according to data from Trepp.

Predominantly, the banking sector holds the largest share of commercial real estate loans, boasting a combined portfolio valued at roughly $2.86 trillion and will encounter maturing obligations of $1.44 trillion through 2027.Today, banks are under regulatory pressure and need to shore up their balance sheets and liquidity positions, causing significant lending restrictions to commercial real estate. This traditional lender disruption further opens the door for private credit.

With solid liquidity in place, we are optimistic about these future opportunities. While the lending landscape is complex, we are eager to capitalize on the inefficiencies in an elevated interest rate environment. In today's market, we can generate sizable returns without taking equity risk while simultaneously being in a discounted position of 25% to 40% of the current value of the underlying commercial real estate asset.

Although the journey ahead might be challenging, our commitment to sound lending practices, resilience and innovative thinking will play a pivotal role in our success. In the dynamic markets now, we see a myriad of untapped opportunities. We have the team to execute this investment strategy and are always looking ahead to anticipate and pivot to the next trade.  I appreciate your confidence in us. We all remain passionate about reaching our investment objectives together. As always, please don't hesitate to contact me with any questions, comments or concerns.

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