In the ever-evolving world of hotel development, securing financing has become increasingly challenging, particularly in the wake of recent bank failures and tightening lending conditions. Traditional bank loans, once the go-to option for developers, have become scarce, pushing many to seek alternative sources of capital. In this environment, private credit has emerged as a critical lifeline for hotel developers.
To shed light on these market dynamics, we spoke with Jared Schlosser, EVP of Hotel Lending & Head of CPACE, about private credit in Hotel Lending at Peachtree Group. Jared is responsible for running Peachtree’s hotel originations platform and its commercial property assessed clean energy (CPACE) program.
Q&A with Jared Schlosser, EVP of Hotel Lending & Head of CPACE at Peachtree Group
Q: Why are hotel developers turning to private credit for financing?
Jared Schlosser: The primary reason hotel developers are looking to private credit is the scarcity of bank lending. Since the bank failures early last year and the ongoing balance sheet distress faced by many banks, traditional bank loans have become harder to secure. Banks now require more deposits and offer lower leverage compared to what was available in 2021 and early 2022. This shift has created a gap in the market, which private lenders have stepped in to fill. Private credit started gaining traction between2019 and 2021, and as bank lending has decreased, private credit has grown to meet the demand.
Q: What does the hotel lending market look like today?
JS: The hotel lending market is quite volatile right now. There are many lenders available if you have a strong project with significant cash flow. CMBS (Commercial Mortgage-Backed Securities) is active, and there's plenty of private credit as well as some insurance companies that are willing to finance deals with double-digit or even high single-digit debt yields.
Debt yield is essentially your net operating income (NOI) over the loan amount you're requesting. As cash flow decreases, the number of lenders willing to finance such deals also decreases. We've worked on deals where the debt yield was over 10%, and we've also done deals where there was no cash flow at all. As you move down the spectrum in terms of cash flow, you’ll find that while many lenders are interested in higher-yield deals, there are very few willing to finance projects with lower or no cash flow.
As the hotel lending landscape continues to shift, understanding the role of private credit has never been more important. Learning about private credit through the perspective of seasoned professionals is the best way to understand its potential. If you want to learn more about Private Credit follow our “What is Private Credit in CRE” series on the Peachtree Group YouTube Channel.
THIS IS NOT AN OFFER OR SOLICITATION TO PURCHASE ANYSECURITY. AN OFFERING IS MADE ONLY BY THE PRIVATE PLACEMENT MEMORANDUM.