In this episode of Peachtree's Point of View, Greg Friedman welcomes David Bitner, Global Head of Research and Executive Managing Director at Newmark, for an in-depth discussion on the commercial real estate landscape. They cover key economic and market trends, including the impact of sustained higher interest rates, the evolving debt market, and investment opportunities in a rapidly shifting environment. A major theme of the discussion is how higher interest rates continue to reshape commercial real estate valuations.
Commercial real estate investors and operators are facing a fundamental shift in market dynamics, with the era of ultra-low interest rates firmly in the rearview mirror. In a revealing conversation with Greg Friedman, David Bitner, Global Head of Research at Newmark, emphasizes that this change isn't temporary – it's a permanent feature of the investment landscape that requires a complete recalibration of expectations and strategies.
Looking ahead this year, Bitner anticipates continued volatility in interest rates, with the 10-year Treasury likely to run between 3.8% and the mid-5% range. This volatility, coupled with ongoing economic uncertainty, will significantly impact transaction activity and asset valuations across all property types.
Despite these challenges, there are bright spots emerging. Office markets showed their first positive net absorption in 18 quarters during Q4 2023, suggesting a potential turning point. The industrial sector is poised for recovery, particularly in secondary and tertiary markets, driven by near shoring trends and over $530 billion in planned manufacturing investments. Multifamily properties, especially new construction, show attractive pricing dynamics relative to existing stock.
For investors looking to deploy capital, David suggests a balanced approach with a significant allocation to debt investments, where spreads appear more attractive than equity returns. He particularly highlights opportunities in direct lending and mezzanine debt, where returns can reach 14%. On the equity side, he points to value-add opportunities in trophy office conversions, though emphasizing the critical importance of submarket selection.
The wall of debt maturities remains a significant concern, with approximately $2 trillion in commercial real estate loans maturing over the next couple of years. While banks have largely employed an "extend and pretend" strategy thus far, David suggests regulatory pressure and dwindling extension options could force more resolutions in 2025, leading to increased transaction activity and price discovery.
The podcast also touches on potential policy impacts from the new administration, including proposed tariffs and deregulation efforts, which could create both challenges and opportunities for commercial real estate markets.
For investors and operators in commercial real estate, 2025 promises to be a year of continued adaptation to new market realities. Success will require embracing volatility, adjusting return expectations, and taking amore targeted approach to investments across both debt and equity opportunities.
Peachtree Point of View explores today’s complex investment landscape, offering expert insights and actionable strategies to navigate dislocated markets and capitalize on mispriced risk. Each episode dives deep into market dynamics, equipping you with the knowledge to better understand and navigate the ever-changing financial world. Whether you're looking to invest, raise capital, or partner, we’ll reveal the tools and strategies needed to generate superior risk-adjusted returns.
"Extend and Pretend"—Just as Hamlet famously questioned, "To be or not to be," we are also on the brink of a crucial revelation. Are we facing a seismic shift with sustained higher interest rates, a largely overlooked issue? How will this shift affect commercial real estate and other asset classes in both the short and long term? Are the public and private sectors ready for what appears to be the inevitable? Today, we face more questions than answers, and indecision is no longer viable in a higher interest rate environment.
Unlike in the past few downturns, such as COVID, the Global Financial Crisis and the dotcom bust, the Fed significantly reduced interest rates, enabling owners of commercial real estate and lenders to easily engage in "Extend and Pretend," even when cash flows were negative or razor-thin, thanks to the exceptionally low interest costs.
Today, we are in a commercial real estate recession showing no signs of abating. The economy boasts considerable strength, driven by a strong job market, and record liquidity is on the sidelines. I do not see the necessary catalysts to revert interest rates to levels seen in previous cycles. Therefore, I don't see “Extend and Pretend” to be an effective strategy and would prepare for more bankruptcies, foreclosures and forced sales as reality sets in that we are in a new rate paradigm or maybe just a return to normalcy that, unfortunately, will be destructive to values, especially to the lower cap rate assets. Ultimately, amidst any market disruption, there will be pivotal opportunities for those with the decisiveness and the liquidity to seize them at the right moment.
This commentary originally appeared on Greg Friedman's LinkedIn page on May 1, 2024, in response to a Wall Street Journal article titled: Even If the Fed Cuts, the Days of ultralow Rates are Over.
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ATLANTA, GA April 24, 2024 - Peachtree Group today announced that it has been recognized by Hilton as the 2023 Developer of the Year in the Focused Service category. The Hilton Americas Development Awards recognize the achievements of owners, development partners and hotel teams in the Americas across several categories.
“We are immensely honored to have been named Developer of the Year by Hilton, a distinction that underscores our desire to build outstanding hotels,” said Mitul Patel, principal, Peachtree Group. “This recognition highlights our unwavering commitment to creating exceptional hotels and further strengthens our partnership with Hilton. This award is a testament to our strategic approach to hotel development, which combines identifying great locations, assembling a top-tier team and maintaining a steadfast focus on quality.”
In 2022, Peachtree Group received the Multi-Brand Developer of the Year from Hilton.
These annual awards celebrate the resiliency and commitment of Hilton’s owners and team members who spread the light and warmth of hospitality. For more information about Hilton, visit the company’s newsroom at stories.hilton.com.
About Peachtree Group
Peachtree Group is a vertically integrated investment management firm specializing in identifying and capitalizing on opportunities in dislocated markets, anchored by commercial real estate. Today, the company manages billions in capital across acquisitions, development and lending, augmented by services designed to protect, support and grow its investments. For more information, visit www.peachtreegroup.com.
Contact:
Charles Talbert
678-823-7683
ctalbert@peachtreegroup.com
ATLANTA (April 3, 2024) – Peachtree Group ("Peachtree") announced the elevation of three senior executives, expanding their roles to strengthen the firm’s executive leadership team. The promotions include Michael Harper to president of hotel lending, Jared Schlosser to executive vice president of hotel lending and head of CPACE and Michael Ritz to executive vice president of investments.
"These appointments underscore Peachtree's commitment to its core growth initiatives in hotel lending, as well as fostering talent from within our own ranks, with an eye toward further diversifying its allocation strategies as it taps into new investment opportunities," said Greg Friedman, Peachtree's CEO and managing principal.
Since joining Peachtree in 2014, Harper has distinguished himself through a succession of leadership roles, directing the company's credit business, particularly in loan originations and strategic acquisition of credit portfolios. Since joining, he has led the team through over 500 investments totaling over $6 billion. As president, he is responsible for the entirety of Peachtree's credit platform for hotels, guiding all facets of the credit business.
Schlosser's promotion to executive vice president of hotel lending and head of CPACE reflects his exceptional performance and extensive knowledge of the hotel loan origination processes and the firm's Commercial Property Assessed Clean Energy (CPACE) program. His significant contributions since joining the firm in 2019 have been crucial in advancing Peachtree's CPACE program, which now exceeds $800 million in transactions and has become one of the largest in the U.S. Furthermore, since taking over hotel originations at the start of 2022, Peachtree has completed more than $1.5 billion in hotel loans, further demonstrating his expertise and effectiveness in these dual roles.
Ritz has been elevated to the position of executive vice president of investments and will oversee Peachtree's credit and equity investments across commercial real estate and other ventures. He joined Peachtree in 2017, and his promotion recognizes his expertise in successfully managing and growing a portfolio of investments that is now approaching $10 billion in transaction asset value.
Peachtree was recently ranked as the tenth largest U.S. commercial real estate hotel lender, its third consecutive year in the top ten, by the Mortgage Bankers Association ("MBA") 2023 loan origination rankings.
About Peachtree Group
Peachtree Group is a vertically integrated investment management firm specializing in identifying and capitalizing on opportunities in dislocated markets, anchored by commercial real estate. Today, we manage billions in capital across acquisitions, development, and lending, augmented by services designed to protect, support and grow our investments. For more information, visit www.peachtreegroup.com.
