How Will the Fed's Pivot to Cut Rates Impact Development, M&A?
Peachtree CIO Brian Waldman shared insights with Hotel Investment Today on the impact of rate cuts on commercial real estate acquisition and lending opportunities.
Safe Harbor in Choppy Waters: Hotels Resilient in Volatile Market
The hotel industry has had a remarkable recovery in the post-COVID era, marked by strong fundamentals, limited supply and increased capital inflows, making it an attractive investment option.
Peachtree Group CEO Greg Friedman sat down with Bryan Younge, executive vice president at Newmark to discuss this remarkable recover and where the market is today. Bryan heads the hospitality practice group at Newmark and is a leading commercial real estate advisor. Below is a recap of his expert analysis and insights.
Listen to Peachtree's discussion with Bryan Younge, EVP Newmark here.
Hotel Industry Comeback
The industry witnessed an unprecedented come back after the pandemic.
Limited New Hotel Supply: Limited new hotel supply coinciding with high travel demand creates a favorable scenario for the existing hotel inventory to capitalize on the surging interest.
Investment Attractiveness: The hotel sector's resilience has increased its appeal as an investment vehicle, offering substantial returns. This is reflected in the significant capital and dry powder ready for investment in this sector.
Macro Challenges: Despite its success, the industry faces challenges like staffing shortages, wage growth and inflation.
Hotel Performance – Segment: Closely examined the performance across various segments of the hotel industry, including commercial, group, leisure, and extended stay, as well as different distribution channels. These channels are crucial for predicting occupancy trends and Average Daily Rate (ADR), especially in the current volatile inflationary environment.
Key observations include:
- The group segment, crucial for hotel revenue, experienced a significant decline during the pandemic but has recently fully recovered.
- Other segments, like online travel agents (OTAs) and FIT (Foreign Independent Travel) and wholesale channel, outperformed group and global distribution systems (GDS) in terms of recovery.
- The FIT and wholesale channel had a substantial initial setback but rebounded strongly in spring 2022, reaching levels 70% higher than in 2019.
- Seasonality patterns, resembling a heartbeat monitor, show three demand spikes in mid-spring, summer, and October, indicating a return to normalcy and balanced pricing strategies.
- Overall, the analysis suggests that while larger hotels faced challenges during the pandemic, smaller hotels remained more resilient due to less reliance on group bookings and other factors.
- The current trends indicate a recovery and adaptation in the hotel industry's various segments.
Predictive Analysis: Discussed methods for predicting future pricing trends in the hotel industry, including analyzing room rates and booking adjustments, the personal savings rate and its impact on the travel sector, and the performance of different hotel market segments and their recovery post-pandemic.
Transaction Market: An equilibrium is emerging in the transaction market, with buyers and sellers reaching common ground and avoiding distressed pricing. This indicates a healthy market with growth potential and abundant opportunities.
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Brian Waldman, CIO at Peachtree Group was one of the featured experts interviewed by Hotel Investment Today for this article. In conjunction with rate cuts, Waldman said he expects to see a surge in demand for both acquisition and lending opportunities. “The anticipated uptick in activity will likely be a major boon for Peachtree Group, presenting opportunities to assist groups in recapitalizing their assets as well as growing our owned hotel portfolio,” he said.
Peachtree Group Timeline
Peachtree Group was founded in 2007 by Greg Friedman and Mitul Patel as Peachtree Hotel Group, a family office that invested in premium-branded select service hotels. Fast forward and this diversified investment firm specializes in acquisitions, development and lending for a variety of real estate asset classes as well as other ventures.
2007 – Peachtree Hotel Group is Founded
Greg Friedman and Mitul Patel form Peachtree Hotel Group as a family office to invest in premium-branded select service hotels.
2008 – Peachtree Grows Beyond Investing
Peachtree launched complementary divisions to develop and operate hotels, Peachtree Hospitality Development and Peachtree Hospitality Management, respectively. Over the next decade, the company continues to rapidly grow its portfolio of limited- and select-service hotels, becoming one of the nation's fastest-growing hotel acquisition, management, development and ownership groups in premium-branded hotels under the Marriott, Starwood, Hilton, Hyatt, and InterContinental Hotel group flags.
2009 – Executive Team Expands and Great Financial Crisis Hits
Jatin Desai joins Peachtree as managing principal chief investment officer and chief financial officer. The company expands investment offerings beyond equity investing into credit investments, acquiring debt positions secured by hotel and other real estate assets. As the Great Financial Crisis took hold, Peachtree implemented a distressed investment strategy and invested in 47 distressed hotels.
2012 - Stonehill Launches as Peachtree's Commercial Real Estate Lender Affiliate
Peachtree launched Stonehill, a direct commercial real estate lending division, to focus on debt originations and note acquisitions. Stonehill focuses on transitional assets and sectors of the credit market that traditionally have had more limited access to financing, eventually becoming a top 10 U.S. commercial real estate hotel lender as ranked by the Mortgage Bankers Association ("MBA").
2014 – Peachtree Reorganizes and Launches First Credit Investment Vehicle
Peachtree Group reorganized from a family office to a vertically integrated private equity firm. The company launched its first investment vehicle focused on acquiring and originating debt investments in select-service hotels.
2016 – Peachtree Raises its First Equity Investment Vehicle
Peachtree launched its first discretionary equity investment vehicle to acquire and develop premium-branded hotels and other commercial real estate assets.
2018 – Peachtree Expands into Land Development
Peachtree launches Revive Land Group, a land development division focused on designing, entitling and developing residential and mixed-use projects. Revive has since transacted on over $50MM of real estate, consisting of over 1,100 residential lots.
2019 – Peachtree Further Expands Product Portfolio with Launches in CPACE
Stonehill PACE was established as a direct lender focusing on property assessed clean energy for diverse commercial real estate asset classes. Over time, it evolved into one of the prominent CPACE providers in the U.S., securing over $600 million in CPACE financing. Also, Peachtree initiated a mortgage Real Estate Investment Trust (REIT) specializing in financing income-generating real estate. This REIT's scope involved acquiring or originating mortgages and mortgage-backed securities. The company further expanded its endeavours by investing into hotel development within Qualified Opportunity Zones. This strategic move aimed to leverage the tax deferral benefits offered by the Tax Cuts and Jobs Act of 2017.
2019 – Peachtree Adds Broker-Dealer
Peachtree PC Investors (PPCI), a FINRA-registered broker-dealer, becomes Peachtree's exclusive managing broker-dealer for the firms' investment offerings.
2020 – Distressed Opportunity as Pandemic Hits
The onset of the pandemic triggered an unexpected "Black Swan" event, plunging the U.S. into a recession and significantly impacting various sectors, notably the commercial real estate industry, particularly in hospitality. In response, Peachtree initiated its most extensive investment initiative to date, focusing on real estate and related assets. This strategic move aimed to capitalize on the emerging opportunities resulting from market disruptions, operational inefficiencies, under-capitalizations, and expected cyclical rebounds. Throughout this period, the firm executed transactions totaling $3 billion in asset value, encompassing debt and equity investments. Notably, Peachtree acquired over 180 first mortgage notes as part of its investment activities, positioning itself within a diverse array of real estate assets.
2021 – Capital Market Disruption Allows for Follow On Investment Vehicle
Continued disruptions caused by the pandemic have led to financial strain among ownership groups and developers due to reduced access to capital. In response, the company introduces its twelfth sponsored investment vehicle, aiming to engage in opportunistic debt and equity investments. This strategic move capitalized on emerging investment opportunities within the hospitality industry and other real estate sectors that have been impacted, too.
2022 – Peachtree Expands into Film Production Financing
Gala Media Capital was launched to finance the production of films and television
2022 - Peachtree Expands Commercial Real Estate Strategy and Changes Name
Daniel Siegel joins Stonehill as Principal CRE, bringing a team of experienced originators outside the hospitality industry to expand Peachtree's commercial lending business. In addition, Peachtree expands its array of high-quality, diversified investment strategies and vehicles by launching a 1031 Exchange DST program to enhance its tax deferral strategies in the hospitality sector. Due to Peachtree’s expansion into non-hospitality investments across the ecosystem, the company drops “Hotel” from the name and becomes Peachtree Group, continuing to grow beyond hospitality.
2023 – Peachtree Group Enters Year as a Leading CRE Investment Manager surpassing
$9B+ Asset Value and $2.5B+ Capital Under Management
As the portfolio of commercial real estate investments expanded, Peachtree consolidated all affiliated companies, notably Stonehill, Stonehill PACE, and Peachtree Hospitality Management, under the Peachtree Group umbrella. The firm adds to its vertically integrated management platform with the addition of an EB-5 program to access low-cost capital, diversify its funding sources and invest in job-creating projects across the U.S. Doubling in size since 2020, Peachtree Group has achieved renowned success through investments based on its ability to deploy capital opportunistically through business cycles, taking advantage of its holistic view of the market.
Peachtree Group: 'We've been aggressive in lending'
As interest rates continue to increase, banks and other financial institutions are peeling back from commercial real estate lending. But one Atlanta private equity firm is seeing an opportunity — even in the aftermath of the March bank collapses. Over the past 12 months, Peachtree Group has been “aggressive” in lending to groups unable to source debt for projects, CEO Greg Friedman said. The firm is also seeking to buy debt from financial institutions looking to reduce their exposure to commercial real estate.
As interest rates continue to increase, banks and other financial institutions are peeling back from commercial real estate lending. But one Atlanta private equity firm is seeing an opportunity — even in the aftermath of the March bank collapses. Over the past 12 months, Peachtree Group has been “aggressive” in lending to groups unable to source debt for projects, CEO Greg Friedman said. The firm is also seeking to buy debt from financial institutions looking to reduce their exposure to commercial real estate.