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This year marks a watershed moment for commercial real estate stakeholders. The erratic nature of the market demands a deep understanding of financial tools and the willingness to embrace alternative approaches. Success hinges on adaptability, innovation and a thorough grasp of market dynamics. While the headwinds are expected to persist, this environment offers unique opportunities for those who are prepared.
Peachtree Group CEO Greg Friedman wrote about those challenges in this blog post: 2025 CRE Market Forecast: Adapting to Disruption.
Below, the Peachtree Group team shares their insights into how the market is evolving and their strategies for overcoming challenges and capitalizing on the opportunities in this transformative period for the commercial real estate industry.
“2025 could mark the end of the 'kicking the can' era in commercial real estate, as outside pressures - banks, brands and partnerships - force transactions that can no longer be delayed. We've already seen the shift begin in late 2024, with assets that stalled during prior marketing cycles resurfacing under note sales and distress-driven deals. As equity takes a backseat and control shifts to outside parties, prepared investors will find unique opportunities in this evolving landscape.”
Michael Bernath, SVP Acquisitions & Dispositions
"With debt maturities as the primary catalyst for capital events, the elevated interest rate environment and shifting property fundamentals are driving investors toward alternative strategies such as rescue capital, preferred equity and special situations. Borrower indecision and bank disagreements are fueling loan sales, while partnerships face stress from owner fatigue and capital calls, creating opportunities for M&A and large-scale equity trades. Against a backdrop of geopolitical risk, inflation and rising fixed costs, innovative and strategic approaches are essential for achieving growth."
Michael Ritz, EVP, Investments
“Banks, buoyed by strong reserves, are expected to sell commercial real estate loans as they manage risk exposure, address tighter regulatory requirements and free up capital. This trend will likely increase note transactions, offering investors access to discounted or even distressed assets. The market is also witnessing a significant rise in hybrid credit structures, blending debt and equity characteristics to provide flexible capital to borrowers while delivering attractive risk-adjusted returns to investors. The shifting environment in which traditional financing avenues are evolving presents opportunities for those equipped to navigate this chaotic market."
Jeremy Stoler, EVP, Debt Capital Markets
“In anticipation that public equities markets will generate lower annual returns over the next decade than in the decade prior, investors will increasingly seek alpha through alternative investments. Foreign capital partners in certain geographies and markets will continue to turn to U.S. commercial real estate to hedge against currency and geopolitical risks. Meanwhile, sponsor and LP fatigue will create a fertile environment for secondaries, special situations and structured finance deals, where fundamentally strong assets with challenged capital structures may be acquired or recapped at attractive valuations.”
Daniel Savage, VP Investments & Strategy, Equity Capital Markets
“The EB-5 program offers commercial real estate developers a distinctive advantage by providing lower-cost capital that enhances investment returns while creating jobs and driving economic growth. By including EB-5 financing into their capital stack, developers can better navigate stricter lending conditions and rising construction costs. This approach not only maximizes value but also positions the property for long-term success.”
Adam Greene, EVP, EB-5 Program
“Lenders holding post-COVID distressed loans, recognizing they won't recover cash flow, are preparing to liquidate in 2025, creating opportunities for strategic buyers. However, a 'higher-for-longer' interest rate environment continues to stall the transaction market, as sellers resist trading at elevated cap rates, prolonging the bid-ask gap."
Jared Schlosser, EVP, Hotel Lending & Head of CPACE
“The commercial real estate development landscape continues to evolve, and the fundamentals of the hospitality industry enable it to standout as a strong and flexible sector ready to take advantage of new opportunities. With generally higher cap rates, supply growth well under the long-run average and strong investor appetite in areas supported by the federally backed Opportunity Zone program, the hotel industry is well-positioned to lead new projects, especially in infill locations. This growth shows how development will move forward, even as other real estate sectors face tougher challenges and economic struggles.”
Will Woodworth, VP, Investments
ATLANTA (July 2, 2024) – Peachtree Group (“Peachtree”) announced that it received multiple Marriott Select Brands (MSB) Awards during this year’s Marriott Select Brands Owner & Franchisee CONNECT Conference in Orlando, Fla. The awards recognize hotels that demonstrate outstanding service, innovation and commitment to guest satisfaction.
“These awards are a testament to the exceptional work our hotel associates deliver every day,” said Steve Mackenzie, Peachtree’s senior vice president of operations, hospitality management. “These hotels have consistently excelled in guest and F&B satisfaction, setting a benchmark for unparalleled service, and we are proud to have them as part of the Peachtree family. Additionally, we extend our gratitude to our partners who entrust us with managing their properties. Their collaboration has been instrumental in achieving these accolades, showcasing our shared commitment to superior quality.”
The award winners include:
Platinum Circle
· SpringHill Suites Lindale, Texas
Gold Circle
· Fairfield Inn & Suites Gadsden, Alabama
· SpringHill Suites Dallas Rockwall, Texas
· TownePlace Suites Dallas Rockwall, Texas
Silver Circle
· Courtyard by Marriott Indianapolis Plainfield, Indiana
· SpringHill Suites Vero Beach, Florida
F&B Satisfaction
· SpringHill Suites Lindale, Texas
“Every recipient of these awards embodies the essence of Peachtree’s mission, showcasing outstanding excellence, strong leadership and a relentless dedication to serving our guests, partners and communities,” said Shara Roddan, vice president of operations, hospitality management.
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.
Peachtree Group recently had the privilege of hosting David Bitner, a renowned expert in the commercial real estate industry, on our quarterly market update call. As the global head of research for Newmark, a leading commercial real estate advisor, David's insights on the ongoing transition in commercial real estate (CRE) were invaluable. His discussion outlined a significant shift in the commercial real estate market, highlighting the transition from a low-interest rate environment post-Global Financial Crisis (GFC) to a period of higher rates that are reshaping investment strategies.
Highlights from the conversation included:
Overall, the discussion highlights a transformative period in the commercial real estate market, prompted by the shift to a higher interest rate environment. This change presents an opportunity to refine investment strategies, enabling investors to navigate and capitalize on the evolving market dynamics effectively.
Peachtree's track record in commercial real estate is impressive. Our team has thrived through three significant economic disruptions. Our senior leaders have been instrumental in that success. Recently we asked those leaders to reflect on their lessons learned and share how that experience has shaped their thought process moving forward.
Here are a few of those insights.
"Building a formidable team is crucial for realizing your vision. Select individuals based on their exceptional skills and expertise and then trust them to excel in their roles. Empowering your team unlocks their full potential, driving extraordinary results and propelling your organization to new heights."
Greg Friedman and Jatin Desai – Managing Principals
“Foresight is critical in the investment process, requiring continuous consideration of macroeconomic conditions alongside local economic factors. This dual analysis enables us to identify nuanced opportunities and manage risks more effectively. By integrating global and regional insights, we can make more informed and strategic decisions, enhancing the potential for the investment's long-term success."
Greg Friedman, Managing Principal and CEO
“Ensure sufficient liquidity to maintain resilience. We have implemented and consistently maintained this approach for our Funds. While it may impact internal rates of return (IRR), it will allow us to endure market volatility and retain assets. Asset values typically rebound if adequate capital is available to weather downturns.”
Jatin Desai, Managing Principal and CFO
“Navigating through development always entails its share of challenges and victories, a reality underscored especially during Covid. While previous downturns primarily revolved around financial aspects, the pandemic introduced disruptions in cost, labor, and material supply chains. Reaching a semblance of normalcy took nearly three years, during which we remained steadfast in risk mitigation across these fronts. Adaptations in processes, timing, procurement strategies, and collaborations with skilled contractors were pivotal in this regard. Despite each disruption, we observed a consistent upward trend in average daily rates, particularly for newer or like-new assets.”
Mitul Patel, Principal
“Anticipate various exit scenarios: While one of our investments succeeded with the SBA refinance strategy, another encountered challenges. Legal issues with the borrower disqualified them from SBA eligibility, leading to loan refinance challenges. In hindsight, we were too dependent on a single exit source and now underwrite deals to ensure there are several (refinance, sale, loan sale) exit options available.”
Michael Harper, President, Hotel Lending
“Constant exposure to various transactions across different levels has enabled us to recognize patterns and anticipate issues during negotiations. This depth of experience has honed our ability to streamline the process, focusing on the crucial issues and avoiding unnecessary distractions. Ultimately, efficiency is paramount.”
Kevin Cadin, General Counsel
“The priority lies in cultivating a pipeline rather than managing individual transactions. The true value lies in the pipeline itself, not the deals outlined in term sheets. This approach grants the freedom to negotiate without the pressure of immediate results. Consequently, I rarely push terms or additional proceeds because I know the depth of additional opportunities and have confidence in the channels that have been developed to continue generating opportunities.”
Daniel Siegel, Principal and President, CRE
“The90% rule. It is often better to make a decision with 90% of the information or90% of what you would ideally like an output to be. That last 10% which is for perfection often leads to analysis paralysis and the opportunity cost of waiting is often greater than the value achieved in getting the last 10%. There is no such thing as perfect.”
Brian Waldman, Chief Investment Officer