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U.S. Hotel Lending Likely to Get More Challenging
Ester Hertzfeld with Hotel Management Magazine spoke with Peachtree SVP Jared Schlosser about the hotel lending market in her most recent article.
Peachtree Group, a diversified commercial real estate investment company, announced its credit division has closed $556 million in loan originations of the $1.1 billion the company deployed year-to-date. The remaining $526 million was deployed to acquire five hotels and undertake three new hotel development projects. The company also opened five hotels that were under construction as of September 2023.
“Commercial real estate owners who have benefited from an extended period of readily available, low-cost capital over the past 15 years are now confronting a new reality,” said Greg Friedman, Peachtree Group’s CEO.
The ability to refinance maturing debt is a growing concern with an estimated $1.9 trillion of U.S. commercial real estate debt maturing before the end of 2026.
“Commercial real estate participants are faced with the pressures of higher capital costs and tighter liquidity in sourcing capital for acquisition, recapitalizations and development strategies,” Friedman said.
Peachtree Group Credit, formerly Stonehill, ranked as the 8th largest U.S. commercial real estate hotel lender by the Mortgage Bankers Association 2022 loan origination rankings. As a direct commercial real estate lender, it offers permanent loans, bridge loans, mezzanine loans, commercial property-asset clean energy (CPACE) financing and preferred equity investments across all commercial real estate sectors, with its origins in the hospitality industry.
Notable credit transactions for hotels completed this year include:
- A $47.9 million first mortgage loan for the construction of a 215-room Autograph Collection hotel in Huntsville, Ala., which is expected to open in 2024.
- A $43.6 million first mortgage loan on the 220-room Hampton Inn New York-LaGuardia Airport to recapitalize the project and to cover the cost of deferred maintenance and CapEX.
- A $42.2 million first mortgage loan on the 133-room Motif on Music Row (Nashville) to refinance the current debt and complete the property, which expects to open in November 2023.
- An $8.4 million loan in CPACE financing to fund various energy-efficient and sustainability elements of a hotel under construction in Detroit, Mich.
Other commercial real estate sector transactions included:
- A $52.0 million first mortgage loan for the construction of a 245-unit apartment in Mesa, Ariz.
- A $42.0 million first mortgage loan for the acquisition of the Town Center at Cobb retail center in Kennesaw, Ga.
- A $23.0 million first mortgage loan for the construction of a mixed-use development in Charlotte, N.C.
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 elevates private credit for owners and developers to execute their business plans.
“We are experiencing an uptick in activity, with more than half of the loans that we originated closing within the past 60 days,” said Jared Schlosser, Peachtree Group’s senior vice president, Credit. “We are targeting more than $1.0 billion in originations for 2023 with continued growth into 2024 as we anticipate interest rates to remain elevated and banks to further reduce exposure.”
Peachtree Group’s acquisition division completed five hotel acquisitions with a total of 677 keys.
- Hampton Inn & Suites University Capital - Austin, Texas – 137 keys
- Homewood Suites Vanderbilt - Nashville, Tenn. - 192 keys
- Hilton Garden Inn Atlanta North – Johns Creek, Ga. – 122 keys
- Courtyard Atlanta Kennesaw – Kennesaw, Ga.– 100 keys
- Home2 Suites by Hilton – Chandler, Ariz. – 126 rooms
“Our transaction volume remains on pace as we have historically acquired 10 to15 hotels annually. The overall U.S. transaction market is down year-over-year, primarily due to 2022 being an active year while debt was still relatively affordable debt a wide availability of regional lenders and improving operating fundamentals whereas in 2023, the tightening of the debt capital markets has materially impacted transaction velocity,” said Brian Waldman, Peachtree Group’s CIO. “We have been uniquely positioned to acquire most of the hotels off-market leveraging our deep relationship network to secure these institutional-quality assets. We are also unique among our competitors as we have the ability to be an all-cash buyer, eliminating lending risk and closing quickly.”
Peachtree Group expects market transactions to accelerate through the remainder of the year and continue into 2024.
Year-to-date, Peachtree Group’s development division has closed on three new projects representing $293 million in aggregate value:
- Embassy Suites – Gulf Shores, Ala. – 257 keys
- Caption by Hyatt – Nashville, Tenn. – 210 keys
- AC by Marriott – Detroit, Mich. – 154-keys
In addition, the development team has opened five hotels with a combined development cost of approximately $119 million:
- Hilton Garden Inn – Florence, Ky. – 123 keys
- Hilton Garden Inn – Pensacola, Fla.– 102 keys
- Hampton Inn – Delray Beach, Fla.– 143 keys
- Hampton Inn and Home2 Suites – Lake Nona, Fla. – 150 Keys (80 Hampton Inn + 70 Home2 Suites)
The development division, which builds hotels on Peachtree Group’s behalf as well as through joint ventures with strategic partners, is expected to break ground prior to year-end on the construction of four more hotels with an aggregate value of $200 million.
CBRE projects new supply growth to average around 1% for the next three years, well below the amount of new supply growth experienced before the COVID-19 pandemic and less than the 2.5% pace of demand growth over the next three years.
“Supply growth of new hotel rooms continues to be hampered by the challenges from the pandemic and has been further impacted today with dislocation in the credit markets,” said Will Woodworth, vice president of investments, development, at Peachtree Group. “We believe supply will continue to be limited for the foreseeable future and have ramped up our development pipeline in response.”
If actual demand growth rates exceed what is forecasted, the hotel market could be facing a hotel room supply shortage. This would fuel the growth in occupancy rates and compression in room rates.
“Despite headwinds in the broader markets, Peachtree is well-positioned, capitalized and oriented to strategically target the submarkets and demand segments where new hotels rooms, when realized, will flourish,” Woodworth said.
About Peachtree Group
Peachtree Group is an investment firm driving growth with a diverse portfolio of commercial real estate assets and other ventures. The company has executed hundreds of investments since its inception, focusing on real estate acquisition, development and lending valued at almost $9.0 billion in total market capitalization. Today, Peachtree manages over $2.5 billion in equity, augmented by services designed to protect, support and grow its investments.
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5 Proven Tips for Securing Funding in a Turbulent Market
It's a tough market. But we've been here before. Peachtree President and Principal CRE Daniel Siegel shares insights garnered by our team after completing hundreds of transactions worth north of $15 billion. Need capital, but not sure how to do it - read on for Daniel's time-tested tips.
Statista estimates the value of the commercial real estate market will reach $24.67 trillion in 2023. According to the Deloitte Center for Financial Services 2024 industry outlook, half the industry expects the cost of capital and capital availability to worsen through next year. Couple that with the $1.5 trillion wall of debt maturing before the end of 2025 and it’s easy to understand the trepidation in the market today.
But we’ve been here before.
The credit team at Peachtree Group has completed hundreds of transactions worth north of $15 billion. In our collective careers, we have seen borrowers navigate unstable markets, such as what we are experiencing today, in a variety of different ways.
Here are five tips for borrowers trying to navigate today’s difficult market, and secure funding for their project.
Acknowledging your Situation
It has been a borrower’s market for several years now, and this is not one of them. Do not forsake the term sheet in your hand – the Fed has raised interest rates 11 times since March of 2022. Spending too much time on turns of a term sheet might leave you losing any spread concessions to increases in the benchmark or, even worse – lenders deciding to pull terms altogether. If you have an offer from someone you trust, you might want to take it.
Grass Isn't Always Greener
On existing projects, your current lender is most likely your best friend. A lender willing to give you an extension is gold in this market. Getting additional terms out of your current lender is likely the least costly option, even if it comes with fees and a rate increase – it likely is still significantly less costly than what the current market will give you. However, I hope that you have been a good borrower – up to date on deliverables, communicative about the status of your project, etc. – make no mistake, the bank is doing you a favor, don't give credit committee a reason to say no.
Have you Considered CPACE
Being one of the largest CPACE originators in the country, Peachtree has seen a significant increase in pipeline looking to apply proceeds retroactively. Properties are eligible for CPACE up to 3 years after certificate of occupancy in approved municipalities and proceeds can generally be up to 35% of stabilized value. It’s a source of capital that has become more interesting to first mortgage lenders as the proceeds could be used to paydown your first mortgage and size a new interest reserve.
Try to Pay for your Overages and Carry Upfront
We pride ourselves on being lenders who want to be part of the solution when a deal has a budget bust or stabilization is taking longer than anticipated. However, I always encourage borrowers to size up their budget contingencies (i.e., 7% vs. 5%) or structure additional interest reserves. Yes, it will increase your initial capitalization, but your lender will pick up 60-70% of that cost in the loan funding. It may mean more work on the initial capital raise, but it's usually less costly than going back to your lender and/or equity mid-project to get additional capital.
Communication, Honesty and Transparency are Key
Lenders have access to data and information. They ultimately will discover the truth; it might as well come from you. This includes prior credit aberrations or issues and accurate property performance information. We have capital specifically for lending on special situations – there are a lot of deal-level risks that can be mitigated, but lack of trust with sponsorship is not one of them.
In uncertain times, hope for the best but prepare for the worst. Peachtree is an experienced capital partner who understands commercial real estate's nuances. With funding options limited from traditional lenders, our team has the lending solutions, financial capacity, and expertise to close complex transactions in today's challenging capital market environment.
We are available to discuss your lending options that meet your business objectives. Visit us at www.peachtreegroup.com.
Daniel Siegel is president and principal of Peachtree's commercial real estate lending group.
Before joining Peachtree, he was with Ardent Companies as managing director and the head of high-yield investments leading the company’s debt investments. Prior to that, Daniel was vice president of acquisitions at Rialto Capital, overseeing the distressed loan acquisitions platform. During his tenure at Rialto, Daniel directly oversaw the acquisition of commercial real estate loans on domestic and international opportunities. Additionally, he developed the firm’s small balance loan acquisition platform and led the company’s first European acquisition.
Daniel has a bachelor’s degree in finance from Tulane University. Contact him at dsiegel@peachtreegroup.com.
Reviving Malls: Shifting Perspectives on Retail's Potential
Is mall still a four letter word? Retail, including malls is experiencing strong leasing momentum, but to be successful, retail investors need to consider these tips.
In today’s highly competitive and constantly evolving real estate market, sponsors of retail commercial properties need a reliable financial partner to help them navigate the complexities of this space. There is a perception that capital is non-existent for this sector, but that couldn’t be further from the truth. Peachtree Group Credit has emerged as an industry leader – ranking as the 16thlargest U.S. commercial real estate retail lender ranking as the 16th largest U.S. commercial real estate retail lender – providing creative financing solutions to help clients realize their vision for maximizing return on investment.
The fact is retail, including malls, is experiencing strong leasing momentum with increased foot traffic allowing sponsors to stabilize cash flow levels, which took a hit during the beginning of the COVID-19 pandemic. Brick-and-mortar retail locations are a necessary and growing component of a retailer’s multi-channel strategy. While traditional retail struggled before COVID, the pandemic has brought greater appreciation for in-store experiences for certain shopping items. This trend bodes well for retail as an investment.
To remain competitive, retail investors must accelerate their plans and expand their thinking to find ways to keep their retail locations relevant in a changing landscape.
Retail investors are looking at this sector with compelling strategies, including reimagining portions of the property to bring in new tenants, densifying the property by spinning off excess parking into pad sites or value-add components with a plan for re-leasing and some potential redevelopment opportunities.
Peachtree provides needed liquidity for maturing loans, new acquisitions and construction projects.
Some of the recent coast-to-coast mall transactions completed, include:
- Bellis Fair Mall – Originating a$24.0 million first mortgage loan for the 774,264 square-foot shopping mall in Bellingham, Washington.
- Cumberland Mall – Originating a$28.8 million first mortgage loan for the 953,313 square-foot shopping mall in Vineland, New Jersey.
- Greenwood Mall – Originating a$42.3 million first mortgage loan for the 970,523 square-foot shopping mall in Bowling Green, Kentucky.
- The Mall at Robinson – Originating a$25.5 million first mortgage loan for the 874,000 square-foot shopping mall in Pittsburgh, Pennsylvania.
- TownCenter at Cobb – Originating a $42.0million first mortgage for a 1,200,000 square-foot shopping mall in Kennesaw, GA
- Fairlane Town Center – Originating a $28.0million first mortgage for a 1,450,000 square foot shopping mall in Dearborn, MI
Peachtree actively collaborates with sponsors from the initial concept stage until closing, offering expedited financing explicitly tailored for their business, allowing all parties to achieve a best-in-class financial outcome. Throughout the process, Peachtree keeps up regular touchpoints, ensuring the transactions go smoothly. This further demonstrates Stonehill’s commitment to supporting sponsor capital strategies with execution certainty amid a highly unpredictable funding landscape, increasingly a critical variable impacting retail real estate acquisition competition outcomes.
Having access to an experienced lender can provide valuable expertise and guidance to help you with your investment. With specific retail knowledge, Peachtree can provide insights into effective strategies for success. At Peachtree, we have the expertise to guide you through your options.
Greg Koenig is a senior vice president at Peachtree Group Credit. Before joining Peachtree, he was an executive director at A large private equity firm, focusing on debt originations in all asset classes. Prior to that, Greg was a senior vice president at Newport RE, a German-based real estate investment company, focusing on acquisitions and asset management for its U.S. portfolio. Previously, he was a vice president at Rialto Capital, where he helped underwrite and asset-manage loan portfolios. Before joining Rialto, Greg worked at TriMont Real Estate Advisors facilitating loan workouts and maximizing returns on distressed assets. Greg holds a bachelor’s degree from the University of Connecticut, where he majored in Real Estate and UrbanEconomics.
Contact Greg at gkoenig@peachtreegroup.com or 1-860-833-2285.