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Peachtree Group's Market Update w/ Greg Friedman & Mark Zandi
Mark Zandi, Chief Econmist at Moody's Analytics joined Greg Friedman, Managing Principal and CEO of Peachtree Group for a 4th Quarter Market Update.
ATLANTA (SEPT 4, 2024) – Peachtree Group, a vertically integrated investment management firm, has launched a restaurant management division. Under the leadership of Daniel Puglisi, SVP of corporate operations for hospitality management, this division will focus on operating quick-service restaurants, starting with coffee shops.
This new venture underscores Peachtree Group's commitment to expanding its footprint in the hospitality industry, beginning with a high-profile partnership with AdventHealth and launching a Starbucks location in its AdventHealth Orlando hospital.
The U.S. Quick Service Restaurant (QSR) market was valued at approximately$320 billion in 2023, encompassing major chains like McDonald's and smaller regional players. Coffee shops, including big names like Starbucks, Caribou Coffee and Dunkin', make up 12-15% of this market, contributing tens of billions in annual revenue.
"Since our founding in 2007, we have consistently grown by identifying inefficient markets and capitalizing on them to achieve strong returns and build sustainable businesses," said Greg Friedman, Peachtree Group’s managing principal and CEO. "The expansion into restaurants from our existing hospitality management capabilities was a natural evolution. Our partnership with AdventHealth marks a significant milestone as we look to replicate this successful model across their network and other captive locations."
The Starbucks at AdventHealth Orlando is now open and is the first storeto be opened under this new division. It is strategically positioned within the hospital's flagship university campus, featuring a two-story glass storefronton a prominent corner. This initiative is part of a broader strategy to enhance patient satisfaction and provide convenient, high-quality service to hospital visitors and staff.
Peachtree Group is also in discussions with other coffee franchise offerings and aims to extend its reach to high profile or high demand markets with captive audiences. The goal is to establish a robust portfolio of high-profile quick-service coffee shop locations nationwide.
The new division will oversee all new and existing restaurant locations not within its own portfolio of hotels. This includes transitioning its downtown Orlando Starbucks location at its dual-branded Hilton Garden Inn andHome2 Suites by Hilton to the restaurant management division.
"Our commitment to excellence in service and operational efficiency sets us apart in the industry. By leveraging our extensive hospitality expertise and premium brand partnerships, we are able to deliver exceptional experiences to our customers and value to our landlord partners," Puglisi said.
This initiative follows a year-long development process, beginning with a lease agreement signed in August 2023 and construction commencing in February2024. Peachtree Group has toured several other AdventHealth campuses, laying the groundwork for future expansions.
Peachtree Group's strategic approach and customer service mindset have been key factors in securing this partnership. As other hospital systems observe the positive impact on AdventHealth's patient satisfaction scores and asset enhancement, Peachtree Group anticipates a growing demand for similar arrangements.
"We are excited about the potential to grow this venture rapidly, with an initial goal of reaching five stores as a beta test and ultimately aiming for 100 locations," Puglisi added. "Our focus is on hospitals, universities and other high-traffic, high-visibility locations where we can make the most significant impact."
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
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As we move into 2025, Peachtree Group remains optimistic about the U.S. economy. While risks persist—from policy shifts to stretched markets—the underlying fundamentals are strong. This sentiment was echoed by our recent guest speaker, Mark Zandi, Chief Economist at Moody’s Analytics, who shared his insights on the economy’s resilience and the challenges ahead, particularly for commercial real estate.
Economic Highlights and Key Insights
Mark emphasized the exceptional performance of the U.S. economy, with GDP growth expected to range between 2.5% and 3%, driven by increased labor participation and productivity gains. The labor market remains strong, with unemployment hovering around 4%, and households—especially those in the top income tiers—benefit from strong asset values and low debt-service ratios. However, he noted the pressures on lower-income households, who are feeling the strain of inflation and high-interest debt. This contrast contributes to a gap between strong economic data and public sentiment.
Risks and Projections for 2025
He outlined several key risks that may shape the economic landscape in 2025:
- Tariffs and Immigration Policies: Anticipated increases in tariffs and stricter immigration rules could amplify inflation and disrupt labor markets, especially in industries like construction and agriculture.
- Asset Market Volatility: Stretched valuations and policy-driven fiscal deficits could heighten market instability.
- Interest Rate Outlook: The federal funds rate is projected to decline to 4% by early 2025, with a further reduction to 3% by 2026. Meanwhile, the 10-year Treasury yield, a key benchmark for CRE valuations, is expected to remain flat, between 4% and 4.5%.
Commercial Real Estate and Private Credit
Mark highlighted the explosive growth over the past decade on private credit, now standing at eight times its 2010 size. While recognizing the risks of this rapid expansion, he noted that stabilizing economic fundamentals is a significant mitigating factor.
He also addressed the current state of CRE valuations, acknowledging a significant correction since 2022. Asset prices are down 10–20% from their peaks, depending on asset type, but he expressed cautious optimism for future returns as valuations in many segments approach fair value. Challenges remain, however, as muted transaction volumes and uncertainty around intrinsic values make price discovery difficult in a higher interest rate environment. However, he concluded by emphasizing that CRE, having undergone a meaningful correction, is uniquely positioned for potentially stronger returns.
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'New Game' with High-Interest Rates
Greg Friedman discussed on the Schwab network how the high rate environment is reshaping valuations and refinancing, with 90% of office vacancies concentrated in just 30% of buildings.
Schwab Network – Greg Friedman joins Nicole Petallides at the NYSE site with a deep-dive into the high rate environment facing investors right now. When looking at the 10-year Treasury rate which is "more than double pre-2022 average," Greg believes its reshaping valuations and refinancing dynamics. In the real estate realm, he sees uneven performance saying "90% of office vacancies are in just 30% of office buildings."
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CNBC: Fed Rate Cuts: A Game-Changer for Commercial Real Estate Investors or a Head Fake?
Peachtree CEO Greg Friedman was on CNBC's Fast Money discussing the effect of the Fed's recent rate cuts on the Commercial Real Estate market.
The Federal Reserve's 50 basis points cut to the Fed funds rate in September has sparked fresh conversations about its impact on commercial real estate (CRE) investments. While there's optimism in some corners about a return to a lower rate environment, the bond market signals a different story, with long-term rates remaining high and inflation risks persisting. This is a good reminder that short-term rates, set by the Fed, and long-term rates, like the 10-yearTreasury, often move independently.
Today's higher rate environment reshapes the value fundamentals of CRE. The current 10-yearTreasury rate of around 4%—double the pre-2022 average—demands that CRE values recalibrate. Reports of a 20% drop in CRE values since 2022 peak levels require context; those valuations were rooted in a vastly different interest rate environment. Today’s scenario implies a slower growth trajectory, requiring investors to adapt to a "new game" of higher rates for longer.
Across CRE assets, different sectors respond to higher rates in distinct ways. Hotels, for example, benefit from solid demand as travel returns, while multifamily assets continue to show resilience despite refinancing pressures. Office assets, however, face significant stress due to both secular and rate-driven challenges.
Even as the Fed cuts rates, refinancing on previously low-rate debt presents ongoing challenges for CRE assets, especially those with upcoming maturity dates. Higher rates elevate the cost of debt and squeeze cash flows while impacting the overall asset valuations, placing additional stress.
Despite headwinds, the current environment offers unique opportunities to strategic, agile investors. While higher rates may drive down asset values, for those prepared to navigate today's market with moderate leverage and a forward-looking strategy, today's challenges can evolve into future tailwinds. As the Fed's recent moves signal a "higher for longer" era, CRE investors who adapt swiftly may find unprecedented opportunities, making this a prime moment for decisive action in commercial real estate.
See Peachtree Group’s CEO and Managing Principal, Greg Friedman discuss this topic on CNBC’s Fast Money.