Insider insights, expert opinions.

CNBC: How Private Equity Fills the Lending Gap for Commercial Real Estate

Market Insights from Dennis Lockhart: U.S. Economic Outlook, Fed Policy, and Commercial Real Estate Trends

Peachtree Group CEO Greg Friedman and CFO Jatin Desai hosted Dennis Lockhart, former President of the Atlanta Federal Reserve for a fireside chat conversation during Peachtree Group's annual Investor Day. Lockhart spoke on the US economic outlook, Federal Reserve policy, geopolitical risks and commercial real estate trends.

Here are key highlights from their discussion.

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Dennis Lockhart, former President of the Atlanta Federal Reserve talks with Peachtree CEO Greg Friedman and CFO Jatin Desai about the US economic outlook, Federal Reserve policy, geopolitical risk sand commercial real estate.

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Summary of the Economy:

The U.S. economy is performing well with steady growth. First-quarter growth was around 1.3-1.4% annualized GDP, but underlying indicators suggest stronger performance, with the Atlanta Fed projecting 3.1% annualized GDP growth for Q2 2024.
Unemployment is low at 4%, with recent job gains of 272,000. The private sector, especially healthcare, is driving job growth, leading to a more sustainable employment market and supporting consumer spending.
Strong employment ensures income stability for consumers, driving sustained consumption, which constitutes about 70% of GDP.
Inflation has decreased from its peak but remains above the Federal Reserve's target. The Fed prefers the Personal Consumption Expenditure (PCE) Index over the Consumer Price Index (CPI), with the current core PCE inflation rate at 2.7-2.8%, still above the 2% target. While adjusting the target inflation rate from 2% seems highly unlikely due to the Fed’s strong commitment and public trust in this goal, a more flexible approach within a defined range might be possible. This allows the Fed to address inflation without formally changing the target, leveraging the current economic strength to be patient and let inflation decline over time.

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Federal Open Market Committee’s Perspective:

The Federal Open Market Committee (FOMC) is committed to making decisions on interest rates and monetary policy without political influence. Over a decade of attending meetings, Dennis has rarely seen political considerations come up. However, by tradition, the FOMC avoids action in the meeting immediately before a national election to prevent any appearance of political bias. Under Jay Powell's leadership, if necessary, the FOMC would act in September, but current conditions likely won't force action until after the election.
While different policies implemented by the elected candidate could shape the economy in the long term, the election itself is not anticipated to have an immediate impact. However, if post-election circumstances lead to significant disruptions, it could give the Federal Reserve pause at their November meeting.
If inflation doesn't improve or disinflation stalls at around 2.7-2.8%, the Fed may need to raise rates further. Conversely, consistent positive disinflation data could lead to rate cuts by year-end. There are several scenarios to consider:
- ‍Sticky Inflation: If inflation remains high, the Fed might raise rates toward the end of the year or early 2025.‍
- Disinflation Resumption: Positive disinflation data could lead to rate cuts in November or December.‍
- Economic Slowdown: If the economy shows signs of faltering and businesses anticipate a recession, resulting in layoffs and reduced consumer spending, the Fed might cut rates to stabilize the situation.
- ‍Financial Instability: A financial stability event, similar to the Silicon Valley Bank incident last year, could prompt the Fed to cut rates to address underlying banking system issues, especially in commercial real estate.

The FOMC's narrative is that the economy is gradually slowing down. The employment picture remains very positive and strong, though it is rebalancing and not as robust as in 2022 and 2023. Inflation is still elevated, but the FOMC believes disinflation will resume, allowing them to begin easing policy restrictions by the end of the year. However, all of this depends on how the data comes in and the overall economic picture painted by the upcoming months. Upcoming Fed meetings are scheduled for July, September, November, and December. Policymaking remains cautious, with an emphasis on waiting for clear trends in inflation data before making further changes.

Geopolitical Risks:

Geopolitical events can significantly impact financial markets and potentially change the economic outlook for the U.S., at least temporarily. These events, often unexpected, can disrupt equity markets and influence the economy. However, the Federal Reserve tends to be largely oblivious to geopolitics. Despite being close to the State Department, the Fed staff, mostly PhD economists, focus primarily on domestic issues and rarely consult with experts on geopolitical matters. This domestic focus means that while geopolitical events are serious and can influence the economy, they are not heavily factored into the Fed's policy decisions or economic projections.

Monetary Policy:

The balance sheet is a central tool for monetary policy. When interest rates hit zero during the Great Recession and the pandemic, the Fed used quantitative easing (QE) to stimulate the economy by increasing bank reserves, which supports lending and adds liquidity to financial markets. This led to the significant expansion of the Fed's balance sheet.
Currently, the Fed is slowly reducing its balance sheet to withdraw stimulus from the economy. This process, known as quantitative tightening, aims to find a new balance that provides ample bank reserves and liquidity without disrupting credit markets. The Fed approaches this carefully to avoid financial instability, such as the incident that occurred during a previous tightening attempt. This balance sheet adjustment is a critical but often behind-the-scenes aspect of monetary policy.

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Fiscal Policy:

Fiscal policy, especially deficit spending, boosts demand and contributes to inflation. During the pandemic, significant stimulus measures supported households and businesses but also added to inflationary pressures. However, inflation is a global issue and not solely caused by domestic fiscal policy.
Federal Reserve Chairman Jay Powell acknowledges the unsustainable fiscal situation due to high debt levels but avoids criticizing Congress. The Fed factors in fiscal policy as one of many economic influences, recognizing its role in supporting growth, which can conflict with the Fed's inflation control efforts.
The Treasury's debt issuance strategy affects the bond market and banks holding these securities. Fiscal and monetary policies often create conflicting pressures, but the Fed incorporates these effects into their economic assessments and decisions.

Banking Sector:

Banks, particularly regional and community banks, have significant exposure to commercial real estate, making up around 40% of the market. While national banks have less exposure, the real estate market downturn has affected all banks, with properties like office spaces experiencing severe value declines and multifamily properties down by nearly 30% from their peak values due to high interest rates. Despite Federal Reserve Chair Powell's reassurances about the banking system's stability, there are concerns about the real-time recognition of crises. Historical precedent suggests that crises often go unnoticed until they are well underway.
The upcoming maturities of approximately $850 billion in commercial real estate loans present a potential risk. The exposure is dispersed across various financial entities, which is somewhat reassuring. However, small and regional banks are particularly vulnerable. The failure of a significant regional bank due to real estate exposure could have severe economic repercussions, unlike the manageable impact of community bank failures.
Banks are currently managing the situation by extending loan maturities, effectively buying time to stabilize individual properties. While this approach can mitigate immediate issues, it also reduces banks' lending appetite. A significant reduction in credit availability, particularly for small businesses that rely on smaller banks, could trigger a recession. This dynamic highlights the delicate balance between managing existing problems and maintaining sufficient credit flow to support economic activity.

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Commercial Real Estate:

The near-term and long-term valuations of commercial real estate, particularly in hospitality, will depend on market fundamentals. The office sector faces significant challenges due to the rise of remote work, which could reduce long-term demand for office space. Companies are still figuring out their office policies, with some adopting hybrid models.
The retail sector is affected by online shopping, and the hospitality sector is recovering from the pandemic but hasn't fully rebounded. There are no major issues expected in hospitality unless there is overbuilding.
Office spaces were already saturated pre-pandemic, and suburban offices now struggle to find tenants. Many offices remain underutilized, with some businesses likely to stay remote. Converting office buildings to apartments is often not feasible due to technical constraints.
The multifamily housing sector continues to show strong demand and remains a stable area in commercial real estate.

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Peachtree Group Closes $40 Million in CPACE Financing for AC Hotel in 23 Days

ATLANTA (June 24, 2024) – With ongoing credit market dislocations, Peachtree Group originated a $40 million retroactive CPACE loan to BLG SAN DIEGO, LLC (BLG) for its recently opened 147-room AC Hotel San Diego Downtown Gaslamp Quarter in Calif. The Commercial Property Assessed Clean Energy (CPACE) financing was amortized over 30 years and required no payment for a year, followed by five years of interest-only payments. Also, the proceeds allowed BLG to pay down its senior loan with California-based Preferred Bank and E. Sun Commercial Bank, Ltd. to under $20 million, there by mitigating the banks’ exposure.

“This innovative capital structure significantly alleviated the immediate financial pressures, enabling the hotel to establish a solid cash flow foundation during its initial years of operation,” said Greg Friedman, Peachtree Group’s managing principal and CEO.

Despite the U.S. hotel industry's strong RevPAR performance, multiple headwinds exacerbate financial stress for owners. These headwinds include the lagging profitability of U.S. hotels, persistently high interest rates and historically high property insurance costs.

“When we opened the AC Hotel San Diego Downtown Gaslamp Quarter in March 2023, there was a sizeable disconnect between hospitality fundamentals, which are strong, particularly in San Diego, while the debt markets were deteriorating meaningfully,” said Brad Honigfeld, founder, chairman and co-CEO of the New Jersey-based Briad Group®.“ The Fed’s tightening process and rising fund rates drove up the cost of debt considerably.”

Hotel and commercial real estate owners face a tough few years as trillions of dollars in debt come due, and refinancing gets harder, compounded by banks' tightened lending standards.

According to JLL Research, by the end of 2024, $5.8 billion worth of U.S. hotel-securitized loans will be due for repayment, requiring full payment, refinancing, extension or sale. However, if these loans were refinanced at current interest rates, most would struggle to generate enough income to cover their debt costs.

In this challenging lending market, Commercial Property Assessed Clean Energy (CPACE) financing has become a vital source of liquidity. This option is growing in importance as owners face impending debt maturities and scarce refinancing opportunities.

CPACE financing has rapidly gained traction in the commercial real estate market, reaching a cumulative $7.2 billion in the U.S. in just over a decade, according to PACENation. This significant milestone underscores the growing acceptance and adoption of CPACE financing as an innovative and effective solution. Peachtree Group, a key player in this market, has demonstrated its commitment to CPACE financing, with over $800 million in CPACE originations.

The AC Hotel San Diego Downtown Gaslamp Quarter is in downtown San Diego's Gaslamp Quarter, known for its restaurants, shops and nightlife.

“Our hotel was benefiting from its location and performing to its original underwriting, but the debt costs were straining cash flows,” Honigfeld said.

Retroactive CPACE funding offers unique advantages for property owners. It operates similarly to normal pre-project funding, with one key difference: 100% of the loan proceeds can be used to reimburse the property owner for costs already incurred. This feature makes retroactive CPACE a valuable resource for property owners seeking better loan terms or improved cash flow for completed projects.

“The financial relief it provides not only ensures the hotel's success but also positions it for long-term stability. By reducing the financial burden in the early years, owners can focus on delivering exceptional guest experiences and achieving operational excellence,” Friedman said.

This strategic approach paves the way for the asset to transition to a more favorable financing market in the future, ensuring its sustained profitability and growth.

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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.

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Contact:

Charles Talbert

678-823-7683

ctalbert@peachtreegroup.com

Peachtree Closes 17 loans totaling more than $244MM in the last 90 days

Latest Updates.

Peachtree Group has expanded its financing program to include net lease retail, medical and industrial properties. The program provides up to 100% loan to cost construction financing for these asset classes, effectively addressing a critical gap in the current commercial real estate market.

Peachtree Group Funds Net Lease Retail, Medical and Industrial Properties

ATLANTA (June 20, 2024) – Peachtree Group (Peachtree) has expanded its financing program to include net lease retail, medical and industrial properties. The program provides up to 100% loan to cost construction financing for these asset classes, effectively addressing a critical gap in the current commercial real estate market.

The commercial real estate market is currently experiencing a void between tenant expansion plans and financing availability. Developers need alternative financing solutions, as banks have pulled back on lending due to exposure and liquidity constraints.

“Peachtree’s comprehensive financing offerings come at a critical time, as the retail vacancy rate in the U.S. reached a historic low of 4.6% in December 2023, while construction starts significantly declined due to increased financing costs and reduced capital availability,” said Daniel Siegal, Peachtree’s principal and president, CRE.

Net lease financing requires a tenant to pay base rent along with property taxes, insurance, and maintenance costs. This long-term and stable arrangement makes it highly suitable for financing new construction projects. Triple net leases, in particular, enhance this method's value in commercial real estate. By securing lease commitments from creditworthy tenants, developers can leverage stable income streams to secure favorable financing terms.

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Net Lease Program Highlights:

Flexible Financing Options: Multiple and single net lease financing.
Innovative Solutions: Flexible capital to support complex deals.
In-House Loan Servicing: Dedicated servicing for a streamlined process.

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Terms:

Interest Only: Payment options to ease cash flow management.
High Loan-to-Value: Up to 80% of finished value.
Comprehensive Loan-to-Cost: Up to 100% LTC.

“As a nationwide balance-sheet lender, Peachtree Group offers competitive terms, in-house loan servicing, and flexible capital to handle a wide array of projects. Our net lease financing is designed to provide the flexibility and support needed for successful project execution, no matter how complex the deal,” said Siegel.

Through various programs, Peachtree provides full-stack debt capital solutions to qualified commercial real estate owners across all sectors throughout the U.S.

For more information about Peachtree Group’s Triple Net Lease financing and how it can benefit your business, please visit our website at www.peachtreegroup.com/credit.

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Contact:

Charles Talbert

678-823-7683

ctalbert@peachtreegroup.com

The latest trends in NNN lease financing reflect a shift towards more innovative financing structures, driven by a need for greater efficiency and adaptability in an ever-changing market landscape. In this article are three trends Peachtree is seeing in the marketplace, as well as in our deal flow.

Unlocking Potential: Three Trends Shaping the Net Lease Retail Market

Triple net lease (NNN) financing has emerged as a pivotal trend in the retail sector, offering a unique blend of stability and flexibility for investors and developers. As commercial real estate continues to evolve, NNN leases provide an attractive model where tenants assume responsibility for property taxes, insurance, and maintenance, significantly reducing financial risk for landlords. This arrangement not only ensures a steady income stream but also aligns with the growing demand for scalable and sustainable building projects.

The latest trends in NNN lease financing reflect a shift towards more innovative financing structures, driven by a need for greater efficiency and adaptability in an ever-changing market landscape. Below are three trends Peachtree is seeing in the marketplace, as well as in our deal flow.

Supply and Demand Imbalance

As of Q1 2024, single-tenant retail development volume remained low. Rolling four-quarter completions totaled only 19.5 million square feet, which is 68% of the 10-year average (CBRE).

National tenants with strong credit have detailed expansion plans to grow their store fleets:

7-Eleven (A-rated credit) plans to add 7,000 stores over the upcoming years.
Chipotle (strong private credit) plans to add 300 stores in 2024.
Tractor Supply Company (BBB credit) plans to add 70 stores in 2024 and 90+ in the following years.

Flexibility in Lease Terms

Tenants are becoming more flexible with their lease terms in this inflationary and high-interest rate environment to help encourage development and provide buyers with more attractive assets. For example:

Starbucks has increased the primary term on some build-to-suit leases from 10 to 15 years.
Dollar General, which traditionally had a flat lease structure, has begun incorporating 5% rent bumps in their primary term.

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Preference for Small Spaces

A significant trend in the retail sector is the preference for small spaces under 2,500 square feet, which make up over two-thirds of executed leases. Consequently, quick-service and fast-casual restaurants, which typically fit within this size range, have reported nearly 2,000 potential openings in 2024. This includes popular chains such as McDonald's, Chipotle, and Dutch Bros. (JLL).

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What we are Seeing at Peachtree

Peachtree Group funds muti- and single net lease deals in retail, medical and industrial. Peachtree is seeing a variety of projects across the spectrum, from standalone quick service restaurants to grocery anchored centers. Currently, our team is favoring deals with experienced developers and strong national tenants.

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Why Peachtree?‍

Flexible Financing Options: Multiple and single net lease financing across retail, industrial, and medical
Innovative Solutions: Flexible capital to support complex deals.
In-House Loan Servicing: Dedicated servicing for a streamlined process.

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To learn more or get a quote, contact us at lending@peachtreegroup.com.

In the realm of commercial real estate, single tenant net lease financing is an effective tool for developers and investors looking to fund new construction projects. This financing method, particularly in the form of a triple net lease, offers unique advantages and considerations that can make a construction venture pencil. This article delves into the details of single tenant net lease financing and its relevance to construction projects.

Understanding Single Tenant Net Lease Financing for Construction

In the realm of commercial real estate, single tenant net lease financing is an effective tool for developers and investors looking to fund new construction projects. This financing method, particularly in the form of a triple net lease, offers unique advantages and considerations that can make a construction venture pencil. Let's delve into the details of single tenant net lease financing and its relevance to construction projects.

Why Now?

There is a void in the market between the expansion plans of tenants and the availability of financing. Meanwhile, banks have pulled back on lending due to their outstanding commercial real estate exposure and liquidity constraints.

According to an article in Forbes on trends reshaping retail: "In December 2023, the retail vacancy rate across the U.S. was 4.6%, the lowest level recorded by the CoStar Group since they began tracking it in 2007. On the supply side, construction started on just 46 million square feet of retail space in 2023, compared to 82 million in 2022.This decline is due to increased financing costs, reduced capital availability, and still-elevated input costs such as land and materials."

What is Single Tenant Net Lease Financing?

Single tenant net lease financing, often referred to as a triple net (NNN) lease, is a type of arrangement commonly used in commercial real estate. Under this lease structure, a tenant agrees to pay not only the base rent but also the property taxes, insurance, and maintenance costs associated with the property. This type of lease is typically long-term and stable, making it attractive for financing new construction projects.

How Does it Apply to Construction Financing?

For developers seeking financing for new construction, securing a single tenant with a triple net lease can be instrumental in lowering borrowing costs. Here’s why:

1. Pre-Lease Agreements: Developers may negotiate a lease agreement with a tenant even before construction begins. This lease commitment provides assurance to lenders and investors, mitigating risks associated with vacancy post-construction.

2. Stable Cash Flow: The predictability of rental income from a single tenant under a triple net lease reduces uncertainty for lenders, making it easier to secure financing at more favorable terms.

3. Lower Risk Profile: Lenders often view single tenant net lease properties as lower risk due to the long-term lease commitments and the tenant’s responsibility for property expenses.

Key Considerations for Construction Financing with Single Tenant Net Leases

While single tenant net lease financing can be advantageous for construction projects, there’s more to the underwriting of the loan than just having a triple net lease. Lenders will also assess the following:

1. Creditworthiness of Tenant: The financial strength and creditworthiness of the tenant are crucial. Lenders assess the tenant’s ability to fulfill lease obligations over the long term.

2. Lease Terms and Length: Longer lease terms are generally more favorable for financing. Lenders prefer leases with stable, long-term income streams.

3. Property Location and Type: The location and type of property (e.g., retail, industrial, office) can impact financing terms.

4. Exit Strategy: Developers should have a clear exit strategy in place, especially considering the long-term nature of single tenant net leases.

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Today’s Single Tenant Net Lease Financing Market

Peachtree is seeing a variety of projects across the spectrum, from standalone quick service restaurants to grocery anchored centers. Currently, our team is favoring deals with experienced developers and strong national tenants.

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Why Peachtree?‍

Flexible Financing Options: Multiple and single net lease financing across retail, industrial, and medical
Innovative Solutions: Flexible capital to support complex deals.
In-House Loan Servicing: Dedicated servicing for a streamlined process.

Single tenant net lease financing, particularly through triple net leases, is a valuable tool for financing construction projects in commercial real estate. By securing a lease commitment from a creditworthy tenant, developers can leverage stable income streams to obtain financing on favorable terms at lower interest rates.

As a nationwide balance-sheet lender, Peachtree Group is ready to facilitate your business plan and get your deal done. Learn more about Peachtree Group’s triple net lease financing terms and get a quote.

Need immediate assistance? Contact Jordan Arzi, lending@peachtreegroup.com

Peachtree Group debuted its financed film, "The Surfer,” starring Nicholas Cage, at the prestigious Cannes Film Festival.

Peachtree Group’s Film Financing Division Gaining Notoriety

ATLANTA (June 3, 2024) – Peachtree Group (Peachtree), a prominent private equity firm, debuted its financed film, "The Surfer,” starring Nicholas Cage, at the prestigious Cannes Film Festival.

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This successful premiere at Cannes is just one highlight in a series of achievements by Peachtree and its film financing division, Peachtree Media Partners. The firm already has financed nearly a dozen films, cementing its reputation as a growing alternative to conventional television and movie financing.

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Peachtree leverages its deep financial expertise and a proven track record of more than $10 billion in investments to excel in uncovering niche and non-traditional opportunities where risk is mispriced to its advantage, driving outsized returns on its investments. The firm applies this strategic insight to transform the financing landscape for television and film productions, generating significant value.

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"Our increased activity in movie and television financing represents a natural progression of our capabilities and interests," said Greg Friedman, managing principal and CEO of Peachtree. "We recognize the unique challenges and opportunities within the entertainment industry, especially in an era where content creation is rapidly evolving. We aim to support producers and creators with tailored financial solutions that align with their vision and project needs."

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This strategic expansion taps into the growing demand for alternative financing within the dynamic entertainment sector. It specifically addresses the needs of productions ranging from $5 million to $50 million, which are adapting to rapid changes and an increasing number of productions seeking flexible funding options.

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As streaming giants like Netflix, Amazon Prime Video, Disney+ and others continue to pour billions into original content to captivate and retain subscribers, they are reshaping the entire financing landscape.

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"Peachtree's initiative is poised to capitalize on these industry shifts, offering innovative financial structures that align with the needs of modern content creators," Friedman said. "Having an industry veteran, Joshua Harris, leading Peachtree Media Partners provides the expertise to structure the financing appropriately while mitigating downside risks."

Peachtree's risk management strategy in entertainment financing includes detailed evaluations of each project's commercial potential, the presence of A-list talent, the production team's track record and collateral such as tax credits and pre-sale agreements. The firm also implements safeguards like completion bonds to ensure that projects are completed within budget and on schedule.

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"We are excited to provide a platform that not only fuels the creative economy but also aligns with our investment strategies, providing our stakeholders with diverse opportunities in the burgeoning entertainment sector," added Joshua Harris, managing partner of Peachtree Media Partners. "Furthermore, Peachtree's vertical integration allows us to go beyond capital investments in debt and equity by developing the infrastructure needed to originate, underwrite, manage assets and operate as appropriate."

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Peachtree has fully transitioned into film and television financing, actively collaborating with filmmakers and production companies on upcoming projects, with 20-plus opportunities currently in its pipeline. In 2024, additional Peachtree-financed movies slated to be released alongside “The Surfer,” include “The Fabulous Four,” starring Bette Midler and Susan Sarandon, “Not Without Hope,” featuring Zachary Levy and Josh Duhamel and “In the Grey,” directed by Guy Ritchie.

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The ongoing digital transformation, the proliferation of high-quality content production and changes in consumer viewing habits suggest that the movie and film financing market will remain dynamic and potentially lucrative for the foreseeable future.

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Contact:

Charles Talbert

678-823-7683

ctalbert@peachtreegroup.com

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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.

Adapting to Change: How Higher Interest Rates are Shaping Commercial Real Estate Investment Strategies

Highlights from the conversation included:

Interest Rates and Market Transition: The shift from historically low interest rates to a "more normal rate paradigm," emphasizing the end of a prolonged period of declining rates. This shift will likely affect all risk assets, including commercial real estate, by reducing the tailwinds that previously inflated asset prices and supported various investment strategies.
Impact on CRE and Investments: As interest rates rise, the cost of borrowing increases, impacting the valuation and affordability of real estate investments. This shift could lead to higher capitalization rates (cap rates) and change the dynamics of investment returns, making it crucial for investors to adapt their strategies accordingly. Floating rate debt, once considered a cheaper option, may no longer be the most economical option due to rising rates.
Market Volatility and Opportunities: While increased volatility in the market is expected as it adjusts to the new rate environment, it also brings a silver lining of opportunities. This can lead to both risks and opportunities. While some investors may face challenges, those with "dry powder" or readily available capital might find attractive entry points into the market, fostering a sense of optimism amidst the changes.
Long-term Outlook and Strategy Adjustments: Investors need to prepare for a sustained period of higher interest rates and adjust their strategies to remain viable. This includes expecting higher costs of debt and being cautious of investment valuations that do not adequately account for the new economic conditions.
Banking Sector and CRE Debt: There's a concern about the impact of rising rates on the banking sector, particularly smaller regional banks heavily invested in CRE loans. The potential for increased defaults and financial strain on these banks could lead to broader economic implications if not managed carefully.
Long-term Implications for Asset Values and Investment Returns: The long-term outlook is cautious, with expectations of continued market adjustment to the higher rate environment. This adjustment is anticipated to be gradual, with investors continuing to reassess risk and return parameters.

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.

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In The News

There are a record amount of debt maturities in 2024 at close to $1T, and another $1T over the next two years, notes Greg Friedman CEO Peachtree Group. In this interview with Schwab Network he discusses commercial real estate and how the market is still pricing in 50BPS of cuts between now and the end of the year, and its increasingly looking like faith rather than “data driven.”

Cuts Looking Like Faith Rather Than Data-Driven

Press Releases & Insights

Learn more about what Peachtree Group has to say about our industry.

Peachtree Group welcomed Mark Zandi, Chief Economist at Moody’s Analytics, for our most recent Market Update. Mark is responsible for directing economic research across macroeconomics, financial markets and public policy and offered his insights into the U.S. economy's performance and near-term prospects, highlighting reasons for optimism while focusing on the stabilizing benefits for commercial real estate and private credit investments amid moderating inflation.

Peachtree Group Hosts Mark Zandi of Moody’s Analytics: Insights on U.S. Economy, Commercial Real Estate, and Investment Opportunities

Here are some key highlights from his presentation:

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Economic and Market Performance:

2023 Real GDP Growth: Approximately 2.5%, surpassing expectations and indicating a strong year despite initial downturn concerns.
2024 Real GDP Growth: Projected at around 1.5% for the first half, with an expectation of about 2% for the full year.
Unemployment: Currently just over 4%, a slight increase from previous years but still considered low.
Inflation: Continues to moderate, with current levels very close to the Federal Reserve's target of 2%.
Long-Term Rates: The 10-year Treasury yield is expected to stabilize around 4-4.5%, with mortgage rates potentially settling just below 6%.
Commercial Real Estate: The market is adjusting, particularly in the office sector, but overall price declines and transaction volumes are expected to stabilize over the next couple of years.

Positive Developments:

Supply-Side Improvements: Increased immigration, productivity, and a surge in U.S. oil production have helped ease inflationary pressures.
Consumer Spending: High-income households are in a strong financial position, driving the economy forward despite struggles among lower-income households.

Potential Risks:

Federal Reserve Policy: Concerns that if the Fed does not cut rates soon, it could lead to financial instability.
Election Outcomes: Potential for social unrest and policy uncertainty depending on the results.
Long-Term Fiscal Issues: High debt-to-GDP ratios and the potential for future fiscal crises if long-term fiscal challenges are not addressed.

Investment Environment:

We, too, are optimistic about the economy and believe a soft landing is the most likely scenario, aligning well with how we are investing our capital. While certain commercial real estate investments will experience challenges as they're calibrate to a higher-for-longer interest rate environment, it still remains a favorable climate for Peachtree Group’s near- and long-term capital investments in credit, as well as opportunistic strategies, including development in the hotel sector for the coming years. Overall, many of the overarching themes Mark discussed echo what we have observed in the market, specifically:

Stabilizing Interest Rates: The highly dislocated lending environment, with $2 trillion in loans maturing in the next three years, becomes more manageable as 10-year Treasury yields and mortgage rates stabilize, creating a predictable environment for financing and refinancing commercial real estate projects. This could lead to increased investment activity.
Inflation Moderation: As inflation moderates, cost pressures on property operations and development ease, enhancing profitability and investment returns.
Consumer Spending: Strong consumer spending, especially from high-income households, supports demand for commercial spaces in retail and hospitality sectors, despite current challenges.
Private Credit Opportunities: The dislocation in traditional lending markets creates significant opportunities for private credit investments, offering attractive, equity-like returns with relatively lower risk due to substantial equity buffers in transactions.
Regulatory Environment: Regional banks facing pressures may retreat from commercial real estate lending, opening opportunities for alternative lenders. This benefits private credit investors and those with capital for loan purchases and recapitalizations, leveraging the firm's disciplined processes and strategic real estate ownership.

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Mark Zandi is chief economist of Moody’s, where he directs economic research. Moody’s is a leading provider of economic research, data and analytical tools. Zandi was a co-founder of Economy.com, which Moody’s purchased in 2005. He is on the board of directors of MGIC, the nation’s largest private mortgage insurance company; is the lead director of Policy Map, a data visualization company; and is on the board of the Coleridge Institute, a non-profit that facilitates the use of data across federal, state and local governments. An influential source of economic analysis for businesses, journalists and the public, Zandi frequently testifies before Congress. He is the author of Paying the Price: Ending the Great Recession and Beginning a New American Century, which assesses the monetary and fiscal policy response to the Great Recession. His other book, Financial Shock: A 360º Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis, has been described by the New York Times as the “clearest guide” to the financial crisis. Zandi earned his BS from the Wharton School at the University of Pennsylvania and his PhD from the University of Pennsylvania, both in economics.

Peachtree Group announced that it received multiple Marriott Select Brands (MSB) Awards during this year’s Marriott Select Brands Owner & Franchisee CONNECT Conference in Orlando, Fla., including Gold Circle winner, SpringHill Suites Dallas Rockwall, Texas

Peachtree Group Wins Multiple Marriott Select Brands Awards During Ceremony

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.

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