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Insight
5 min read

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. This article delves into the details of single tenant net lease financing and its relevance to construction projects.

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.

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.

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

Press Release
5 min read

Peachtree Group’s Film Financing Division Gaining Notoriety

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

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.

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.

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.

"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."

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.

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.

"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.

"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."

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.

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.  

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

Insight
5 min read

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

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.

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:

  • 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.

In The News
5 min read

Cuts Looking Like Faith Rather Than Data-Driven

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.”

There is 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 Nework, 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.”

Watch the full interview here.

Press Release
5 min read

Peachtree Group Secures Rapid USCIS Approval for EB-5 Funded Home2 Suites by Hilton Development

Peachtree Group ("Peachtree") has received its I-956F approval from the United States Citizenship and Immigration Services ("USCIS"), the government agency that oversees the EB-5 Immigrant Investor Program, for the development of a Home2 Suites by Hilton in Boone, N.C. USCIS adjudicated the I-956F petition for the hotel development in just five months.

ATLANTA (May 28, 2024) – Peachtree Group ("Peachtree") has received its I-956F approval from the United States Citizenship and Immigration Services ("USCIS"), the government agency that oversees the EB-5 Immigrant Investor Program, for the development of a Home2 Suites by Hilton in Boone, N.C

USCIS adjudicated the I-956F petition for the hotel development in just five months.

"It is a testament to the due diligence of the Peachtree team that it was able to get the project approved so quickly, especially when the published processing time is over 15 months," said Adam Greene, EVP EB-5 for Peachtree Group.

Peachtree originated $21.7 million of fixed-rate construction financing over a five-year term for Narsi Properties to develop a 105-room Home2 Suites by Hilton near downtown Boone. This historic town, situated in the vibrant mountains of western North Carolina, is close to Appalachian State University, its 22,000-plus students and faculty, and numerous other demand generators including three of the most popular ski resorts in the state. The hotel is expected to be completed by Fall 2024.

"Construction is underway, demonstrating tangible progress and reducing initial project risks. Importantly, even as we raise EB-5 capital, Peachtree has bridged the loan, offering certainty of execution for the project and is maintaining an equity stake aligned with the same risk level as our EB-5 investors. This commitment ensures our interests are directly tied to the project's success, reassuring all stakeholders," said Greene.

The EB-5 visa program provides the opportunity for foreign investors to potentially obtain a green card in exchange for making a significant investment in a new commercial enterprise that creates jobs in the U.S. Under the program, foreign nationals who invest a minimum of $800,000 in a U.S.-based project that creates or preserves at least ten full-time jobs for U.S. workers are eligible to apply for permanent residency in the U.S.

"Peachtree Group launched its EB-5 program last year to provide an important financing tool that enables us to continue funding job-creating projects across the country," said Greg Friedman, Peachtree's CEO and managing principal. "This hotel development is expected to create roughly 328 jobs." 

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

Insight
5 min read

Watch for These Signs of Recession as the Fed Keeps Rates Elevated

Peachtree CEO Greg Friedman comments on a recent article by Richard Berger for Globestreet. The article is a response to the Federal Reserve keeping interest rates steady.

The CPI report earlier this week showed a decrease in U.S. inflation pressures for the first time this year, following a higher-than-anticipated PPI. This might suggest the Fed's sustained efforts to mitigate consumer price pressures are beginning to show results. However, we are still far from reaching 2%, but maybe the Fed is seeing that inflation is finally on a downward trajectory. In my opinion, the Fed will need further data to gather the confidence required for contemplating interest rate cuts.

Today's prolonged high interest rates are dampening activity and risking recession. For the commercial real estate industry, time is of the essence, as we are already in a recession, and I am dimming on the prospect of a rate cut this year.

This persistent inflation significantly challenges the commercial real estate sector, especially with trillions of dollars of debt maturing. Elevated inflation has increased borrowing costs, strained cash flows and impacted property valuations.

Property owners face refinancing at significantly higher rates as debt matures, leading to increased debt service costs and reduced profitability. This strain on cash flows, coupled with higher expenses and lower income, creates a vicious cycle. Property valuations decline as borrowing costs rise, and investors demand higher returns, softening the market. This downward spiral tightens financial constraints, risking defaults and market instability, a situation that requires immediate attention.

Can the Fed get us out of this spiral before a larger meltdown without triggering new economic challenges?

The path forward will likely require a mix of monetary policy adjustments based on economic data and perhaps more targeted fiscal interventions to support vulnerable sectors.

No matter where the market leads, I'm enthusiastic about the opportunities that lie ahead, and our team is fully prepared to tackle the challenges.

This commentary originally appeared on Greg Friedman's LinkedIn page on May 19, 2024, in response to a Globestreet article titled: Watch for These Signs of Recession as the Fed Keeps Rates Elevated.

Follow Greg Friedman and Peachtree Group on LinkedIn

Press Releases & Insights

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

Press Release
5 min read

Peachtree Group Wins Multiple Marriott Select Brands Awards During Ceremony

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

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.

Press Release
5 min read

Peachtree Group Provides $10.7 Million in CPACE Financing in Nashville

Peachtree Group originated its first commercial property assessed clean energy (CPACE) financing in Tennessee with a $10.7 million loan for a Class-A office development in Nashville. This marks one of the first properties in the city of Nashville and Davidson County to utilize CPACE.

NASHVILLE (June 25, 2024) – Peachtree Group originated its first commercial property assessed clean energy (CPACE) financing in Tennessee with a $10.7 million loan for a Class-A office development in Nashville. This marks one of the first properties in the city of Nashville and Davidson County to utilize CPACE.

The four-story, 75,000 sq. ft. office building at 1621 Ensley Blvd. is situated between Nashville’s central business district and the Wedgewood-Houston district. The CPACE financing, set over a 30-year term, will fund the office’s lighting, building envelope, HVAC, plumbing, and roof using a combination of retroactive and future funding. Division Street Development is developing the project, with a targeted completion date of October 2024.

Office and commercial real estate owners face challenging years ahead, with trillions of dollars in debt maturing and refinancing becoming more difficult due to tightened bank lending standards.

Peachtree Group originated its first commercial property assessed clean energy (CPACE) financing in Tennessee with a $10.7 million loan for a Class-A office development in Nashville. This marks one of the first properties in the city of Nashville and Davidson County to utilize CPACE.

“For eligible projects, CPACE financing remains one of the most attractive options to bring a project to completion. We are pleased to assist Division Street Development in securing the final piece needed to complete the financing puzzle for their office development,” said Jared Schlosser, Peachtree’s executive vice president and head of CPACE.

CPACE programs offer a unique opportunity for property owners to finance the up-front cost of energy or other eligible improvements on a property. This is then repaid over time through a voluntary assessment, as outlined by the U.S. Department of Energy. In Tennessee, property owners can leverage CPACE financing up to 25% loan to value, providing a flexible and sustainable financing option.

In 2021, the Tennessee State legislature passed CPACE enabling legislation, allowing counties or cities to establish CPACE programs.

Peachtree Group Credit is a direct commercial real estate lender offering permanent loans, bridge loans, mezzanine loans, CPACE financing and preferred equity investments across all commercial real estate sectors.

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

Insight
5 min read

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

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.

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:

  • 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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