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Insight
5 min read

Why Lenders Require Comfort Letters for Branded Hotel Financing

Investing in a franchise hotel can be a good way to diversify your portfolio and to achieve solid returns over an extended period of time. Comfort letters are designed to provide a legal framework for lenders and franchisors to handle situations in which the hotel purchaser defaults on the loan. Here are some facts ever investor should know about comfort letters.

Investing in a franchise hotel can be a good way to diversify your portfolio and to achieve solid returns over an extended period of time. Finding the right hotel financing options can make this acquisition even more profitable. Comfort letters are designed to provide a legal framework for lenders and franchisors to handle situations in which the hotel purchaser defaults on the loan. Here are some facts ever investor should know about comfort letters.

What are Comfort Letters?

Comfort letters are documents that allow lenders to assume franchise rights if the original franchisee defaults on the loan. These letters include provisions that ensure that lenders can continue to operate the hotel in the event of default or foreclosure on franchise hotel loans.

Benefits of Comfort Letters

Comfort letters offer several benefits for all parties involved in the transaction, including the following:

  • Borrowers are more likely to find the most attractive hotel lending arrangements if the lenders have greater certainty that they will be able to recoup their investment even if the borrower defaults. This can improve the terms of these loans and can make it easier to obtain the financing needed to acquire franchise properties.
  • Lenders can more effectively collateralize their loans by ensuring the ability to maintain the profitability of the properties they finance.
  • Franchise companies can protect their brand name by continuing operations and maintain a presence even when franchisees fail to meet their financial obligations and go into default on their hotel loans.

Many lenders require comfort letters before they will finalize loans for franchise hotel properties.

Crafted by the Franchise Company

In most cases, the comfort letter is drawn up by the franchise company as part of the franchising process. These legal documents may follow a standardized template or may be customized to suit the needs of the borrower and the lender. The contents of the letter may include some or all of the following provisions:

  • A provision that ensures the ability of the lender to appoint a receiver to operate the hotel for a short period of time during foreclosure proceedings.
  • A clause that allows the lender to cure any default of the franchise agreement before it is terminated.
  • A provision that allows for the resale of the property and the transfer of the franchise agreement to a third party if the hotel goes into default.

These provisions are designed to protect the lender if the hotel financing loan goes into default.

About Peachtree Group

Peachtree Group is a direct lender with a specialty in hospitality lending. Our originators work with investors across the US to provide the most practical hotel financing arrangements for their specific needs. Contact us today to discuss your financial needs with one of our expert loan originators. We work with you to provide the best options for your hotel financing requirements.

Press Release
5 min read

Peachtree Group Acquires Hilton Garden Inn Denver Tech Center

Peachtree Group ("Peachtree") announced the acquisition of the 180-room Hilton Garden Inn Denver Tech Center in Denver, Colo. Peachtree's hospitality management team will operate the property.

Peachtree Group ("Peachtree") announced the acquisition of the 180-room Hilton Garden Inn Denver Tech Center in Denver, Colo. Peachtree's hospitality management team will operate the property.

The seven-story hotel is ideally located in the heart of the Denver Tech Center, one of the Denver MSA's prominent employment hubs and the largest office submarket outside of the Central Business District, with 8.8 million sq. ft. of Class-A space. The area is situated near the intersection of Interstate 25 and Interstate 225, providing direct access to the Denver CBD and Denver International Airport.

The hotel further benefits from its proximity to the under-development Bellview Station, a 50+ acre, transit-oriented, mixed-use development. Upon completion, Bellview Station will comprise 2.2 million sq. ft. of Class-A office, 300,000 sq. ft. of retail; 1,800 high-end residential units and 5.0+ acres of green space. Prominent area employers include Comcast, Oracle, Microsoft, Zoom, Charles Schwab, Fidelity Investments, Newmont Mining and Western Union. The Bellview RTD light rail station provides direct commuter access to Union Station and Denver International Airport.

"We are excited to acquire this premium-branded hotel in a growing submarket with a variety of diverse and stable demand generators," said Michael Bernath, Peachtree's senior vice president, acquisitions. "The Denver economy is well diversified, with the city gaining recognition as a burgeoning tech hub. We believe the expansion of the R-Line, increased connectivity of the area and the completion of the transformative Bellview Station development will continue to make the Denver Tech Center an attractive destination for consumers and corporations alike."

 The hotel was last renovated in 2014. Peachtree will make substantial investments in the property, with comprehensive upgrades and enhancements to the entirety of the property, including the exterior, lobby area, bar and lounge, meeting rooms, guestrooms, guest baths, corridors, elevators and stairwells.

 "Upon renovation, the hotel will be the newest renovated property in the area and will be positioned to command a significant premium in daily rates," Bernath said.

 The Hilton Garden Inn Denver Tech Center marks Peachtree's second hotel in Denver, following its ownership of the Element Denver Park Meadows in Lone Tree.

 The financial terms of the transactions were not disclosed.

About Peachtree Group

Peachtree Group is an investment firm driving growth with a diverse portfolio of commercial real estate assets and other ventures. We’ve executed hundreds of investments since inception with a focus on real estate acquisition, development, and lending. Today, we manage billions in equity, augmented by services designed to protect, support, and grow our investments.

 

Press Release
5 min read

Peachtree Group Successfully Closes Third Delaware Statutory Trust, Providing Prime Opportunity for 1031 Exchange Investors

ATLANTA (Feb. 5, 2024) – Peachtree Group, a leading commercial real estate investment firm with a $6.4 billion portfolio of equity and debt investments, announces the successful closure of its third hotel property structured as a Delaware Statutory Trust (DST) with the completed acquisition of its 98-key Hilton Garden Inn in Jackson, Tenn.

ATLANTA (Feb. 5, 2024) – Peachtree Group, a leading commercial real estate investment firm with a $6.4 billion portfolio of equity and debt investments, announces the successful closure of its third hotel property structured as a Delaware Statutory Trust (DST) with the completed acquisition of its 98-key Hilton Garden Inn in Jackson, Tenn.

The Hilton Garden Inn is well located in West Tennessee, offering direct access to diverse demand drivers in the area.

"The hotel's strategic location near healthcare and manufacturing jobs, including Ford's planned $5.6 billion Blue Oval City, along with a diverse collection of entertainment and retail destinations, establishes it as a valuable addition to our expanding portfolio of DST properties," said Tim Witt, Peachtree Group's president, 1031 Exchange/DST Products.

This strategic acquisition presented a compelling opportunity for1031 exchange investors seeking to reinvest proceeds from the sale of appreciated real estate while enjoying tax deferral benefits and maintaining a robust allocation to real estate.

Since forming its DST program in Aug. 2022, Peachtree Group has quickly become a top-15 sponsor in the securitized 1031 exchange marketplace, according to a year-end market equity update from Mountain Dell Consulting.

The other two DST acquisitions included the 100-key Courtyard by Marriott Atlanta Kennesaw (Atlanta MSA) and the 126-key Home2 Suites by Hilton Chandler (Phoenix MSA). These two properties also benefit from strong, growing and diversified demand drivers.

All three acquisitions, totaling more than $83.8 million in real estate-related transactions, were acquired debt-free.

Peachtree Group underscores its commitment to innovation and investor satisfaction, aligning with the core principles of the 1031 exchange and offering investors a seamless avenue to transition capital gains into a new passive investment, particularly within the thriving hotel sector.

"Hotels represent an enticing investment due to the enduring secular trends that propel them forward. The anticipated growth in travel-related expenditure, expected to grow from $10 trillion to $15 trillion over the next decade, fuels the optimistic outlook. Moreover, hotels stand to benefit from the enduring imbalance between growing demand and slower supply, further solidifying hotels' position as a resilient investment," Witt said.

About Peachtree Group

Peachtree Group is an investment firm driving growth with a diverse portfolio of commercial real estate assets and other ventures. We’ve executed hundreds of investments since inception with a focus on real estate acquisition, development, and lending. Today, we manage billions in equity, augmented by services designed to protect, support, and grow our investments.

Press Release
5 min read

Peachtree Group Provides $34.5 Million Loan for Acquisition and Renovation of 312-unit Multifamily Property in Florida

ATLANTA (Feb. 2, 2024) – Peachtree Group announced the company originated a $34.5 million loan for the acquisition and renovation of a 312-unit multifamily property in Gainesville, Fla., on behalf of Coastline Management Groups (Coastline), a Hollywood, Fla. based service-oriented real estate management company. The property, Pavilion on 62nd, is a 25-building, 312-unit multifamily used previously for student housing.

ATLANTA (Feb. 2, 2024) – Peachtree Group announced the company originated a $34.5 million loan for the acquisition and renovation of a 312-unit multifamily property in Gainesville, Fla., on behalf of Coastline Management Groups (Coastline), a Hollywood, Fla. based service-oriented real estate management company. The property, Pavilion on 62nd, is a 25-building, 312-unit multifamily used previously for student housing.

The Peachtree Group team originated the floating-rate bridge loan over a three-year term, representing 61% of the stabilized appraised value.

The multifamily property contains 31.74 acres and features two-, three- and four-bedroom units with onsite property management, two clubhouses, two swimming pools, workstation cubicles, a game room, a media room, rentable event room, a gym, indoor racquetball and half-court basketball, sand volleyball court, dog park and package receiving center.

Coastline will use approximately $5.0 million of the bridge loan proceeds to renovate unit interiors, convert four-bedroom units to three-bedroom units, expand the onsite amenities and complete deferred maintenance on exterior and common areas.

About Peachtree Group

Peachtree Group is an investment firm driving growth with a diverse portfolio of commercial real estate assets and other ventures. We’ve executed hundreds of investments since inception with a focus on real estate acquisition, development, and lending. Today, we manage billions in equity, augmented by services designed to protect, support, and grow our investments.

Press Release
5 min read

Peachtree Group Selected to Operate the Merrill Hotel, Muscatine

ATLANTA (Jan. 30, 2024) – Peachtree Group's hospitality management group has been selected to operate the Merrill Hotel, Muscatine, a Tribute Portfolio Hotel in downtown Muscatine, Iowa. The AAA Four-Diamond property comprises 122 guest rooms, a full-service restaurant, nearly 13,000 square feet of flexible meeting and event space, an outdoor terrace overlooking the Mississippi River, a heated indoor saltwater pool, and a fitness center.

ATLANTA (Jan. 30, 2024) – Peachtree Group's hospitality management group has been selected to operate the Merrill Hotel, Muscatine, a Tribute Portfolio Hotel in downtown Muscatine, Iowa. The AAA Four-Diamond property comprises 122 guest rooms, a full-service restaurant, nearly 13,000 square feet of flexible meeting and event space, an outdoor terrace overlooking the Mississippi River, a heated indoor saltwater pool, and a fitness center.

Built along the banks of the Mississippi River, the hotel opened in March 2018, offering some of the most luxurious amenities and accommodations in Iowa. The Merrill Hotel's prime location provides convenient access to the city's local restaurants and shops and benefits from the proximity to the Quad Cities - Davenport and Bettendorf in Iowa and Rock Island and Moline/East Moline in Illinois.

"We're truly delighted to have been chosen by Jim and Rebecca Howe to be the hotel's management operator," said Patrick Short, president hospitality management, Peachtree Group. "The Howe family embodies a steadfast dedication to unparalleled hospitality experiences. We will carry on their commitment to excellence by delivering exceptional guest experiences, enhancing and elevating the hotel's reputation while generating results commensurate with this exceptional hotel's status."

Peachtree Group's hospitality management operates premium-branded, limited-, select- and compact full-service hotels primarily in the upper-midscale and upscale segments. Today, the company manages 91 hotels across 27 brands with 11,180 rooms in 23 states. The Merrill Hotel, increased Peachtree Group's third-party operations to 28 hotels.

"Embracing an experienced management firm like Peachtree Group signifies a collaborative effort ensuring operational excellence while fostering a partnership geared towards the growth of our hotel, which continues to serve as one of the city's economic foundations," Jim Howe said.

"We take our role as stewards of this incredible hotel seriously, committed to keeping it at the heart of the town's culture and economy. It's a responsibility we embrace with dedication and pride," said Caroline Royster, vice president of business development hospitality management, Peachtree Group.

 

About Peachtree Group

Peachtree Group is an investment firm driving growth with a diverse portfolio of commercial real estate assets and other ventures. We’ve executed hundreds of investments since inception with a focus on real estate acquisition, development, and lending. Today, we manage billions in equity, augmented by services designed to protect, support, and grow our investments.

Press Release
5 min read

Peachtree Group Approaches $750 Million in CPACE Financing

ATLANTA (Jan. 24, 2024) – In December, Peachtree Group achieved a significant milestone by securing $150 million in Commercial PACE (CPACE) financing, approaching $750 million completed since its inception in 2019. For the year, Peachtree Group completed 23 commercial property assessed clean energy financing transactions across the U.S. for a total of approximately $250 million in directly originated and balance-sheet funded CPACE financing.

ATLANTA (Jan. 24, 2024) – In December, Peachtree Group achieved a significant milestone by securing $150 million in Commercial PACE (CPACE) financing, approaching $750 million completed since its inception in 2019. For the year, Peachtree Group completed 23 commercial property assessed clean energy financing transactions across the U.S. for a total of approximately $250 million in directly originated and balance-sheet funded CPACE financing.

Commercial real estate faces a tough 2024 as trillions of dollars in debt comes due and refinancing gets harder, compounded by banks tightened lending standards.

“In this challenging lending market, Commercial Property Assessed Clean Energy financing has emerged as a crucial source of liquidity. This financing option is becoming increasingly essential as owners grapple with looming debt maturities and limited refinancing opportunities,” said Jared Schlosser, Peachtree Group’s senior vice president, origination and head of PACE financing.

CPACE has grown relatively quickly and, in just over a decade, has hit a cumulative $5.2 billion in U.S. commercial real estate financings, according to PACENation, confirming the growing market adoption and acceptance of this innovative financing tool.

“CPACE has been a game-changer by offering a unique advantage over other forms of financing with its long-term, fixed-rate financing that lowers the project's cost of capital,” Schlosser said.

Peachtree Group is one of the most active hotel commercial real estate lenders in the U.S., ranking as the eighth-largest U.S. hotel lender by the Mortgage Bankers Association in their most recent rankings. Of the CPACE transactions completed this year, roughly 50% were in hospitality.

“CPACE financing aligns with the financial, environmental and guest experience goals of hotels, making it a popular choice for owners looking to improve energy efficiency, reduce costs and enhance their sustainability initiatives,” Schlosser said.

Notable CPACE transactions completed this year include:

Hospitality

·        The Thompson, Palm Springs, Calif.

·        El Caminante, Dana Point, Calif.

·        The Marriott Tribute Hotel, St. Augustine, Fla.

·        Palihotel, San Francisco, Calif.

·        DoubleTree by Hilton Youngstown Downtown, Youngstown, Ohio

 Non-Hospitality

·        950 3rd Street, Washington, DC(Multifamily)

·        Reserve at Vinedo, Paso Robles, Calif. (Multifamily)

·        Old City Hall, Tacoma, Wash. (Mixed-Use)

 “This innovative financing mechanism empowers property owners across all sectors to embark on energy-efficient upgrades, renewable energy installations, and water conservation initiatives, all while minimizing their financial burden,” Schlosser said.

To learn more about CPACE Financing contact:

About Peachtree Group

Peachtree Group is an investment firm driving growth with a diverse portfolio of commercial real estate assets and other ventures. We’ve executed hundreds of investments since inception with a focus on real estate acquisition, development, and lending. Today, we manage billions in equity, augmented by services designed to protect, support, and grow our investments.

Peachtree In The News

Peachtree Group executives are often quoted in the news. Read the latest.

In The News
5 min read

Lending Conditions Likely More Certain for Hotels in 2024

Peachtree CEO Greg Friedman was quoted in this recent CoStar Group article by Sean McCracken talking about the lending environment for hotels in 2024 and the opportunities for investor, operator, lenders like Peachtree Group.

Peachtree CEO Greg Friedman was quoted in this recent CoStar Group article by Sean McCracken talking about the lending environment for hotels in 2024 and the opportunities for investor, operator, lenders like Peachtree Group.

"Most traditional lenders aren't lending," said Friedman. "Forty percent of the debt market is traditionally made up of regional banks, community banks, national banks, and it's been in the press that banks are under pressure. So 40% of the market is struggling, the CMBS market makes up close to 25% to 30% of lending to hotels and that market is well under pressure, as well."But he said what is left of the market is attracted to hotels due to "really good asset-level performance."

Lending Conditions Likely More Certain for Hotels in 2024 (costar.com)

In The News
5 min read

How Will the Fed's Pivot to Cut Rates Impact Development, M&A?

Peachtree CIO Brian Waldman shared insights with Hotel Investment Today on the impact of rate cuts on commercial real estate acquisition and lending opportunities.

Brian Waldman, CIO at Peachtree Group was one of the featured experts interviewed by Hotel Investment Today for this article. In conjunction with rate cuts, Waldman said he expects to see a surge in demand for both acquisition and lending opportunities. “The anticipated uptick in activity will likely be a major boon for Peachtree Group, presenting opportunities to assist groups in recapitalizing their assets as well as growing our owned hotel portfolio,” he said.

https://www.hotelinvestmenttoday.com/Forecasts/How-will-the-Feds-pivot-to-cut-rates-impact-development-MA?utm_medium=email&utm_source=email&utm_campaign=site+article__forecasts/how-will-the-feds-pivot-to-cut-rates-impact-development-ma

In The News
5 min read

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.

Ester Hertzfeld with Hotel Management Magazine spoke with Peachtree SVP Jared Schlosser about the hotel lending market in her most recent article.

https://www.hotelmanagement.net/financing/us-hotel-lending-likely-get-more-challenging

Press Releases & Insights

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

Insight
5 min read

Why Lenders Require Comfort Letters for Branded Hotel Financing

Investing in a franchise hotel can be a good way to diversify your portfolio and to achieve solid returns over an extended period of time. Comfort letters are designed to provide a legal framework for lenders and franchisors to handle situations in which the hotel purchaser defaults on the loan. Here are some facts ever investor should know about comfort letters.

Investing in a franchise hotel can be a good way to diversify your portfolio and to achieve solid returns over an extended period of time. Finding the right hotel financing options can make this acquisition even more profitable. Comfort letters are designed to provide a legal framework for lenders and franchisors to handle situations in which the hotel purchaser defaults on the loan. Here are some facts ever investor should know about comfort letters.

What are Comfort Letters?

Comfort letters are documents that allow lenders to assume franchise rights if the original franchisee defaults on the loan. These letters include provisions that ensure that lenders can continue to operate the hotel in the event of default or foreclosure on franchise hotel loans.

Benefits of Comfort Letters

Comfort letters offer several benefits for all parties involved in the transaction, including the following:

  • Borrowers are more likely to find the most attractive hotel lending arrangements if the lenders have greater certainty that they will be able to recoup their investment even if the borrower defaults. This can improve the terms of these loans and can make it easier to obtain the financing needed to acquire franchise properties.
  • Lenders can more effectively collateralize their loans by ensuring the ability to maintain the profitability of the properties they finance.
  • Franchise companies can protect their brand name by continuing operations and maintain a presence even when franchisees fail to meet their financial obligations and go into default on their hotel loans.

Many lenders require comfort letters before they will finalize loans for franchise hotel properties.

Crafted by the Franchise Company

In most cases, the comfort letter is drawn up by the franchise company as part of the franchising process. These legal documents may follow a standardized template or may be customized to suit the needs of the borrower and the lender. The contents of the letter may include some or all of the following provisions:

  • A provision that ensures the ability of the lender to appoint a receiver to operate the hotel for a short period of time during foreclosure proceedings.
  • A clause that allows the lender to cure any default of the franchise agreement before it is terminated.
  • A provision that allows for the resale of the property and the transfer of the franchise agreement to a third party if the hotel goes into default.

These provisions are designed to protect the lender if the hotel financing loan goes into default.

About Peachtree Group

Peachtree Group is a direct lender with a specialty in hospitality lending. Our originators work with investors across the US to provide the most practical hotel financing arrangements for their specific needs. Contact us today to discuss your financial needs with one of our expert loan originators. We work with you to provide the best options for your hotel financing requirements.

Press Release
5 min read

Peachtree Group Selected to Operate the Merrill Hotel, Muscatine

ATLANTA (Jan. 30, 2024) – Peachtree Group's hospitality management group has been selected to operate the Merrill Hotel, Muscatine, a Tribute Portfolio Hotel in downtown Muscatine, Iowa. The AAA Four-Diamond property comprises 122 guest rooms, a full-service restaurant, nearly 13,000 square feet of flexible meeting and event space, an outdoor terrace overlooking the Mississippi River, a heated indoor saltwater pool, and a fitness center.

ATLANTA (Jan. 30, 2024) – Peachtree Group's hospitality management group has been selected to operate the Merrill Hotel, Muscatine, a Tribute Portfolio Hotel in downtown Muscatine, Iowa. The AAA Four-Diamond property comprises 122 guest rooms, a full-service restaurant, nearly 13,000 square feet of flexible meeting and event space, an outdoor terrace overlooking the Mississippi River, a heated indoor saltwater pool, and a fitness center.

Built along the banks of the Mississippi River, the hotel opened in March 2018, offering some of the most luxurious amenities and accommodations in Iowa. The Merrill Hotel's prime location provides convenient access to the city's local restaurants and shops and benefits from the proximity to the Quad Cities - Davenport and Bettendorf in Iowa and Rock Island and Moline/East Moline in Illinois.

"We're truly delighted to have been chosen by Jim and Rebecca Howe to be the hotel's management operator," said Patrick Short, president hospitality management, Peachtree Group. "The Howe family embodies a steadfast dedication to unparalleled hospitality experiences. We will carry on their commitment to excellence by delivering exceptional guest experiences, enhancing and elevating the hotel's reputation while generating results commensurate with this exceptional hotel's status."

Peachtree Group's hospitality management operates premium-branded, limited-, select- and compact full-service hotels primarily in the upper-midscale and upscale segments. Today, the company manages 91 hotels across 27 brands with 11,180 rooms in 23 states. The Merrill Hotel, increased Peachtree Group's third-party operations to 28 hotels.

"Embracing an experienced management firm like Peachtree Group signifies a collaborative effort ensuring operational excellence while fostering a partnership geared towards the growth of our hotel, which continues to serve as one of the city's economic foundations," Jim Howe said.

"We take our role as stewards of this incredible hotel seriously, committed to keeping it at the heart of the town's culture and economy. It's a responsibility we embrace with dedication and pride," said Caroline Royster, vice president of business development hospitality management, Peachtree Group.

 

About Peachtree Group

Peachtree Group is an investment firm driving growth with a diverse portfolio of commercial real estate assets and other ventures. We’ve executed hundreds of investments since inception with a focus on real estate acquisition, development, and lending. Today, we manage billions in equity, augmented by services designed to protect, support, and grow our investments.

Press Release
5 min read

Peachtree Group Provides $34.5 Million Loan for Acquisition and Renovation of 312-unit Multifamily Property in Florida

ATLANTA (Feb. 2, 2024) – Peachtree Group announced the company originated a $34.5 million loan for the acquisition and renovation of a 312-unit multifamily property in Gainesville, Fla., on behalf of Coastline Management Groups (Coastline), a Hollywood, Fla. based service-oriented real estate management company. The property, Pavilion on 62nd, is a 25-building, 312-unit multifamily used previously for student housing.

ATLANTA (Feb. 2, 2024) – Peachtree Group announced the company originated a $34.5 million loan for the acquisition and renovation of a 312-unit multifamily property in Gainesville, Fla., on behalf of Coastline Management Groups (Coastline), a Hollywood, Fla. based service-oriented real estate management company. The property, Pavilion on 62nd, is a 25-building, 312-unit multifamily used previously for student housing.

The Peachtree Group team originated the floating-rate bridge loan over a three-year term, representing 61% of the stabilized appraised value.

The multifamily property contains 31.74 acres and features two-, three- and four-bedroom units with onsite property management, two clubhouses, two swimming pools, workstation cubicles, a game room, a media room, rentable event room, a gym, indoor racquetball and half-court basketball, sand volleyball court, dog park and package receiving center.

Coastline will use approximately $5.0 million of the bridge loan proceeds to renovate unit interiors, convert four-bedroom units to three-bedroom units, expand the onsite amenities and complete deferred maintenance on exterior and common areas.

About Peachtree Group

Peachtree Group is an investment firm driving growth with a diverse portfolio of commercial real estate assets and other ventures. We’ve executed hundreds of investments since inception with a focus on real estate acquisition, development, and lending. Today, we manage billions in equity, augmented by services designed to protect, support, and grow our investments.

Market Report

Read our managing principals' informed insights on the industry's latest developments.

Market Report
5 min read

Q4 Insights: 2022 - Record Year for Investment

The last three years have been turbulent with numerous events unprecedented events, yet even with these headwinds, 2022 was another record year of investment activity for Peachtree Group

The last three years have been turbulent, and I could point to numerous events thathave been unprecedented: a global pandemic, record-high inflation, geopolitical events and rising interest rates—all of these macroeconomic issues we have had to navigate. Yet, even with these headwinds, 2022 was another record year of investment activity for us. In addition, we solidified Peachtree's foundation for our next growth phase and continued to expand our investment offerings. I feel confident in saying we are meeting the moment.

Another macroeconomic issue is looming, and that is the prospect of a recession. It is worth noting that no two are alike, and if a downturn does occur, I believe it will be shallow and short-lived.

As a member of the Real Estate Roundtable, which includes executives from the toppublicly held and privately owned real estate ownership, development, lending and management firms in the U.S., we were recently asked about current market conditions and the future outlook in real estate. The consensus among these executives is that while uncertainty remains, there is optimism about future market conditions.

Of note from the survey: "This is not like the Global Financial Crisis of 2008 for a couple of reasons. First, more firms are not overleveraged. Second, firms still have capital to invest; there's just a higher threshold required to invest than in the past few years."

Further, the group also expressed that perceptions and outlooks differ across asset classes, as some sectors remain strong and others show concerns. While any recession has the potential to reduce demand, each sector has its own dynamics.I have sung the praises of hospitality in previous letters and will continue to do so inthis one. The industry's fundamentals remain strong, and the long-term growth trends will outweigh near-term macroeconomic headwinds. The acquisition market for premium-branded hotels, which was slow last year, is improving. Also, higher interest rates are compelling to be a lender as you can achieve equity-like returns. By the sheer number of opportunities we are reviewing, transaction velocity will pick up for us. We are following our sound investment and underwriting decisions and recommendations that served us well these past few years – focus on the underlying asset's investment basis with the right hotel brand in the right submarket with the right drivers of demand. These assets will outperform competitors on average and protect us from downside risk.

The opportunities we are experiencing in hospitality are happening across other sectors, and now we have the in-house capabilities to pivot to these investments. Todate, we have deployed hundreds of millions of dollars in investments beyond hospitality with loan originations and mortgage loan purchases. Our CRE lending group, Stonehill CRE, started at a fortuitous time with volatile market conditions creating a dislocated lending environment.

The current Secured Overnight Financing Rate (SOFR) curve, a broad measure of the cost of borrowing, forecasts rates to remain elevated through the year with rates normalizing in 18-24 months. Short-term disruptions and uncertainty will not stop us from investing in the market and extending credit for the right deals.For example, the CRE group has completed several transactions in the retail sector. The properties are five malls which have sound occupancy levels and debt service coverage ratios with strong sponsors who have solid plans to stabilize cash flow levels, which took a hit during the pandemic.

As quoted in the Commercial Observer, Daniel Siegel, president of Stonehill CRE, described the rationale for these investments: " The one thing that these transactions all have in common is the malls are all trading at 30% of the last trade value. So, all of these are situations where we feel that the headline risk associated with the asset class has become outpaced with the actual cash flow of the assets themselves."

The cyclical nature of commercial real estate is well known, and as an experienced investor, we are well-prepared to take advantage of market disruptions. During an economic downturn, overleveraged owners will need to transact, which presents opportunities for us to acquire properties at a lower cost basis or provide financing. We are prepared for slower GDP growth and continued volatility in asset pricing. Accordingly, we will balance risk and return, with a focus on properties and sectors that can weather economic volatility and stay prepared to take advantage of future opportunities that arise during this period.

I am confident in our ability to find opportunities in all market conditions.Thank you for your confidence in Peachtree and within the partnership. We all remain passionate about reaching our investment objectives together.Greg Friedman

Market Report
5 min read

Q2 Insights: Capitalizing on Disruption

Distruption is not the end of stability; instead it is the catalyst for innovation, growht and the evolution of industries. Peachtree Group has been an integral player in private credit since the GFC and sees tremendous opportunity in this space.

Disruption is not the end of stability; instead, it is the catalyst for innovation, growthand the evolution of industries.

This sentiment was evident during the disruption that rattled traditional financial institutions during the Global Financial Crisis (GFC), causing, among other things, banks to restrict lending.

During the tumultuous aftermath of the crisis, banks recalibrated their lending strategies, leaving a void in the market. This vacuum was swiftly filled by the emergence of private credit, a dynamic sector that embraced innovation to navigate the disruption. This shift provided commercial real estate ownership groups with the flexible and tailored financing solutions they needed to weather the uncertainties of the time.

In the wake of these changes, private credit witnessed exponential growth, with assets under management tripling to approximately $1.5 trillion. This rise underscores the resilience and adaptability of this sector in meeting the evolving needs of borrowers.

Peachtree Group has been an integral player in private credit since the GFC, with our investment strategies evolving as conditions change.With a holistic view of the market, we understand real estate owners' issues and canstructure and close loans that meet owners' complex and unique needs, regardless of the sector.

It has been a period of prosperity on the credit side of Peachtree Group. We have more than doubled credit transactions over the past three years, and there's more opportunity ahead for Peachtree Group to play a meaningful role in the commercial real estate lending landscape.

Current data would indicate that the market is facing a maturity wave that would make the 2015-2017 wave nearly insignificant by comparison. In that timeframe, approximately $1.1 trillion of loans were scheduled to come due amidst a period of relatively low-interest rates. The current projections diverge markedly as an estimated $2.75 trillion of loans are set to mature between this year and 2027. This accounts for nearly half of the $5.67 trillion in outstanding loans, according to data from Trepp.

Predominantly, the banking sector holds the largest share of commercial real estate loans, boasting a combined portfolio valued at roughly $2.86 trillion and will encounter maturing obligations of $1.44 trillion through 2027.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 opens the door for private credit.

With solid liquidity in place, we are optimistic about these future opportunities. While the lending landscape is complex, we are eager to capitalize on the inefficiencies in an elevated interest rate environment. In today's market, we can generate sizable returns without taking equity risk while simultaneously being in a discounted position of 25% to 40% of the current value of the underlying commercial real estate asset.

Although the journey ahead might be challenging, our commitment to sound lending practices, resilience and innovative thinking will play a pivotal role in our success. In the dynamic markets now, we see a myriad of untapped opportunities. We have the team to execute this investment strategy and are always looking ahead to anticipate and pivot to the next trade.  I appreciate your confidence in us. We all remain passionate about reaching our investment objectives together. As always, please don't hesitate to contact me with any questions, comments or concerns.

Market Report
5 min read

Q1 Insights: Impact of Interest Rate Hikes on Real Estate

The Fed's campaign of interest rate hikes to stave off inflation, coupled with slowing economic growth, has exposed cracks in the commercial real estate industry. As interest rates went up, required yields went up, putting upward pressure on cap rates – capitalization rates – and once that happened, the fallout was lower property values, which is still ongoing

As we dig into the current state of the commercial real estate industry, one cannot help but recall Charles Dickens' famous line, "It was the best of times, it was the worst of times." This quote, written to depict the stark contrasts of the French Revolution, finds a curious parallel in the dynamic landscape of our industry today. We find ourselves at the crossroads of tremendous opportunities - potentially historic - and unprecedented challenges, where the best and worst of times coexist within the commercial real estate ecosystem.

The Fed's campaign of interest rate hikes to stave off inflation, coupled with slowingeconomic growth, has exposed cracks in the commercial real estate industry. As interest rates went up, required yields went up, putting upward pressure on cap rates – capitalization rates – and once that happened, the fallout was lower propertyvalues, which is still ongoing.

Add the collapse of Silicon Valley Bank, the largest banking failure since 2008, the UBS rescue of Credit Suisse, and then First Republic's collapse has some worrying this will put further pressure on the commercial property industry as banks rein in their lending further. A fact noted in the Wall Street Journal's'Where is the U.S. Economy Headed? Follow the Money' article on May 31, "...Lending conditions for companies, consumers and real-estate developers tightened this spring to levels not seen since the height of the Covid pandemic...".

With roughly $1 trillion of commercial real estate debt maturing before the end of 2024, it may expose the industry and push some assets into default; office assets come to mind as the most troubled.

As dire as this seems, the commercial real estate market is not in the same precarious position it was during the Great Financial Crisis. Despite all the media coverage, I would also add that banks are in better shape than they were 15 years ago. Overall, commercial real estate fundamentals remain sound at the asset level. However, while the assets may be performing to its underwriting, the interest costs – double or triple today – weren't considered. Unfortunately, that is the reality for owners and investors of commercial real estate. The era of low-interest rates is over, as we anticipate higher borrowing costs for the foreseeable future.

The commercial real estate industry is navigating through this period of volatility, which is currently creating substantial investment opportunities for us. By identifying mispriced assets, capitalizing on distressed situations, providing capital at higher yields without last-dollar risk and staying attuned to emerging trends, we are well positioned for long-term success and to deliver value to our investors.We are also benefiting from our focus on the hospitality sector, which isn't seeing the level of property value erosion that the other lower cap rate sectors are experiencing. And, when we do make investments into other sectors, we are doing it on our credit side of the house. They are not lacking opportunities in this market. Peachtree continues to be a leading lender in hospitality and, more recently, in other commercial real estate sectors. The credit unit continues to generate equity-like returns at lower leverage points without taking the last-dollar risk. This ideal scenario benefits us, and we expect to see it through the year.

The other opportunities also being driven by liquidity issues – acquiring assets, buying mortgage notes – are emerging with more on the horizon. We have already made a few strategic investments in these areas, with more undoubtedly to come. In this rapidly changing market, our investment teams – debt and equity - are well-positioned to pivot to those opportunities.

I would be remiss not to mention our hotel development program, which continues to excel, with six hotels opening this year alone and a growing pipeline and ongoing groundbreakings. With growing room demand to record levels and limited new supply, we benefit from this persistent industry imbalance.

The hard work of our asset and property management teams should be noted too. They work diligently to protect your invested capital while striving to generate above-market returns in an evolving market characterized by significant challenges and uncertainties. Their expertise, attention to detail and relentless dedication contribute to the long-term success of our investments.

These current and anticipated opportunities will lead to another productive and potentially historic year for Peachtree.

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