In the latest episode of Peachtree Point of View podcast, CEO Greg Friedman sits down with EVP Jared Schlosser, who specializes in hotel lending and C-PACE financing. Their conversation offers valuable insights into navigating today's dislocated credit markets and finding creative solutions to capitalize commercial real estate projects.
Jared, who joined Peachtree in 2019 after beginning his career during the 2007 market downturn, provides a unique perspective on the dramatic shift in credit markets since then. He explains how developers are struggling with rising costs and persistently high interest rates that make traditional financing structures difficult to pencil.
Senior + CPACE
The discussion centers on how Peachtree is helping clients overcome these challenges, with particular focus on C-PACE (Commercial Property Assessed Clean Energy) financing as an innovative tool. This state-by-state legislative product allows financing for specific elements of construction (roofing, HVAC, elevators, etc.) through long-term fixed-rate loans repaid via property tax assessments.
What makes this strategy particularly powerful is the ability to combine C-PACE with senior debt to achieve higher leverage at a lower blended cost of capital. For example, on a $100 million project, developers might secure $30 million through C-PACE at 7.5% fixed (half the cost of traditional mezzanine debt), allowing them to finance 75% of project costs at favorable rates while maintaining acceptable returns.
Case Study: Washington Multifamily
Jared shares a recent success story from Washington state where Peachtree provided both senior debt and C-PACE financing, partnering with Hickory for mezzanine debt to deliver an impressive 87% capital stack. With Peachtree providing 70% through the combined senior and C-PACE loans, the borrower secured an attractive blended cost of capital for a higher-lever age construction loan. The multifamily project is located in an underserved secondary market with limited recent development—a focus area for Peachtree.The deal also featured flexible terms allowing the borrower to potentially payoff the C-PACE portion if rates decline.
Key Takeaways:
Listen to the full Peachtree Point of View podcast to gain deeper insights into how you can leverage these creative capital solutions for your next commercial real estate project. Follow Peachtree Point of View on your favorite podcast platform to stay informed on investment strategies in today's challenging market.
Stonehill, a commercial real estate direct lender, ranked as the 8th largest U.S. commercial real estate hotel lender by the Mortgage Bankers Association ("MBA") 2022 loan origination rankings, a two-spot increase from the 2021 rankings. In 2022, Stonehill deployed $1.2 billion in real estate investment, with $813 million related to hotels.
Stonehill was also ranked as the 16th largest U.S. commercial real estate retail lender by MBA, having deployed $163 million in 2022.
"Our performance is a testament to our commitment to understanding our sponsors' business plans and accomplishing the transactions by having stable capital despite market turbulence,” said Mat Crosswy, Stonehill's president and managing principal.
Last year, Stonehill expanded its commercial lending business to originate and make investments across all real estate sectors by forming Stonehill CRE. This CRE group focuses on heavy transitional assets and sectors of the credit market that are traditionally undersupplied.
"Amid economic volatility and rising interest rates, traditional lenders have pulled back on real estate lending, creating a dislocation in the capital markets. At Stonehill, we have spent years building our capital formation, allowing us to originate loans and provide financing to real estate owners across all sectors looking to execute their business plans, even during periods of uncertainty," said Daniel Siegel, president, Stonehill CRE.
MBA's annual originations rankings report is a comprehensive set of listings of 149 commercial/multifamily mortgage originators, their 2022 volumes, and their different roles.
About Stonehill
Stonehill, a part of Peachtree Group, is a direct lender providing permanent loans, bridge loans, mezzanine loans, commercial property assessed clean energy (CPACE) financing and preferred equity investments secured primarily by hotel assets. Founded in 2013, Stonehill provides creative finance solutions for acquisitions, recapitalizations, refinancings and renovations and has completed over 510 transactions totaling over $5.4 billion. The principals of Stonehill have combined to originate, structure or purchase over $10.0 billion of debt.
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Peachtree Group, a diversified commercial real estate investment company, announced its credit division has closed $556 million in loan originations of the $1.1 billion the company deployed year-to-date. The remaining $526 million was deployed to acquire five hotels and undertake three new hotel development projects. The company also opened five hotels that were under construction as of September 2023.
“Commercial real estate owners who have benefited from an extended period of readily available, low-cost capital over the past 15 years are now confronting a new reality,” said Greg Friedman, Peachtree Group’s CEO.
The ability to refinance maturing debt is a growing concern with an estimated $1.9 trillion of U.S. commercial real estate debt maturing before the end of 2026.
“Commercial real estate participants are faced with the pressures of higher capital costs and tighter liquidity in sourcing capital for acquisition, recapitalizations and development strategies,” Friedman said.
Peachtree Group Credit, formerly Stonehill, ranked as the 8th largest U.S. commercial real estate hotel lender by the Mortgage Bankers Association 2022 loan origination rankings. As a direct commercial real estate lender, it offers permanent loans, bridge loans, mezzanine loans, commercial property-asset clean energy (CPACE) financing and preferred equity investments across all commercial real estate sectors, with its origins in the hospitality industry.
Notable credit transactions for hotels completed this year include:
Other commercial real estate sector transactions included:
Today, banks are under regulatory pressure and need to shore up their balance sheets and liquidity positions, causing significant lending restrictions to commercial real estate. This traditional lender disruption further elevates private credit for owners and developers to execute their business plans.
“We are experiencing an uptick in activity, with more than half of the loans that we originated closing within the past 60 days,” said Jared Schlosser, Peachtree Group’s senior vice president, Credit. “We are targeting more than $1.0 billion in originations for 2023 with continued growth into 2024 as we anticipate interest rates to remain elevated and banks to further reduce exposure.”
Peachtree Group’s acquisition division completed five hotel acquisitions with a total of 677 keys.
“Our transaction volume remains on pace as we have historically acquired 10 to15 hotels annually. The overall U.S. transaction market is down year-over-year, primarily due to 2022 being an active year while debt was still relatively affordable debt a wide availability of regional lenders and improving operating fundamentals whereas in 2023, the tightening of the debt capital markets has materially impacted transaction velocity,” said Brian Waldman, Peachtree Group’s CIO. “We have been uniquely positioned to acquire most of the hotels off-market leveraging our deep relationship network to secure these institutional-quality assets. We are also unique among our competitors as we have the ability to be an all-cash buyer, eliminating lending risk and closing quickly.”
Peachtree Group expects market transactions to accelerate through the remainder of the year and continue into 2024.
Year-to-date, Peachtree Group’s development division has closed on three new projects representing $293 million in aggregate value:
In addition, the development team has opened five hotels with a combined development cost of approximately $119 million:
The development division, which builds hotels on Peachtree Group’s behalf as well as through joint ventures with strategic partners, is expected to break ground prior to year-end on the construction of four more hotels with an aggregate value of $200 million.
CBRE projects new supply growth to average around 1% for the next three years, well below the amount of new supply growth experienced before the COVID-19 pandemic and less than the 2.5% pace of demand growth over the next three years.
“Supply growth of new hotel rooms continues to be hampered by the challenges from the pandemic and has been further impacted today with dislocation in the credit markets,” said Will Woodworth, vice president of investments, development, at Peachtree Group. “We believe supply will continue to be limited for the foreseeable future and have ramped up our development pipeline in response.”
If actual demand growth rates exceed what is forecasted, the hotel market could be facing a hotel room supply shortage. This would fuel the growth in occupancy rates and compression in room rates.
“Despite headwinds in the broader markets, Peachtree is well-positioned, capitalized and oriented to strategically target the submarkets and demand segments where new hotels rooms, when realized, will flourish,” Woodworth said.
About Peachtree Group
Peachtree Group is an investment firm driving growth with a diverse portfolio of commercial real estate assets and other ventures. The company has executed hundreds of investments since its inception, focusing on real estate acquisition, development and lending valued at almost $9.0 billion in total market capitalization. Today, Peachtree manages over $2.5 billion in equity, augmented by services designed to protect, support and grow its investments.