Green Street News: Peachtree Funds Detroit Hotel Equity

Green Street News - Peachtree Group has held a small first close for its latest opportunistic vehicle so it could fund a preferred-equity investment in a Detroit hotel, Green Street News can reveal.

Peachtree Special Situations Fund, a vehicle launched last year with a $250 million equity goal, raised $7 million for the deal this month. The modest raise evidently was meant to allow the vehicle to move quickly.

The first close funded Peachtree’s half of a $14.5 million preferred-equity slug that was used by a venture led by 6PM Hospitality Partners for the $31.6 million acquisition of the historic, 203-room Fort Shelby Hotel in downtown Detroit. The preferred equity is behind a $21.7 million senior loan, and some of the proceeds could be used as part of the new owners’ plans to make $10 million of renovations and rebadge the property from Hilton’s DoubleTree Suites to an Embassy Suites brand.

The fund’s managers will consider providing capital to buy or refinance a broad range of assets, including multifamily and self-storage properties, but they are focused on hotels. The aim is to provide so-called gap funding for buyers or owners of properties that have broken capital stacks or are in need of renovations, but who are stymied by illiquid debt markets.

To that end, the vehicle can provide common or preferred equity as well as bridge and mezzanine loans nationwide. For hotels, it is looking mostly at historically strong markets where pricing recently has reset.

Peachtree’s vehicle, which is targeting a final close by next year, will have a relatively short two-year investment period to take advantage of current market dislocations, pros familiar with the fund said. Many investors want to refinance or buy properties but are unable to raise the required capital due to murky outlooks on performance, higher borrowing costs and lower valuations.