Schwab Network: Commercial Real Estate 'Head Fake' Amid Challenges
Greg Friedman sits down with Schwab Network to talk about the outlook for CRE in 2025
Hotel Investment Opportunities: Navigating Today's Dislocated Market
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The hotel investment landscape is experiencing unprecedented dislocation, creating unique opportunities for savvy commercial real estate investors. In a recent episode of Peachtree Point of View, Greg Friedman sat down with Bennett Webster, Principal and Founder of Alchemy Real Estate Advisors, to explore how hotel investment strategies are evolving in this turbulent market environment.
Current Hotel Investment Market: Distress Creates Opportunity
Today's hotel investment market is characterized by significant distress, but this dislocation is creating unprecedented opportunities. Webster's firm has closed 21 transactions in under a year, with another 19 under contract—demonstrating the active nature of the distressed hotel investment sector. "There's no shortage of ample opportunity out there," Webster notes, citing everything from note sales in Manhattan to receiver sales in Seattle.
The distress isn't limited to traditional foreclosures. Many hotel investment owners are facing mandatory exits due to brand renovation requirements, capital partner pressures, or late-cycle investment timelines,creating a robust pipeline of motivated sellers.
Hotel Investment Transaction Trends: Follow the Smart Money
Market data reveals compelling hotel investment trends:roughly 50% of hotel transaction volume in the first half of 2024 involved properties under $50 million, with most deals likely under $25 million. These smaller hotel investment opportunities maintain strong liquidity and price integrity, often selling at negative leverage to regional buyers focused on operational value creation.
Interestingly, previously distressed markets are attracting renewed hotel investment interest. As Webster observes, "I've seen more bullish activity, more bullish sentiment on San Francisco in the past couple of weeks than we have in past couple of years." This shift suggests that patient hotel investment capital is beginning to identify bottom-fishing opportunities in formerly challenged markets.
Strategic Hotel Investment Approaches
Successful hotel investment in today's market requires a refined approach. Webster recommends three key hotel investment strategies:
Diversification drives hotel investment success. Target markets where you have operational scale and established lender relationships. Rather than concentrating capital in a single trophy asset,multiple smaller hotel investment opportunities can provide superior risk-adjusted returns.
Creative financing enhances hotel investment returns. With traditional financing constrained, successful hotel investment buyers are leveraging CMBS loan assumptions, negotiating interest-only periods during stabilization, and structuring deals that address both buyer and seller liquidity requirements.
Long-term thinking maximizes hotel investment value. As Webster emphasizes, "Capital structure is temporary, but purchase price is permanent." For committed hotel investment professionals with operational capacity, current pricing dislocation presents generational buying opportunities—despite temporarily elevated financing costs.
Hotel Investment Catalysts: The Renovation Factor
A critical catalyst driving current hotel investment opportunities is deferred maintenance and brand-mandated renovations. Many hotel investment owners who delayed capital improvements during COVID are now facing ultimatums from hotel brands: renovate or lose the flag. This dynamic creates forced selling situations that benefit well-capitalized hotel investment buyers ready to commit the necessary capital for property improvements.
The current hotel investment environment strongly favors patient, well-capitalized investors who can move decisively when opportunities arise. For those positioned to execute, today's dislocated hotel investment market offers compelling entry points that may not exist once capital markets normalize and competition intensifies.
Ready to explore advanced hotel investment strategies and market insights? Listen to the full Peachtree Point of View podcast episode featuring Bennett Webster's complete analysis of today's hotel investment opportunities and market dynamics.
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The Outlook For Commercial Real Estate in 2025
Commercial Real Estate 'Head Fake' Amid Challenges
Despite markets bracing for more deregulation under President-elect Donald Trump, Greg Friedman says higher interest rates will damage commercial real estate. He believes regional banks will stay conservative in a high-rate environment, which can squeeze the CRE market. However, Greg says his firm has seen success in multi-family and retail spaces.
Watch More on the Schwab Network
Yahoo! Finance: The hotel sector benefits from 'muted' supply
Peachtree CEO Greg Friedman recently shared insights on the market with Madison Mills of the Yahoo Finance show Catalysts.
Yahoo – Catalysts - The commercial real estate market (CRE) has struggled amid a prolonged high-interest-rate environment, but hotels have continued to outperform as demand surpasses supply. Peachtree Group CEO Greg Friedman joined Catalysts to discuss the market outlook.
Friedman explained that the pandemic "muted" new supply growth, and as demand has picked up with limited new construction, he believes the hotel industry is benefiting from supply being constrained. He points out supply in the hotel sector is growing at a 40% reduction, while demand remains resilient.
Friedman notes that "from an investment perspective," hotel assets trade at higher cap rates. With rates expected to remain elevated, Friedman states, "there's less negative leverage," making the sector increasingly attractive.
Regarding office spaces, Friedman sees potential for recovery. "I think we're heading towards a bottoming across the office sector," he said, pointing to rising vacant spaces being repurposed and transformed for new uses. "I think we're heading towards it being more investable," he added.
To watch more expert insights and analysis on the latest market action, check out more Catalysts here.
Peachtree Group's Market Update w/ Greg Friedman & Mark Zandi
Mark Zandi, Chief Econmist at Moody's Analytics joined Greg Friedman, Managing Principal and CEO of Peachtree Group for a 4th Quarter Market Update.
As we move into 2025, Peachtree Group remains optimistic about the U.S. economy. While risks persist—from policy shifts to stretched markets—the underlying fundamentals are strong. This sentiment was echoed by our recent guest speaker, Mark Zandi, Chief Economist at Moody’s Analytics, who shared his insights on the economy’s resilience and the challenges ahead, particularly for commercial real estate.
Economic Highlights and Key Insights
Mark emphasized the exceptional performance of the U.S. economy, with GDP growth expected to range between 2.5% and 3%, driven by increased labor participation and productivity gains. The labor market remains strong, with unemployment hovering around 4%, and households—especially those in the top income tiers—benefit from strong asset values and low debt-service ratios. However, he noted the pressures on lower-income households, who are feeling the strain of inflation and high-interest debt. This contrast contributes to a gap between strong economic data and public sentiment.
Risks and Projections for 2025
He outlined several key risks that may shape the economic landscape in 2025:
- Tariffs and Immigration Policies: Anticipated increases in tariffs and stricter immigration rules could amplify inflation and disrupt labor markets, especially in industries like construction and agriculture.
- Asset Market Volatility: Stretched valuations and policy-driven fiscal deficits could heighten market instability.
- Interest Rate Outlook: The federal funds rate is projected to decline to 4% by early 2025, with a further reduction to 3% by 2026. Meanwhile, the 10-year Treasury yield, a key benchmark for CRE valuations, is expected to remain flat, between 4% and 4.5%.
Commercial Real Estate and Private Credit
Mark highlighted the explosive growth over the past decade on private credit, now standing at eight times its 2010 size. While recognizing the risks of this rapid expansion, he noted that stabilizing economic fundamentals is a significant mitigating factor.
He also addressed the current state of CRE valuations, acknowledging a significant correction since 2022. Asset prices are down 10–20% from their peaks, depending on asset type, but he expressed cautious optimism for future returns as valuations in many segments approach fair value. Challenges remain, however, as muted transaction volumes and uncertainty around intrinsic values make price discovery difficult in a higher interest rate environment. However, he concluded by emphasizing that CRE, having undergone a meaningful correction, is uniquely positioned for potentially stronger returns.