Peachtree Commercial Real Estate Credit Outlook

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Jessica Correnti
VP National Accounts, Equity Capital Markets
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Quick Look Back at 2023

  • $728 billion of CRE loans reach maturity.2
  • Only $32B of new CMBS issuances (average is $76B).2
  • Fed raised rates 100bps in 2023, then held steady since mid-year.5
  • 5 banks failed in 2021.1
  • Traditional lenders continue to: tighten loan standards, raise borrowing costs, and pause CRE lending

In 2023, Peachtree deployed over $940 million of capital in commercial real estate originations, $78 million in note purchases, $231 million in hotel acquisitions, and $482 million of capital into hotel development projects. As the $3+ trillion of commercial real estate mortgage maturities continues to roll through and the Fed maintained an aggressive rate hike schedule in 2023, participants in the market were faced with pressure of higher capital costs and tighter liquidity in sourcing capital or acquisition, recapitalizations and development.

Last year banks took a big step back to examine and strengthen their balance sheets and liquidity. This materially impacted transaction volume and momentum across commercial real estate. Those, like Peachtree, who were able to provide all-cash bids and reduce lending risk were able to continue to execute on equity transactions in a competitive manner. Looking forward, Peachtree is well positioned to execute on what is anticipated to be a higher-volume transaction year compared to 2023.

What Peachtree Expects in 2024-2025

"Brace yourself; it's anticipated to be a turbulent period ahead." - Greg Friedman, CEO Peachtree Group

  • $1.2 trillion of CRE loans set to mature.2
  • Most loans coming due were originated in 2014-2015 as 10-year loans.2
  • 58% of maturing loans have current interest rates below 5%.2
  • 43% had cap rates at origination below 5%.1
  • MF lowest average cap rate 5.48%.2
  • Volume of CRE loans coming due by sector: Multifamily (35%), Hotel (xx%), Office (xx%)
  • Volume of CRE loans coming due by MSA - Primary Markets: NYC, LA, Dallas.2
  • Volume of CRE loans coming due by MSA - Secondary Markets: Charlotte, Nashville, Detroit.2

What does this mean for Credit Opportunities?

While fundamentals for many real estate sectors are strong, the weakest fundamental for most is cost of or availability of capital.4

CRE operators, many of which borrowed 10-years ago, will not only face challenges with finding a lender, but also in recapping assets and budgeting for higher borrowing costs. Historically, a significant lending source for CRE has been traditional banks, most of which have had to adopt more stringent underwriting criteria or pause CRE lending altogether.

With real estate values reset lowered, given higher interest and cap rates, coupled with debt maturities of $1.2 Trillion over the next 24months, will drive demand for alternative lenders or for asset transactions. Especially for sectors that have been unable to grow rents to keep pace with borrowing costs, such as Multifamily.3

From our perspective, this situation presents opportunities. Peachtree is financing groups seeking to acquire, refinance or recapitalize their commercial real estate assets.

"Our private credit group has tremendous momentum going into next year as the lender market continues to thin...2024 is shaping up to be a strong year for us." - Greg Friedman, CEO Peachtree Group

What does this mean for Equity Acquisition Opportunities?

While Peachtree believes 2024-2025 will prove to be a busier year for CRE brokers, there is still ambiguity for some sectors and markets on appropriate value of assets. As we near the middle half of 2024, and the Fed takes any action other than inaction, markets will become more transparent.

As this time approaches, property owners will need to contemplate options, considering the trillions of dollars of property with debt maturing. This period, as Peachtree’s CEO calls it, the Great Reset, warrants attention as valuations for commercial real estate, public securities and private equity are all recalibrated.

“We have been uniquely positioned to acquire most of the hotels [in the past year] off-market leveraging our deep relationship network to secure institutional-quality assets. We anticipate continuing to execute along this path and provide added surety of close by eliminating lending risk by being an all-cash buyer.” – Brian Waldman, CIO Peachtree Group

What does this mean for Development Opportunities?

The higher costs of debt, coupled with expensive construction labor and disrupted supply chain through the pandemic moved many developers to consolidate or scratch projects in their pipeline.

Evidenced by the fall-off of room supply to a YOY average of less than half the long-term supply growth rate4, developers who have moved forward with projects are well-poised to serve and make enhanced risk-adjusted returns from transactions in markets in need of supply in the coming 2-3 years.

“Identifying regions and submarkets where demand outstrips supply can yield substantial financial gains”– Greg Friedman, CEO Peachtree Group

Ready to use this information with clients?

Connect with a Peachtree Capital Markets Professional

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. Neither Peachtree PC Investors nor Peachtree Group is adopting, making are commendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author(s)and do not necessarily reflect the positions of Peachtree Group. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. Peachtree Group does not provide legal, or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. Peachtree Group cannot guarantee that the information herein is accurate, complete, or timely. Peachtree Group makes no warranties with regard to such information or results obtained by its use and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author(s) considers reasonable. The inclusion of assumptions or forecastsherein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neitherPeachtree Group nor the author(s) are under any obligation to update or keepcurrent such information.

All investing is subject to risk, including the possible loss of the money you invest.

1“Bank Failures in Brief – 2023.”FDIC, www.fdic.gov/bank/historical/bank/bfb2023.html. Accessed 21 Dec. 2023.

2CRED iQ. “2024 Cre Maturity Outlook: A Deep-Dive Analysis into the Wall of Maturities.” CRED iQ, 13 Dec.2023,cred-iq.com/blog/2023/12/13/2024-cre-maturity-outlook-a-deep-dive-analysis-into-the-wall-of-maturities/.

3Putzier, Konrad. “The Clearest Sign yet That Commercial Real Estate Is in Trouble.” Wall Street Journal, 13Nov.2023,www.wsj.com/real-estate/the-clearest-sign-yet-that-commercial-real-estate-is-in-trouble-cb8dfafa.

4Smith, Jeffery J, et al. “2024Commercial Real Estate Outlook: Finding Terra Firma.” Deloitte Insights, Deloitte, 10 Nov.2023,www2.deloitte.com/us/en/insights/industry/financial-services/commercial-real-estate-outlook.html.

5Tepper, Taylor. “Federal Funds Rate History 1990 to2023.” Forbes, Forbes Magazine, 17Oct. 2023,www.forbes.com/advisor/investing/fed-funds-rate-history/.

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Peachtree Commercial Real Estate Credit Outlook

The credit markets have been significantly tightening since the second quarter of 2022, and Peachtree expects this trend to continue into the first half of 2024. As they have in previous dislocations, market participants will adapt to the new normal of higher interest rates, leading to the eventual return of lenders previously sidelined by uncertainties in the latter half of 2024.
Quick Look Back at 2023

  • $728 billion of CRE loans reach maturity.2
  • Only $32B of new CMBS issuances (average is $76B).2
  • Fed raised rates 100bps in 2023, then held steady since mid-year.5
  • 5 banks failed in 2021.1
  • Traditional lenders continue to: tighten loan standards, raise borrowing costs, and pause CRE lending

In 2023, Peachtree deployed over $940 million of capital in commercial real estate originations, $78 million in note purchases, $231 million in hotel acquisitions, and $482 million of capital into hotel development projects. As the $3+ trillion of commercial real estate mortgage maturities continues to roll through and the Fed maintained an aggressive rate hike schedule in 2023, participants in the market were faced with pressure of higher capital costs and tighter liquidity in sourcing capital or acquisition, recapitalizations and development.

Last year banks took a big step back to examine and strengthen their balance sheets and liquidity. This materially impacted transaction volume and momentum across commercial real estate. Those, like Peachtree, who were able to provide all-cash bids and reduce lending risk were able to continue to execute on equity transactions in a competitive manner. Looking forward, Peachtree is well positioned to execute on what is anticipated to be a higher-volume transaction year compared to 2023.

What Peachtree Expects in 2024-2025

"Brace yourself; it's anticipated to be a turbulent period ahead." - Greg Friedman, CEO Peachtree Group

  • $1.2 trillion of CRE loans set to mature.2
  • Most loans coming due were originated in 2014-2015 as 10-year loans.2
  • 58% of maturing loans have current interest rates below 5%.2
  • 43% had cap rates at origination below 5%.1
  • MF lowest average cap rate 5.48%.2
  • Volume of CRE loans coming due by sector: Multifamily (35%), Hotel (xx%), Office (xx%)
  • Volume of CRE loans coming due by MSA - Primary Markets: NYC, LA, Dallas.2
  • Volume of CRE loans coming due by MSA - Secondary Markets: Charlotte, Nashville, Detroit.2

What does this mean for Credit Opportunities?

While fundamentals for many real estate sectors are strong, the weakest fundamental for most is cost of or availability of capital.4

CRE operators, many of which borrowed 10-years ago, will not only face challenges with finding a lender, but also in recapping assets and budgeting for higher borrowing costs. Historically, a significant lending source for CRE has been traditional banks, most of which have had to adopt more stringent underwriting criteria or pause CRE lending altogether.

With real estate values reset lowered, given higher interest and cap rates, coupled with debt maturities of $1.2 Trillion over the next 24months, will drive demand for alternative lenders or for asset transactions. Especially for sectors that have been unable to grow rents to keep pace with borrowing costs, such as Multifamily.3

From our perspective, this situation presents opportunities. Peachtree is financing groups seeking to acquire, refinance or recapitalize their commercial real estate assets.

"Our private credit group has tremendous momentum going into next year as the lender market continues to thin...2024 is shaping up to be a strong year for us." - Greg Friedman, CEO Peachtree Group

What does this mean for Equity Acquisition Opportunities?

While Peachtree believes 2024-2025 will prove to be a busier year for CRE brokers, there is still ambiguity for some sectors and markets on appropriate value of assets. As we near the middle half of 2024, and the Fed takes any action other than inaction, markets will become more transparent.

As this time approaches, property owners will need to contemplate options, considering the trillions of dollars of property with debt maturing. This period, as Peachtree’s CEO calls it, the Great Reset, warrants attention as valuations for commercial real estate, public securities and private equity are all recalibrated.

“We have been uniquely positioned to acquire most of the hotels [in the past year] off-market leveraging our deep relationship network to secure institutional-quality assets. We anticipate continuing to execute along this path and provide added surety of close by eliminating lending risk by being an all-cash buyer.” – Brian Waldman, CIO Peachtree Group

What does this mean for Development Opportunities?

The higher costs of debt, coupled with expensive construction labor and disrupted supply chain through the pandemic moved many developers to consolidate or scratch projects in their pipeline.

Evidenced by the fall-off of room supply to a YOY average of less than half the long-term supply growth rate4, developers who have moved forward with projects are well-poised to serve and make enhanced risk-adjusted returns from transactions in markets in need of supply in the coming 2-3 years.

“Identifying regions and submarkets where demand outstrips supply can yield substantial financial gains”– Greg Friedman, CEO Peachtree Group

Ready to use this information with clients?

Connect with a Peachtree Capital Markets Professional

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. Neither Peachtree PC Investors nor Peachtree Group is adopting, making are commendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author(s)and do not necessarily reflect the positions of Peachtree Group. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. Peachtree Group does not provide legal, or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. Peachtree Group cannot guarantee that the information herein is accurate, complete, or timely. Peachtree Group makes no warranties with regard to such information or results obtained by its use and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author(s) considers reasonable. The inclusion of assumptions or forecastsherein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neitherPeachtree Group nor the author(s) are under any obligation to update or keepcurrent such information.

All investing is subject to risk, including the possible loss of the money you invest.

1“Bank Failures in Brief – 2023.”FDIC, www.fdic.gov/bank/historical/bank/bfb2023.html. Accessed 21 Dec. 2023.

2CRED iQ. “2024 Cre Maturity Outlook: A Deep-Dive Analysis into the Wall of Maturities.” CRED iQ, 13 Dec.2023,cred-iq.com/blog/2023/12/13/2024-cre-maturity-outlook-a-deep-dive-analysis-into-the-wall-of-maturities/.

3Putzier, Konrad. “The Clearest Sign yet That Commercial Real Estate Is in Trouble.” Wall Street Journal, 13Nov.2023,www.wsj.com/real-estate/the-clearest-sign-yet-that-commercial-real-estate-is-in-trouble-cb8dfafa.

4Smith, Jeffery J, et al. “2024Commercial Real Estate Outlook: Finding Terra Firma.” Deloitte Insights, Deloitte, 10 Nov.2023,www2.deloitte.com/us/en/insights/industry/financial-services/commercial-real-estate-outlook.html.

5Tepper, Taylor. “Federal Funds Rate History 1990 to2023.” Forbes, Forbes Magazine, 17Oct. 2023,www.forbes.com/advisor/investing/fed-funds-rate-history/.