Peachtree Deploys $1.1B in Commercial Real Estate Investments

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:

• A $47.9 million first mortgage loan for the construction of a 215-room Autograph Collection hotel in Huntsville, Ala., which is expected to open in 2024.
• A $43.6 million first mortgage loan on the 220-room Hampton Inn New York-LaGuardia Airport to recapitalize the project and to cover the cost of deferred maintenance and CapEX.
• A $42.2 million first mortgage loan on the 133-room Motif on Music Row (Nashville) to refinance the current debt and complete the property, which expects to open in November 2023.
• An $8.4 million loan in CPACE financing to fund various energy-efficient and sustainability elements of a hotel under construction in Detroit, Mich.

Other commercial real estate sector transactions included:

• A $52.0 million first mortgage loan for the construction of a 245-unit apartment in Mesa, Ariz.
• A $42.0 million first mortgage loan for the acquisition of the Town Center at Cobb retail center in Kennesaw, Ga.
• A $23.0 million first mortgage loan for the construction of a mixed-use development in Charlotte, N.C.

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.

• Hampton Inn & Suites University Capital - Austin, Texas – 137 keys
• Homewood Suites Vanderbilt - Nashville, Tenn.  - 192 keys
• Hilton Garden Inn Atlanta North – Johns Creek, Ga. – 122 keys
• Courtyard Atlanta Kennesaw – Kennesaw, Ga.– 100 keys
• Home2 Suites by Hilton – Chandler, Ariz. – 126 rooms

“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:

• Embassy Suites – Gulf Shores, Ala. – 257 keys
• Caption by Hyatt – Nashville, Tenn. – 210 keys
• AC by Marriott – Detroit, Mich. – 154-keys

In addition, the development team has opened five hotels with a combined development cost of approximately $119 million:

• Hilton Garden Inn – Florence, Ky. – 123 keys
• Hilton Garden Inn – Pensacola, Fla.– 102 keys
• Hampton Inn – Delray Beach, Fla.– 143 keys
• Hampton Inn and Home2 Suites – Lake Nona, Fla. – 150 Keys (80 Hampton Inn + 70 Home2 Suites)

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.

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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.