Special Situations Investing: Why Now Is the Time to Act in Commercial Real Estate

‍

In the latest Peachtree Point of View podcast episode, Daniel Savage, SVP of Investment & Strategy at Peachtree Group moderates a discussion with Peachtree CEO Greg Friedman and Executive Vice President of Investments Michael Ritz as they explore how the commercial real estate landscape has fundamentally shifted, creating unprecedented opportunities for special situations investing. The executives present a compelling case for deploying capital into special situations strategies—but the window won't remain open indefinitely.

The Market Reality: Strong Assets, Broken Capital Structures

Unlike previous cycles where distress stemmed from fundamental asset problems, today's opportunities are primarily driven by capital market volatility. As Michael Ritz explains: "Fundamentals generally across most commercial real estate assets outside of office are doing pretty well. But what we're seeing is just the heightened level of volatility" in capital markets.

This creates a unique environment where high-quality assets are trading at discounted valuations not because of operational issues, but due to financing constraints and capital structure challenges.

The Debt Market Disruption

The core driver of today's opportunity lies in the dramatic repricing of debt. With the Secured Overnight Financing Rate (SOFR) rising from near-zero levels during the pandemic to current elevated rates, traditional financing has both become more expensive. Banks are now underwriting to lower loan-to-value ratios while demanding higher debt service coverage ratios, creating significant gaps incapital stacks.

Consider this: a simple cap rate expansion from 8% to 9% can reduce a $100 million asset's value to $89 million overnight. When combined with reduced loan-to-values, property owners face substantial liquidity shortfalls that create entry points for special situations investors.

Three Key Investment Buckets

Investors should focus on three primary opportunity areas:

• Off-market acquisitions: Securing underperforming or mispriced hotels as well as select multifamily, student housing, self-storage and other commercial real estate sectors for repositioning and stabilization.
• Preferred and hybrid equity solutions: Providing flexible capital to sponsors needing liquidity for acquisitions, development or refinancing with structures designed to protect basis and enhance current yields.
• Distressed purchases from lenders: Acquiring assets directly from banks through deed-in-lieu or post-foreclosure transactions, often at discounts to outstanding loan balances and well below replacement cost.

The Hospitality Sweet Spot

Hotels present particularly compelling opportunities, with outsized exposure to near-term debt maturities due to years of "extend and pretend" financing. The sector faces approximately $15-20 billion in deferred capital expenditures, coinciding with assets built during the 2008 supply surge now requiring their typical 14-year renovation cycle.

Why Traditional Players Can't Compete

The opportunity exists precisely because few firms can provide the hybrid solutions these situations demand. Success requires capabilities across both equity and credit, enabling structured investments such as junior debt with contingent repayment ("hopenotes"), preferred equity positions, or debt-to-own strategies.

Why Special Situation Investing Works Now

For investors evaluating special situation investing opportunities, the key is partnering with operators who possess both the capital flexibility and operational expertise to navigate complex deal structures. The current environment rewards those who can move quickly on opportunities that traditional lenders and equity providers cannot address.

As Greg Friedman notes, this represents the biggest mispriced risk opportunity in commercial real estate today. The question for investors isn't whether these opportunities exist; it's whether they're positioned to capitalize on them before the market corrects.

For a deeper dive into the market dynamics and investment strategies discussed here, listen to the full conversation on the Peachtree Point of View podcast. The episode provides additional insights into how investors can navigate today's special situations landscape and position themselves for outsized returns in this unique market environment.

‍

‍

‍

_{THIS IS NOT AN OFFER OR SOLICITATION TO PURCHASE ANY SECURITY. AN OFFERING IS MADE ONLY BY THE PRIVATE PLACEMENT MEMORANDUM. SECURITIES OFFERED THROUGH PEACHTREE PC INVESTORS, LLC MEMBER FINRA/SIPC.}