INVESTMENT
Canopy by Hilton , Atlanta Midtown
we do on the buying side ,” he says . “ And our development capabilities encapsulate that as well . We know how to build and renovate hotels , which helps drive the other businesses . And we can efficiently operate and optimize low-performing assets via our hotel management platform .
Given the volatility in the market right now , Peachtree Group ’ s initial focus will be on the debt side , given the inherent downside protection . “ While we have made strategic one-off equity positions , one , in particular , is a US $ 150 million mixed-use development in Atlanta with office , residential and retail components ,” Friedman says . “ However , we will not make large macro bets in equity positions outside hospitality .”
At the appropriate time , he says Peachtree will increase its appetite to acquire and develop assets with similar characteristics to hotels , like self-storage . “ Ultimately , we will make investments up and down the capital stack in all asset classes ,” Friedman says .
Peachtree first migrated into other real asset classes through Stonehill and its Stonehill PACE division , which makes commercial property-assessed clean energy ( C-PACE ) financing . “ We made this decision pre-pandemic before the volatility in the market and the rising interest rate environment due to the increasing demand from ownership groups outside of hospitality ,” Friedman explains , adding that while hospitality is the most significant sector , Stonehill PACE has completed C-PACE financing in multifamily , industrial , retail and senior housing . “ As a result , this group has become one of the country ’ s largest C-PACE providers in the U . S . and by yearend will have completed north of US $ 400 million in total C-PACE financing .”
More recently , Peachtree has expanded Stonehill to include lending across all real estate sectors , having brought in a wellconnected team that has already made significant debt investments in projects with a combined basis north of US $ 150 million , which includes retail , specifically malls , and a mixed-use development opportunity . “ We expect to achieve US $ 300 million plus of investments in non-hospitality assets this year and are targeting over US $ 500 million in 2023 ,” Friedman says .
NET HOTEL BUYER Nonetheless , on the hospitality side , Stonehill expects to have roughly US $ 1 billion in transactions this year .
Friedman adds that Peachtree Group will be a net buyer on the hospitality side as it remains extremely bullish on the sector due to current fundamentals . “ Moreover , the aftermath of COVID has created tailwinds in this sector , making a compelling case for hospitality to be the most investable asset class today ,” he says .
Friedman points to limited new supply ; how in an inflationary environment , hotels can reprice daily ; and a good risk-premium spread off the 10-year Treasury on a cap rate basis from where they trade . “ In addition , the outlook for demand will be substantial over the next three to five years . This makes our case to be a net buyer with strategic asset sales along the way ,” he says .
Friedman adds that a higher interest rate environment will create a market with more transaction volume , believing ownership groups that have relied on heavy leverage will be forced to sell .
“ Higher interest rates in commercial real estate are compelling to be a lender as you can achieve equity-like returns ,” Friedman says . “ Specifically , in hospitality , we see increased transaction volume next year due to fatigue in the market between ownership groups and their lenders , franchisors and investors .”
Further evidence of higher transaction volume ahead : Friedman cites lenders being less willing to work through maturity renewals and technical defaults ; hotels needing significant PIPs completed sooner rather than later ; as well as limited distributions and needed capital injections frustrating investors . “ This fatigue and pressure from those factors will create an environment for transaction volume to increase at reasonable valuations ,” Friedman says .
He added that Stonehill continues to help hotel owners with capital to refinance , acquire and develop . They provide senior debt , mezzanine financing , and preferred equity positions on hotel assets .
Stonehill has also launched Stonehill Commercial Real Estate to handle the financing outside of hospitality . Established in May 2022 , this division is actively originating loans in multiple real estate sectors and has a roughly US $ 200 million pipeline .
56 hotelsmag . com Nov / Dec 2022