By all accounts, Peachtree Hotel Group and its partners had a banner year in 2021, and company executives said they plan to keep the momentum going IPass into 2022.
In 2021, the Atlanta-based property investment private equity investment manager was able to capitalize on the hotel industry’s revival with a total capitalization of $2 billion through 140 transactions, setting a new high.
“We went into it not knowing exactly what the potential was, but we expected an opportunity to deploy additional capital,” said Brian Waldman, Peachtree’s senior vice president of investments.
In 2021, Peachtree purchased nine hotels for over $300 million, bringing the company’s network to seventy-six owned and managed facilities with 9,351 rooms all over the United States.
Stonehill, the company’s connected commercial real estate direct lender, issued loans and acquired senior notes with a market valuation of $1.6 billion. It provided $770 million in construction and bridge loans, as well as preferred equity investments, through 23 originating loans. Stonehill PACE, the company’s property assessed clean energy affiliate, closed 17 deals for $150 million.
A total of $700 million was also invested by Stonehill in the purchase of 103 senior notes.
“Shortly after the pandemic started, there was an issue where 50% of the team left to focus on wealth management and maintain the old state and business going,” Waldman explained.
“Half of us went straight to gear up to take advantage of the chances that we anticipated would come with COVID,” says one of the participants.
Buying and lending notes
The corporation established a distress fund, and Stonehill, which is used to lending during downturns, looked into buying notes from balance sheet banks. According to Waldman, Stonehill’s team has positive ambitions for debt demand in the hotel sector. He believes that many conventional balance sheet lenders haven’t entirely recovered from the pandemic, particularly in the construction sector and even for bridge loans.
During the crisis, many development deals were put on hold, and once those projects resume, Stonehill will become a more active construction lender, he added.
He predicted that groups waiting for bank finance to return for shovel-ready projects will find that their ventures will cost even more if they engaged with a different lender now.
“It’s better to move forward now than to wait two years and see what happens,” he said.
Stonehill began buying notes, even portfolios of notes, in the last 18 months to reorganize them for the clients, many of whom were also Stonehill borrowers, according to Waldman.
“Banks are structured differently,” he explained, “so we had a little more flexibility to work through it. We understand the place because of our hospitality heritage. We understand what it may take to get to the other side because we know the business plans, and we can work with borrowers who have a legitimate business strategy and a way forward.”
The corporation has big hunger for buying notes, but banks only want to sell them at particular points in the cycle, according to Waldman.
He stated that he expects the window will close this year. “There will be fewer banks looking to sell. They’ve already moved on. You’ll notice that we’re ramping up our traditional business lines.”
Hunger for more deals
Peachtree was active in hotel acquisitions until 2021, and Waldman said the company has a strong pipeline of deals under contract or close to contract this year.
“Acquisition velocity is going to pick up in 2022,” he said.
Many owners didn’t have the funds to deal with maintenance issues throughout the pandemic, he added. The brands permitted hotel owners to put off property improvements, but now they want them to get working on refreshing and updating their properties. According to Waldman, these pressures, combined with banks’ unwillingness to be more flexible, would result in more hotels becoming available.
He explained that the company is in the aggregation stage and that buying a portfolio instead of a single property is better in line with its goal. Because of the high level of competition for hotels, distressed purchases are unlikely to make a significant contribution, he says.
“To construct a solid institutional portfolio, we’re aiming to pay reasonable prices for attractive assets,” he said. It’s not out there if you’re just shopping for bargains. There’s a lot of money floating about.”
Peachtree prefers to invest in premium-branded, select-service hotels and compact full-service hotels where it can add value through operations, renovations, or other factors rather than simply buying cash flow, he explained.
Waldman explained that the company’s portfolio is predominantly in secondary markets, rather than the top 10 markets, where there is frequently a “cap rate race to the bottom.”
Plans for Growth
Peachtree is a proactive hotel owner, with over 30 deals in the pipeline and many joint-venture development projects in the works, in addition to acquisitions.
“We’re enthusiastic about the ability to continue forward, create hotels, and capitalize on new hotel projects that will presumably be completed and delivered as we get closer to the next cycle’s strong part,” Waldman said.
Due to supply chain, labor, and entitlement concerns, construction costs have skyrocketed, and it’s becoming increasingly difficult to build, he said.
Because of its propensity to produce value, Peachtree pursues challenging deals, especially in markets with significant entry barriers.
“At this point in the cycle, it’s a tremendous opportunity, and at the end of the day, when the hotel opens, you’ll have the newest, shiniest box,” he said.
According to him, Stonehill does not fund Peachtree projects since it would be a conflict of interest. The company has had access to debt funding due to its size and scope, as well as the partnerships it has created through Stonehill.
According to Waldman, many organizations are still having difficulty raising funds for their projects. When banks reopen, they’ll prioritize their best and most loyal customers.
That means a lot of projects in the pipeline will either not get completed or would require extra equity. This could entail collaborating with a firm like Peachtree.