The transaction market in the hotel industry has hit a stalemate over the past couple of years, with high borrowing costs sinking property values and regional and small banks struggling to originate debt. There’s still opportunities to be had in this environment, though.
Peachtree Group has deployed more than $1 billion in commercial real estate investments year to date, including $526 million to acquiring five hotels and three new development hotel projects.
Michael Ritz, senior vice president of investments for Peachtree Group, said the fully integrated investment management platform’s bevy of departments — including acquisition, development, credit, capital market and management teams — all wrapped into one allows Peachtree to be more flexible and capitalize on more opportunities.
“The ability to pivot has really been everything for us,” he said. “It’s given us the ability to find deals and create value for investors in really challenging cycles, whether that be up or down.”
The company has acquired five hotels compared to its usual range between 10 and 15, but its development pipeline is busier than ever, Ritz said.
The five hotels the company acquired added a total of 677 rooms. Those hotels are the Hampton Inn & Suites University Capital in Austin, Texas; Homewood Suites Vanderbilt in Nashville, Tennessee; Hilton Garden Inn Atlanta North in Johns Creek, Georgia; Courtyard Atlanta Kennesaw in Kennesaw, Georgia; and Home2 Suites by Hilton in Chandler, Arizona.
Peachtree’s development division also closed on three new hotel projects, including an Embassy Suites in Gulf Shores, Alabama; a Caption by Hyatt in Nashville, Tennessee; and an AC by Marriott in Detroit. The three combine to represent $293 million in value and 621 rooms.
It’s not an easy time to be doing development right now, as there’s a lack of liquidity in the market and difficulty in getting construction deals done. But Peachtree is one of a handful of companies that has the capital and the ability to do it, Ritz said.
“Development is going to be a really big focus of ours. We’re going to continue to try to build,” he said. “Historically in the hotel space, new always wins over old. If you can put a new product on the right street corner, there’s just a lot of value to be had there that we’re excited about.”
This will pay dividends in the future, he said. The companies that are inactive now due to a lack of funds or risk allocation problems will buy risk premiums at the same historical rates while Peachtree will have several new hotels ready to sell in a more stabilized market.
“We’ve seen it time and time again where those who are able to pull off the impossible or the challenging — if you can develop in a market like this, you usually come out on top,” he said.
Peachtree’s management division is also in a position to capitalize on the current environment, Ritz said. Debt challenges lead to pressure on balance sheets and capital stack, which then in turn leads to a high volume of change with management agreements.
“That’s the one unique thing about the hotel space as an operating business — you can manage out of challenging times depending on the company, depending on the flexibility, the operating structure,” he said. “That’ll be a decent opportunity for us, too, to just grow out our management platform continually and take advantage of that.”