Despite a change in leadership, higher-for-longer interest rate policy seems to be sticking around at the U.S Federal Reserve, and Peachtree Group Managing Principal and CEO Greg Friedman said more hotel investors are making peace with that.
Speaking on the latest episode of the "CoStar News Hotels Podcast," Friedman said many, including himself, originally expected rates to stabilize "at a much lower level, which has impacted asset valuations in a material way.
"People have started to capitulate and realize that we are just in this environment where long-term rates will stay higher," he said.
He said the realization that rates aren't going back to the historic lows seen between the Great Financial Crisis and the COVID-19 pandemic has lead some investors to look more seriously at borrowing at current levels.
"New financings were slow over the last several years, and now it's starting to pick up because people — owners and investors of real estate — are starting to realize this is the new normal," he said, noting geopolitical tension and inflation are unlikely to allow for much in the way of rate cuts in the immediate future.
While debt is more expensive than it was a decade ago, that doesn't mean borrowers have been unable to access capital. That's been in part due to private credit filling the gaps as traditional bank lenders have taken a step back. He said this led to a bifurcation in the market, where the most qualified borrowers, projects and assets had seemingly endless options and everything else was "a little bit more challenging."
"If an asset has great in-place cash flows, there's no challenges on refinancing," he said. "It's when they lack the cash flows and the asset performance isn't fully recalibrated to this new interest rate environment where they're starting to have struggles because the asset values dropped and in a lot of cases they need to bring in additional liquidity."
For more from Peachtree Group's Greg Friedman, listen to the podcast embedded above.