- 11 hours ago
Peachtree Group CEO Greg Friedman breaks down the Fed's rate decision and the Senate's housing affordability bill and what it means for commercial real estate.
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00:00America's housing crisis is at a critical inflection point and Washington
00:04just took a rare bipartisan step to address it. So now to break it all down
00:09we're joined by Greg Friedman. Thank you so much for being here. CEO of Peachtree
00:13Group. Yeah thank you for having me today. Yeah thank you so much. We're so
00:17excited to learn so much more about what's going on with the market today.
00:20So tell us a little bit more first about Peachtree Group. Sure so Peachtree
00:24Group, I started the business in 2007. We're a private equity firm that
00:28invest across commercial real estate. We have approximately about 10 billion of
00:32assets under management across pretty much all property types on the credit
00:36side and on the equity side we're very focused towards you know the hotel
00:40industry but we do have exposure to you know pretty much all commercial real
00:44estate property types on the equity side as well. And Congress just passed this
00:48bill. Tell us a little bit more about the impact that that has on Peachtree Group
00:53but also the industry as a whole because it's a rare bipartisan bill as we were
00:58saying that you know actually has support by so many people. I think it was
01:01almost unanimously passed. Yes so I mean the housing bill that you know was
01:06passed through the Senate you know it's something that I think for as relates to
01:10us obviously impacts institutional ownership of housing and I think that's
01:14something that is it has a limited impact on the affordability because
01:19affordability is a real issue in America. I think it's more of a supply issue. I
01:22don't think it's necessarily an ownership issue and institutional
01:25ownership of like rental properties across the US is like less than three
01:29percent and it's approximately you know institutional ownership of actual
01:34housing is or houses is less than point five percent across the US so it's a
01:40very it's a very small percentage and it has a limited impact there. On the
01:45flip side I do think the bill will help you know induce people to hopefully
01:49provide new housing just because there's a lot of incentives locally to help you
01:55know expedite the process of building housing along with like manufacturing
01:59housing and so forth like that. Yeah when you think about that how does it
02:03actually unlock that affordable housing aspect of it and are there still
02:07regulatory barriers that are in the way? Yeah so I think just getting
02:11entitlements and the approval process a lot of times can be a you know process
02:16itself I mean I think some of those components are addressed in the bill but
02:20I think also I think it's just you know the cost to build new housing today is
02:25you know it's really high and then you have expensive debt today because interest
02:30rates are almost double where they were when you look at long-term rates like the
02:34tenure it's almost double where it averaged between 2010 and 2022 and in that
02:39that translate into making it very hard to make the numbers make sense to
02:43develop new housing and so it's just you know unfortunately it's a factor to the
02:48whole affordability issue that if we don't have enough supply you can't you
02:52know really satisfy the demand that's out there and today you know you have
02:56upwards of you know a shortage of like 5 million homes across the US so
03:00there's definitely the need for a lot more affordable homes as well as just
03:04homes in general. Yeah there are so many factors playing into this so many
03:07different things at play here do you think that this bill will actually move the
03:11needle when it comes to making this affordable housing or are there so many
03:15other structural things labor laws zoning things like that that are really just
03:18going to keep standing in its way? I think it's I still think there's gonna be
03:21some challenges along the way and I think you know the zoning and the
03:25entitlement process you know is concerning to a certain degree but it's not the full
03:29factor per se I think the bigger issue is just getting enough capital inflows and
03:35that goes back to the even the institutional ownership of housing that's a
03:38source of liquidity being able to you know have more buyers of housing and a
03:43lot of the institutional owners were doing bill to rent but you know having
03:46that additional liquidity in the market is only going to help drive the
03:50affordability and drive more supply to sort of bounce out that imbalance that
03:54exists today. Yeah that's true I guess all of these different factors at play here
03:58kind of play off of each other. Speaking to that the Fed just announced they're
04:02holding interest rates steady right now tell us about the impact that that's
04:06having on the market right now. Yeah so for as it relates to commercial real
04:09estate I mean I think it's one of those factors where I think now people are
04:13starting to realize there's a lot of fatigue in the market and people are
04:16realizing when I say people owners of commercial real estate assets are
04:20recognizing that long-term rates are going to stay higher for longer that has a
04:24direct impact to the underlying values of these assets because commercial real
04:28estate assets haven't fully recovered back to the values that they were pre-2022
04:33because go back to the first quarter 2022 commercial real estate you know values
04:37had peaked out values are down roughly about 22% from that time period and so I
04:43think there's the realization with this wall of debt maturities because you have
04:47close to call it about 1.5 trillion dollars of commercial real estate loans
04:51maturing between now and the end of 2027 and in that wall of maturities you know
04:57there's just gonna be a lot of challenges because rates are substantially higher and so I
05:01think it's gonna create a you know it's gonna create a challenge for owners but
05:04it's also gonna create an opportunity for investors that are looking to acquire
05:07assets more favorable pricing as well as even for an organization like us that
05:12does a lot of direct lending we buy a lot of debt from banks too that we've you
05:16know we've been extremely busy over the last six months given some of the
05:19challenges with higher for longer interest rates yeah that's interesting
05:22thinking about how all of these different things impact the whole
05:26commercial real estate market again with the situation going on in the
05:30Middle East now another thing kind of thrown into the mix here how is that
05:35impacting the commercial real estate landscape at this time yeah so it's just
05:39another factor I mean again it goes back to that fatigue discussion I was sort of
05:44you know alluding to before it's just additional fatigue where it's just gonna
05:48cause rates to stay higher because we're gonna have elevated inflation most
05:51likely with energy costs staying higher that's gonna be a challenge so far
05:57interestingly it hasn't really impacted the performance of assets but just
06:02having energy costs stay higher having higher inflation having higher rates for
06:07longer just creates more challenges on the balance sheet side it's not creating a
06:11demand issue for our underlying assets that we own on the equity side like our
06:15hotel portfolio continues to do really well this year actually we're up three
06:19percent in the face of the conflict in the Middle East and some of the other
06:22challenges that we've had this year so surprisingly our assets are
06:26actually doing well in the face of some of these challenges it's just our debt
06:29cost is much higher that's interesting thinking about those challenges just to
06:33throw one more at you we also have tariffs right so as if we needed another
06:37one tell us about that and how you're seeing that kind of trickle down in
06:41commercial real estate yeah so I mean tariffs obviously again it goes back to the
06:45inflationary story or the inflation story and tariffs has been a discussion and it
06:49goes back to even the housing issue it just drives up the cost to build it's
06:53creating you know tariffs the energy discussion it continues to lead to the
06:58whole k-shape economy discussion it creates further widening of that you
07:02know k-shape economy and unfortunately you know the lower income is more exposed to
07:07some of these challenges as it relates to tariffs you know even the energy cost
07:11because if you think about it like gas is you know makes up a higher percentage by
07:15almost 3x what you know when you look at middle income and higher income it's
07:19pretty you know it's pretty minimal the impact to those income earners on what
07:24the cost of gases you know call it one to three percent of their actual
07:28household income versus the lower income which it's upwards of like 10 to 12% so
07:33that has such a huge impact when you look at tariffs as well as even you know
07:38more importantly energy costs and making it you know much more challenging for the
07:42lower incomeers yeah I mean so many challenges that we're talking about here
07:45thinking about all of those and how that's affecting the overall
07:48commercial real estate landscape what's investor appetite right now like just
07:53thinking about all of these different factors that every single investor has
07:56to be keeping in mind so you know there's no question investors over the
08:00last four years have been very interested investing into credit in commercial real
08:04estate because that's been a more defensive way to invest where you're
08:07getting equity like type outcomes without taking on last our equity risk
08:12where you're investing you know in your last dollar of exposure 60 to 70% of the
08:16acquisition costs or the current values of these assets and that's what we've been
08:20focused on as a firm is investing on the debt side doing these senior debt
08:23positions but you are starting to see a shift over the last couple months
08:27especially with a lot of noise about private credit which is different than our
08:32credit strategies on the on the real estate side but the private credit
08:35concerns you're starting to see a lot of people rotate out of private credit
08:40that's secured by you know these like AI companies and software companies where
08:44you don't necessarily have real assets and they're wanting to invest into real
08:48estate because real estate because of all the challenges we've been talking
08:51about that's actually creating a huge opportunity to buy into assets at much
08:55more favorable pricing so I think you're starting to see investor appetite grow for
09:00investments into commercial real estate if it's investing into hotels or
09:04multifamily because they recognize you know some of those challenges there's a lot of
09:08tailwinds long term to those types of properties given the lack of new supply
09:12that's been built over the last couple years and what's expected to get built
09:15over the next several years is pretty minimal compared to historical averages
09:18yeah that's a really interesting way to think about it even thinking about some
09:22of these specific cities in the US now what about Atlanta what's Peachtree Group
09:26seeing on the ground there in a place where there's just so much happening and
09:31so much growth yeah I mean Atlanta is continuing to grow as a market it's got you
09:35know I would say sort of tracks nationally with what you're seeing you know
09:39relative to what we've been talking about I mean there's no question there's a housing shortage
09:43there and a lot of that's just driven off of you know the impact of just having higher rates and
09:48the inability to be able to afford to build new properties given the elevated
09:52costs and so forth this you know really you know handle those issues so it's more
09:55of a supply issue it's not a demand issue in Atlanta so there's no question
10:00there's a lot of demand for housing on the housing side and then as you look
10:03across the other property types it's definitely been a little bit mixed on performance but
10:08overall I would say the market there is performing well wow it's so much to think
10:12about so many different factors here as we look to the future what do you think
10:16is gonna happen with the entire industry with so much uncertainty there's all
10:20these challenges we've discussed what do you kind of think as a as a holistic way
10:25of looking at the industry moving forward yes so I think you know I think
10:28commercial real estate's very well positioned across all property types it
10:32sort of goes back to what we were talking about before with a lack of new supply
10:36that's been built over the last couple years and just on a Ford basis you know
10:40there's just so there's gonna be a lot of restrictions to be able to build new
10:43supply if it's housing multifamily hotels obviously office has been very
10:48bifurcated there's not a lot of new retail getting built so we're getting
10:52under supplied on the commercial real estate side and we still have tellwinds to
10:56demand when you think about the need for housing and multifamily and hotels
11:01that's not going away anytime soon we've had a lot of challenges over the
11:06last couple years with the new administration that's taking place and
11:08some of the challenges we've talked about today with inflation you know
11:12related to energy costs and to tariffs and so forth but when I think when you
11:16look out over the next two to five years I think there's a lot of you know
11:19great tellwinds to demand growth and you're gonna have in the face of limited
11:24supply so I think you know it's a great time to invest into commercial real estate
11:27well you've given us so much to think about thank you so much for discussing
11:31all of this with us again Greg Friedman CEO of Peachtree Group thank you so much
11:35for being here I really appreciate it
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