Peachtree Group Provides $40 Million in CPACE Financing for AC Hotel San Diego Downtown Gaslamp Quarter
25 June 2024 - 10:55PM
Business Wire
With ongoing credit market dislocations, Peachtree Group
originated a $40 million retroactive CPACE loan to BLG SAN DIEGO,
LLC (BLG) for its recently opened 147-room AC Hotel San Diego
Downtown Gaslamp Quarter in Calif. The Commercial Property Assessed
Clean Energy (CPACE) financing was amortized over 30 years and
required no payment for a year, followed by five years of
interest-only payments. Also, the proceeds allowed BLG to pay down
its senior loan with California-based Preferred Bank and E.Sun
Commercial Bank, Ltd. to under $20 million, thereby mitigating the
banks’ exposure.
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With ongoing credit market dislocations,
Peachtree Group originated a $40 million retroactive CPACE loan to
BLG SAN DIEGO, LLC (BLG) for its recently opened 147-room AC Hotel
San Diego Downtown Gaslamp Quarter (pictured) in Calif. (Photo:
Business Wire)
“This innovative capital structure significantly alleviated the
immediate financial pressures, enabling the hotel to establish a
solid cash flow foundation during its initial years of operation,”
said Greg Friedman, Peachtree Group’s managing principal and
CEO.
Despite the U.S. hotel industry's strong RevPAR performance,
multiple headwinds exacerbate financial stress for owners. These
headwinds include the lagging profitability of U.S. hotels,
persistently high interest rates and historically high property
insurance costs.
“When we opened the AC Hotel San Diego Downtown Gaslamp Quarter
in March 2023, there was a sizeable disconnect between hospitality
fundamentals, which are strong, particularly in San Diego, while
the debt markets were deteriorating meaningfully,” said Brad
Honigfeld, founder, chairman and co-CEO of the New Jersey-based
Briad Group®. “The Fed’s tightening process and rising fund rates
drove up the cost of debt considerably.”
Hotel and commercial real estate owners face a tough few years
as trillions of dollars in debt come due, and refinancing gets
harder, compounded by banks' tightened lending standards.
According to JLL Research, by the end of 2024, $5.8 billion
worth of U.S. hotel-securitized loans will be due for repayment,
requiring full payment, refinancing, extension or sale. However, if
these loans were refinanced at current interest rates, most would
struggle to generate enough income to cover their debt costs.
In this challenging lending market, Commercial Property Assessed
Clean Energy (CPACE) financing has become a vital source of
liquidity. This option is growing in importance as owners face
impending debt maturities and scarce refinancing opportunities.
CPACE financing has rapidly gained traction in the commercial
real estate market, reaching a cumulative $7.2 billion in the U.S.
in just over a decade, according to PACENation. This significant
milestone underscores the growing acceptance and adoption of CPACE
financing as an innovative and effective solution. Peachtree Group,
a key player in this market, has demonstrated its commitment to
CPACE financing, with over $800 million in CPACE originations.
The AC Hotel San Diego Downtown Gaslamp Quarter is in downtown
San Diego's Gaslamp Quarter, known for its restaurants, shops and
nightlife.
“Our hotel was benefiting from its location and performing to
its original underwriting, but the debt costs were straining cash
flows,” Honigfeld said.
Retroactive CPACE funding offers unique advantages for property
owners. It operates similarly to normal pre-project funding, with
one key difference: 100% of the loan proceeds can be used to
reimburse the property owner for costs already incurred. This
feature makes retroactive CPACE a valuable resource for property
owners seeking better loan terms or improved cash flow for
completed projects.
“The financial relief it provides not only ensures the hotel's
success but also positions it for long-term stability. By reducing
the financial burden in the early years, owners can focus on
delivering exceptional guest experiences and achieving operational
excellence,” Friedman said.
This strategic approach paves the way for the asset to
transition to a more favorable financing market in the future,
ensuring its sustained profitability and growth.
About Peachtree Group
Peachtree Group is a vertically integrated investment management
firm specializing in identifying and capitalizing on opportunities
in dislocated markets, anchored by commercial real estate. Today,
the company manages billions in capital across acquisitions,
development and lending, augmented by services designed to protect,
support and grow its investments. For more information, visit
www.peachtreegroup.com.
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Charles Talbert 678-823-7683 ctalbert@peachtreegroup.com