Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
What's the Alternative? | Episode 19 | Real Estate, Ego Investing and Heads in Beds with Greg Friedman
41 Plays2 days ago
On this episode Shana brings on Greg Friedman, CEO of Peachtree Group, who breaks down hospitality investments, operational strategies, and market dynamics.
Key Takeaways:
• Operational management in hospitality
• Airbnb's impact on the traditional hotel market
• Geographical factors influencing investment decisions
• Credit and equity investments
• The evolving commercial real estate landscape
Connect with us!
Recommended
Transcript
Introduction to Credit Strategy and Podcast
00:00:00
Speaker
Like our credit strategy is something we started back 15 plus years ago. And that's a strategy that we, you know, we believe is going to sustainable as long as Peachtree exists as a threat, we will be investing in credit.
00:00:16
Speaker
Welcome to Banrun Capital Management's What's the Alternative podcast. Join host Shana Orzek Sissel, the queen of alternatives and founder, CEO of Banrun Capital Management, as she interviews leaders in the alternative investment space.
00:00:34
Speaker
Learn more about their firms, their passions, and about the many different ways investors can use alternative investments to add value in their investment portfolios.
Meet Greg Friedman, CEO of Peachtree Group
00:00:46
Speaker
Hello, everyone, and welcome to another episode of What's the Alternative? My name is Shana Orzek-Sissel, and I am the founder and CEO of Bono and Capital Management. Today, I have with me Greg Friedman, who is the managing principal and CEO of Peachtree Group. And Peachtree is one of our newest partners. I'm really excited about working with Peachtree, um,
00:01:09
Speaker
Our initial response from our advisors and our network has been overwhelmingly positive. So I'm excited to have Greg on the show. um For background, um Greg is the founder of Peach Cheat Group and has successfully overseen investments of approximately $100 billion dollars in commercial real estate and various other enterprises.
00:01:30
Speaker
He has over 24 years of experience in the space, bringing extensive credit and equity investing expertise, particularly in hotels and other commercial real estate assets. He's formerly the vice president senior vice president of business development for a specialty finance group, where he originated more than $2 billion of credit transactions.
00:01:50
Speaker
He is a graduate of the University of Texas at Austin's. ah hook Wait, I did that wrong. come Yes. um And is a um lord member of the almost right and as a board member of the American Hotel and Lodging Association.
00:02:04
Speaker
He also serves as a real estate fund advisory board for the Texas McCollum School of Business at UT Austin. Welcome, Greg. Thank you for being with us. Yeah, thank you, Shana, for having me. I look forward to talking to you today and really appreciate what you and your team are doing with us as we're out, you know, um you know continuing to you raise additional awareness for you the different strategies that we have.
00:02:29
Speaker
And I apologize for screwing up the hook-up part. um I know that. I have friends that went chi you to UT Austin, so I should know better. Yeah. Don't worry about it because it's ah I'm a huge Texas fan, so I'll forgive you on it, but I'm also a huge Alabama fan. Okay. Because grew up outside Tuscaloosa, so I'm huge Bama football fan and huge Texas football fan and you know basketball fan as well.
00:02:55
Speaker
that must be interesting during the season when they play each other. um i had a friend that went to Iowa and Northwestern, a similar kind of thing. He always, when they played each other, yeah yeah he would always say like, I can't lose.
00:03:08
Speaker
um So I get it. um I went to UMass Amherst. We didn't have football that was worth watching. Yeah. Yeah. can, I cant and can appreciate that.
Greg's Career Journey and Foundations of Peachtree Group
00:03:18
Speaker
So I wanted to start off by chatting about your background. Obviously, you have an extensive experience in commercial real estate. um Tell me a little bit about how you got into the space um and what makes you so passionate about it to the point where you felt like you wanted to have your own firm focused on investing in the space.
00:03:36
Speaker
Sure. So personally, you know, i grew up in a family that owned a lot of commercial real estate. My family owned some hotel properties and they were big on the the lending side as well. They, you know, my grandfather originally got one of the first non-bank SBA licenses that he utilized. And this goes back in the seventies, but he ended up yeah utilizing this license.
00:03:57
Speaker
to finance a lot of ko hotel projects as well as other types of properties and other types of businesses. But he financed a lot of hotel properties through that um yeah through that business. But with that being said, you know personally, I grew up around you know real estate. I grew up around you know the credit and lending side.
00:04:15
Speaker
And then went school, yeah as we sort of talked about before, to school at Texas, the University of Texas at Austin. And when I graduated from Texas, actually went into banking. And you know through that, when I was on the banking side and actually helping finance and capitalize you know commercial real estate projects and hotel projects, that's when I really became you know super passionate about the space and the desire to go out and you know start my own company. And that's where I met yeah my partner originally was back when I was out you know financing primarily hotel projects. I had met him through some mutual friends and we actually did you know professionally did some business together.
00:04:53
Speaker
And and that's you know that was the initial you know impetus for us streaming Peachtree as a company back in 2007. So you guys have been quite successful. Whenever I mention Peachtree to any of the advisors in our network and in our pilot program, they always get really excited um because you have such a great reputation.
00:05:12
Speaker
um You primarily, correct me if I'm wrong, started mostly in hospitality. So what is it about the hospitality space that's so unique?
Opportunities and Strategies in Hospitality Sector
00:05:20
Speaker
um You don't run into that as often as some of the other sectors. um And I'd be curious to see why that is the most attractive sector to kind of start off with when you started Peachtree.
00:05:30
Speaker
Yeah. So it's, you know part of the reason it was most um attractive is it's a very heavily dislocated space, you know, no matter what's happening, because it's got an operational component.
00:05:40
Speaker
It has a real estate component. So you can find a lot more mispriced risk historically within the hotel space. And that can cut both ways. But, you know, we've done a really good job.
00:05:52
Speaker
being able to find mispriced risk for the benefit of our you know stakeholders and investors and so forth. And that's the reason why we thought it was very interesting at the very beginning. Not to mention, you know we had a lot of experience and just institutional knowledge from just our backgrounds. um Because you know as I said earlier, personally, grew up around the business and the same for my partner.
00:06:12
Speaker
um So we had you know really an understanding how the business operated, both personally and professionally, for starting Peachtree. And back in 2007, when we were buying assets um and looking to know start the business originally, and we were you have started the business more as a personal investment vehicle for myself, my partner, you know for like my parents and grandparents and aunts and uncles and so forth. And same for my partner. yeah we um We found that to be the space that seemed the most compelling at that moment.
00:06:41
Speaker
And it actually, you know, it actually worked out for us because our, you know, call it our legacy investments. Our investments we made, you pre-great financial crisis, you know, they actually worked out well because we ended up generating probably, you know, very outsized returns relative to what other groups, you know, that invested capital pre-GFC, what they generated on their, you know, real estate side.
00:07:04
Speaker
So what do you think is the key to like finding the right um opportunity and the value there? and And how do you create value in a hospitality investment? So I'm assuming that you know the property is the property, but the way that you can really um turn it around and add value is in the operational stuff that you were referring to. So what does that involve?
00:07:27
Speaker
Yeah. So the hotel business is, you know, it's complex, but it's it's somewhat simple too. so i mean, it's all about putting heads in beds. It's about putting heads in beds at the right, you know pricing. So revenue management is a big component to it. And the reason I say that is a lot of times you'll find the hotels we buy, you know, the reason it's compelling for us to buy that asset is that it's being misoperated from a revenue management perspective.
00:07:53
Speaker
um So, you know a lot of cases we can drive higher rates and when we drive a higher average daily rate at that hotel, so if we're charging $300 a night versus $200 a night, that extra $100 doesn't cost us anything extra to service that guest. So that extra $100 typically flows, you know majority of that flows to the bottom line. And when I say the majority, probably 80% to the bottom line.
00:08:18
Speaker
And so the hotel becomes even more profitable and you're able to really drive your NOI, your net operating income at that asset. So it's it's very much a business where if you understand the revenue management side, you know you can you know usually find a lot of just assets that are not being operated correctly.
00:08:39
Speaker
The other component that we find interesting when investing into hotels is hotels require you know capex every call it five to seven years. So they are very CapEx intensive and they're very brand dependent, meaning the brands um to be successful in the hotel business, it's our belief, you know you need to be tied into the major brands because that's your distribution.
00:09:02
Speaker
And so those two two components of constantly needing to put CapEx back into these assets, as well as you know the ability to find value by converting to better brands.
00:09:14
Speaker
That's where we've also found a lot of compelling opportunities. And for instance, yeah we buy a lot of assets that need major renovations in order for that asset to you know once again become competitive with the other you know properties that are within its sub-market.
00:09:29
Speaker
So we'll buy a you know maybe we'll buy a you know Hilton Garden Inn hotel that hasn't been renovated for you know seven or eight years. or maybe even longer in some cases. And we'll go in and form that renovation. And once we do that renovation, we're able to charge much higher rates, you know much higher average daily rates. And we're able to drive more occupancy into the hotel.
00:09:50
Speaker
we're able to drive you know better top line revenues. as well as ultimately that you know leads to yeah know more net operating income.
Brand Alignment and Loyalty Programs in Hotels
00:09:57
Speaker
And so we found a lot of success doing that. And along the way, as we're doing these major renovations, what we found is you know we found a lot of assets that are just misbranded. You may have a independent hotel,
00:10:09
Speaker
that isn't achieving its optimal performance and part of the reason it just doesn't have that distribution and we'll go in and buy an independent hotel and convert it to one of the major brands and we've had a lot of success doing that as well as even buying hotels that are branded you a you know a lesser brand or a brand that doesn't have have this good you know traction in the marketplace doesn't have as good distribution from a standpoint of being able to drive reservations into that you know hotel and we'll convert to like a Marriott or Hilton brand.
00:10:39
Speaker
And we've driven a lot of value you know by doing that for for ourselves and for our investors. I totally appreciate that as a Marriott Bonvoy business.
00:10:52
Speaker
ah loyalist I am prior to that, a Star Wars loyalist. all right I literally, no matter how much the nice boutique-y hotel is in a certain locale, I will stay at the slightly less nice hotel.
00:11:07
Speaker
a hotel if it's in Marriott Bonvoy's network, just because I have gold status there and I can get later checkouts and um I get all these perks and I want to keep my status.
00:11:18
Speaker
And for me, I just know what I'm getting and what to expect when I am staying someplace that's associated with Marriott some people are like that with Hilton or Hyatt.
00:11:31
Speaker
I just tend to, to your point, stay with that. The Batiki hotels often are extremely nice, but when they don't have loyalty programs and they tend to be more expensive, for somebody who travels a lot, especially business travel, it's just not worth it.
00:11:48
Speaker
It is not. And so I totally understand the point that you're making there. Just the expectation for the service and the quality and what the rooms are going to be like. You know what you're getting. Yeah. And then you get the perks of being a loyal customer.
00:12:00
Speaker
And if you're a frequent traveler, that's what you focus on. You don't focus on you know the little things that maybe a boutique hotel does. The only time I ever stand a boutique hotel but that's not associated with a brand is if I'm speaking at a conference and the conference organizer is having it at that hotel.
00:12:16
Speaker
And I just... don't really have much say in where they make my reservation, but most of the time I say based on your brand loyalty. So I totally appreciate what you're saying.
00:12:27
Speaker
And i think a lot of the larger brands have started these boutique associated autograph hotel or whatever they're calling them now, which I think is great for the smaller independent um operator and folks like yourself, because there's clearly a focus there and being able to provide like a unique experience.
00:12:46
Speaker
that's That's right. And and it's, i mean, the brands are so critical. And that's one thing I've seen too many times. People think you can invest into the hotel business being an independent branded hotel in a secondary type city because, you you know, the independent hotels can work in some of the primary markets.
00:13:04
Speaker
It is very tough to have a you know, to either start a new brand or have a brand that's not backed by one of the major brands like Marriott and Hilton because they have such strong distribution. And to you know make money in the hotel business, as you know challenging as it can be because it's an operating business, it's somewhat simple. You just got to put heads in beds. You got to control expenses.
00:13:25
Speaker
So that means you got to have a you know you have to have a good you know brand that's delivering reservations. You got to have a good local team that's doing yeah the sales, the local sales, localized sales going out and talking to you know local accounts for you know corporations or other groups that are looking to stay at the hotel and have that brand helping drive the reservations, which is driving revenues into the asset.
00:13:48
Speaker
And the operator needs to be able to go in there and really have discipline on the cost side. And then you know the other components matter too, like location. I mean, location probably matters more in the hotel business than lot of the other property types.
00:14:03
Speaker
Just given the fact that, know, that's ah you know, most cases that serves as a billboard. It's the ease to get to, you know, for the guests to get to the hotel. And a lot of guests choose staying at one hotel over another if it's closer to, you know, why they're going, you know, visiting these, you know different cities or in different parts of the country or parts of the world, or if it's, um you know, if it's easy to, you know get access to that property. So,
00:14:27
Speaker
It's a you know pretty simple business. And then you as people are making investments in hotels, you know the one thing I would add is is basis is super critical. that you know We're big believers that you got to be at a sustainable basis in order to um you know make money in the business. We're always looking at what is our basis relative to you know cops in the market?
00:14:48
Speaker
What is our basis um you know relative to you know replacement costs? and things like that as well. So it all comes down to basis, brand, location, and you know just the operational discipline as well.
00:15:02
Speaker
Now, in the last decade, we've had some disruptive forces in the hospitality space as it relates to, um you know, vacation rentals were always the thing. VRBO has existed forever.
00:15:13
Speaker
But when Airbnb came into the market, it set up and marketed it itself itself as a alternative to hotels. How has the hospitality investing um part of it evolved?
00:15:26
Speaker
kind of changed in the face of these new differentiated entrants?
Impact of Airbnb and Real Estate Diversification
00:15:32
Speaker
um And how do you kind of in ensure and how you can compete against these? And because you're kind of offering two different value propositions, but in essence, it in the same way Uber kind of disrupted cabs, um how how is like ah Airbnb forced hospitality investing to to change and evolve?
00:15:57
Speaker
It's great question. So, you know, when Airbnb first came out, everyone thought it was going to, Airbnb it was going to do exactly what Uber did to the taxi space. And that turned out to not be the case.
00:16:10
Speaker
um You know, clearly Airbnb serves as a niche, but it did not disrupt um the hotel space. It didn't, you know, disrupt um yeah At least it didn't disrupt the hotel space from the way people thought where it was going to pull all these occupancies and really impact the top line performance of hotels.
00:16:29
Speaker
What we found is that Airbnb, where it has impacted hotels or had some disruption, is really on nights where we're already selling it. So it's the nights that we're running 100% occupancy.
00:16:41
Speaker
Well, if all of a sudden the Super Bowl is coming to Atlanta, Georgia, where we're based out of, the Super Bowl was going to be there, well, guess what? you know Historically, if we were able to charge $2,000 a night, well, all of a sudden, ah guest is looking at paying $2,000 a night to stay at a Marriott courtyard, and I'm just making up something here, but they're going to be like, okay, well,
00:17:03
Speaker
I can stay at this courtyard for $2,000 a night or I can go rent an apartment and get two or three bedrooms and we can pay $2,000 night doing that. Well, the person that owns that apartment or the person that's running that apartment that's going now put on Airbnb or whatever the case may be or rent their house.
00:17:21
Speaker
Well, they're not willing to do it on a traditional night because traditionally that courtyard is only renting for $200 a night and they're not willing to rent you know there their house or their apartment just to make a couple hundred bucks or maybe even less than that.
00:17:34
Speaker
um But they're willing to do it during the Super Bowl because they're getting this outrageous rate. And so you see this phantom supply there you know comes that comes out and exists that will disrupt our ability to drive you know rates on a ah on these special events.
00:17:50
Speaker
um But it's you know even that effect has you know slowly evaporated because I think what most guests have seen and what we've witnessed is that most guests that stay at our hotels, which are the branded hotels, they're staying our hotels because they like the consistency of service.
00:18:07
Speaker
They like the ease of booking. And, you know the, you know, the major brands have done a good job of maintaining that consistency, you know, with the quality across the different yeah know types of brands or the different types of properties within those brands are very consistent. So, you know, exactly what you're going to get when you show up at a Marriott Courtyard or Hilton Garden and it's very easy to book it through the apps.
00:18:28
Speaker
um So it's it's much easier doing that versus trying to book an Airbnb and you're showing up at someone's house or someone's apartment and you don't know what to expect and you don't know what amenities that you have. And our guests traditionally at our hotels are usually um a lot of it's you know corporate travelers,
00:18:46
Speaker
or travelers that are, you traveling, know, for, you know, a couple of nights you know, for one or two nights, in some cases maybe three nights, but they want that consistency. They don't really want to deal with the challenges that Airbnb a lot times, you know, can create.
00:19:00
Speaker
As somebody who uses both, I... I think for me, it comes down to i use Airbnb if I'm traveling with my son and family, because if we all want to stay in the same place, um you know, it's harder to do that in a hotel because most hotels don't have true one bedroom suites where you can close a door when your kid goes to bed at eight and you want to stay up. Yeah.
00:19:26
Speaker
But for the most part, i I would choose a hotel nine times out of 10 because it also want to be the maid and I don't want to pay an exorbitant fee for a security deposit and cleaning fees and weird, very early um checkout times and late, very late check-in times.
00:19:45
Speaker
So there's there's so many different parts to that, but I think it's really interesting the impact Airbnb can have on just occupancy occupancy availability.
00:19:56
Speaker
um especially in smaller towns that may only have one or two hotels um when there's an event or something of that nature and occupancy needs and to expand to meet demand.
00:20:09
Speaker
um And again, that takes away some pricing power. So that makes a lot of sense. When you look at how Peachtree has evolved over time, you know you started doing hospitality. Obviously, that's your area of how you kind of got involved in real estate.
00:20:26
Speaker
But Peachtree has evolved into having all kinds of investments in real estate, commercial real estate and related areas. um I'd love to hear from your vantage point in a world where the average investor, the average client of the advisors who work with Bonnery and When you say real estate, they immediately think residential because that is what they that's their world. Everybody needs some place to live.
00:20:52
Speaker
And when you think commercial, there's all this doom and gloom about office space and things of that nature. But I'm not sure that people appreciate just the nuance to the different sub industries and sub sectors within commercial real estate.
00:21:07
Speaker
So as you look at the landscape of opportunities today, what areas are you most excited about that you think that the average real estate investor um or the average advisor should be aware of um as a potential place where they should be looking to allocate capital if they are looking to allocate capital to real estate today?
00:21:27
Speaker
Sure. And just to you know one thing to back up on, us as a firm, a lot of people know us for hotels, as you mentioned, but we since 2010, we've invested you know very heavily through all property types. We've invested you know during the great financial crisis very heavily through credit across you know hotels and other commercial real estate assets, bought a bunch of loans from banks and so forth.
00:21:49
Speaker
And you know throughout time, we did a lot on the credit side yeah through you all commercial real estate. And we've continued to grow you know our ability to be very diversified across you real estate. is yeah might say real estate, commercial real estate being more yeah multifamily, retail, you know hotels. We don't do a lot in office. We have very little exposure there. But as you pointed out, a lot of people tend to, when they hear that commercial real estate,
00:22:12
Speaker
they hear office. But hands down, I would tell you right now, the most compelling place to be within all of commercial real estate and candidly, all of real estate. Because I think everything that's happening today, it's it's the same impact within real estate.
00:22:27
Speaker
You could argue it's some of the challenges even in the public markets if you're investing fresh capital there. is that we're in this world where intrinsic values of assets have dropped substantially more than where the market is actually, where people are willing to transact and where people are buying. So in most cases, what we're seeing happen across real estate, and this has nothing to do with the actual underlying fundamentals of the performance of these assets.
00:22:49
Speaker
It has to do with just the transaction month. So the intrinsic value is lower than where the market of value is for a lot of these assets. So in this type of scenario, we should all be net sellers directly, right? Like it's hard to be a net buyer in that world.
00:23:04
Speaker
And so it's hard to have a, you know, a macro view of saying, hey, let's go all in and buy a bunch of multi-family properties or hotel properties today. You really have to take more of a rifle shooting approach across all of real estate. I think there is as much you know as much negative noise that there's within office, there is a bifurcation occurring there too where 90% of the vacancy issues, in really 90% of the vacancy, not even the issues, 90% of the vacancy exists 30% of the buildings.
00:23:30
Speaker
So 70% of the office buildings are actually good assets. They're just getting challenged by all the noise in the marketplace with you know with basically debt costs versus premiums, but that's blown away.
00:23:41
Speaker
So with it all being said, this this value issue is the real challenge in real estate. So the real opportunities if you're investing through equity from our standpoint, no matter, there's not you know necessarily one asset class where I would say back up the truck and go you know buy up these assets because they all had the same issue right now where you know the pricing you know is really mispriced risk.
00:24:02
Speaker
to, um you know, from a standpoint of not being up here because it's just too risky in lot of cases on the equity side. But where it is compelling is investing through credit.
00:24:13
Speaker
And that's why us as a firm back in 2022, you go back to the first quarter of 2022 and towards the end 2021, we started telling our investors that, hey, we're going to, because we've always invested, because our firm, we're very big on both equity and credit, and we've you know invested heavier through credit when yeah at certain periods of time where the market is less interesting on the equity side, and we'll invest heavier in equity when you know when things shift there as well. But we haven't seen that shift before.
00:24:41
Speaker
on the equity side over the last three years. And, candidly, I think this year is another year where we're going to continue to see that disconnect in values. The only difference is is you've got a huge wall of debt maturities that are occurring you know this year, and you know it's going to go into 2026 as well.
00:24:58
Speaker
And you know as rates stay higher for longer, even if you see some dropping of ah the federal funds rate, we really think the long-term rates are going to stay higher.
Challenges and Opportunities in Real Estate Market
00:25:07
Speaker
That's going to continue to create pressure on you know where market is viewing values versus the actual intrinsic values of these assets. So you're going to effectively, if you're transacting in this market for the most cases, you're overpaying to buy assets.
00:25:22
Speaker
And so you have to you know to find value. You either got a rifle shoot or find special situations where or you've got to focus on a credit strategy like what we've been doing, where we're doing direct lending or buying loans from banks looking to deleverage your exposure to commercial real estate, where we're financing 60%, 70% of the current values.
00:25:41
Speaker
And we're still, you know even at that level, you could argue, well, it's 60%, 70% of the current market values of these assets, where the intrinsic values are still lower, but they're not you know they're lower by maybe 10% of the market value, not you know by 30% or 40%. So we're still at a very nice discount to the actual underlying intrinsic values with these assets.
00:26:02
Speaker
And effectively, we're able to generate outcomes that are very similar on the investment side to what we would you know what we see traditionally on the equity side. And I just think we've entered a period, we've gone through this period of of really overperformance within commercial real estate on the equity side due to pre-2022. We had this 12-year run where we just had 0% rates and we just had this compression in cap rates you know where risk premium spreads compress. And now we're on the other side of that trade.
00:26:30
Speaker
And the market is very confused right now. The market is is dealing with you know the new administration. i think there's a lot of positive ah you know positive initiatives by the new administration that's going to benefit at the asset level, the performance of assets.
00:26:44
Speaker
But it's still, you know this balance sheet issue is not going away that we're talking about right now. And you know a lot there's a lot of just broken balance sheets within commercial real estate. and And that's going to be you know what's going to create the special situations. But it's also going to create the scenario where it makes more sense from our viewpoint. And Joe, if you're going to invest you know a lot of capital into real estate today, it's almost better to do it through credit.
00:27:09
Speaker
So what's the catalyst ah to see these issues turn from headwinds to tailwinds? Yeah. So i think i mean I think the biggest catalyst is is just this you know wall of debt maturity because that's forcing because when people aren't forced to transact, then you know nothing happens, right? like That's what we've seen. that you know Extend and pretend was what was used during the great financial crisis. you know It's what's been used historically when we have market disruptions.
00:27:40
Speaker
You see a lot of extend and pretend. a lot of you know groups try to a lot of i say groups A lot of lenders try to you know work out their book through extend and pretend. This time around, the difference is when you typically have market disruptions, we go from you know having higher rates to having substantially lower rates because the Fed comes in and just drops rates to zero like we saw during the GFC. Well, ExtendPretend works really well in that environment even when asset level performance is underperforming because it costs you very little to carry these assets for a period of time until performance can catch back up.
00:28:15
Speaker
The difference this cycle is extend pretend is is really tough when you have negative leverage across a lot of these assets and you have to pay a lot of money to continue to carry these assets or you're going to have to inject a lot of liquidity to right size these assets. So it makes it very makes it very tough to continue extend and pretend, which means effectively you know there's going to lot of forced transactions. you know You're probably going to see you more note sells this year through, you know, different lenders that are looking to not have to deal with these issues anymore with Extend and Pretend. If it's, you know, banks, if it's private lenders, you know, you're going to see more note sells there. You're going to see, you know a lot more, you know opportunities where groups are selling assets and they're either going to have to sell it in a more structured format where, you know, maybe they take on a, um you know, a partner that injects like preferred equity and they get, you know, some type of, you know, equity participation in addition to a return on their capital.
00:29:13
Speaker
or they're going to be buying assets and providing hope notes and and things like that. So I think it's going to be a very constructive environment this year. It's going to require a lot of you know creativity, I think, to you know for the next 12 to 18 months.
00:29:27
Speaker
um But it's also going to be, you know I think, to your original question, you know the cadence is this wall of debt maturities. across all of real estate. And then across certain assets, you know you have other challenges and issues that are, you know depending on the asset class, that will be a and a catalyst. Like for instance, within hotels, you just have this you know this lack of CapEx reinvestment. you know CapEx reinvestment since the pandemic is down you know close to 50% from historic ranges. So there's a lot of assets that need to renovate their assets, maintain their brands.
00:30:00
Speaker
And that's going to be another catalyst that's going to you know really help drive asset sales and start creating where you know groups are going to be forced to make decisions. So I do think 2025, 2026, you'll see an increase in transactions, but it's not going to be, i don't think you'renna be seeing necessarily you know large portfolios trade.
00:30:20
Speaker
i think it's going be a lot of these one-off trades that are going to occur this year that are going to start you know being in a more constructive or special situations type environment. So whenever we talk about real estate, no matter the type, um we have to talk about geography because that has just as much influence on values as anything else.
00:30:41
Speaker
So, you know, we all know during the pandemic that there were certain geographies that benefited um and some that did not for a variety of reasons.
00:30:53
Speaker
As we kind of have gotten through that and now we're kind of moving into a different era, of real estate and where people want to be people having to return to office, which, as I've learned recently, means that some moving that happened during the pandemic when people could work from anywhere is now forcing them to move back to areas that had seen a lot of ah population leaving.
00:31:20
Speaker
so In your experience, because you have such a vast portfolio of different types of real estate, are there any geographies that are underappreciated where you're finding attractive opportunities?
00:31:35
Speaker
It's, I mean, there's not, I would say, you know, from the most part, I wouldn't say that there's any specific markets I can think of right now that I think people are missing. i think with technology today, when people find out that there is a market that, you know, is is all sudden experiencing a lot of, you know, growth or experiencing outsized performance, you you quickly see, you know, through yeah through social media, through technology, people can quickly identify it and take advantage of it.
00:32:03
Speaker
And that's why you know you do need to have very strong operating discipline um as well as you know just discipline discipline when acquiring assets and looking at, you know especially within the hotel sector. So we've been talking about hotels so much today, you know really identifying what's driving demand because there was a lot of markets, if anything, there was a lot of markets that became very interesting during COVID.
00:32:23
Speaker
um But we found some of these markets didn't sustain because it was really benefiting from this growth of leisure demand when people you weren't required to go to the office. They could work from home. And now, to your point, they're moving back to some of those areas.
00:32:38
Speaker
um So now they're not traveling as frequently, ah you know, for those leisure reasons. And so markets that were fully relying on leisure demand and had, um you know, limited demand, maybe, you pre-COVID or limited, um you know, demand growth that, you know, is now starting to go back to its historical levels. And so it's just being, know,
00:33:00
Speaker
It's one of those that as we look invest capital, we tend to try to stay focused to what our long-term strategy has always been is focus on markets ah from a standpoint of you know what markets have positive migration stories, but what markets have you know some level barriers to entry, ah markets that you know are more business friendly because those tend to you know those markets tend to outpace inflation.
Geographic Market Considerations and Film Financing
00:33:23
Speaker
They tend to um you know do better long term. And then for going in you know other markets, like for instance, there's some markets in the Midwest that are very, you know the growth isn't as strong or you know even on the West Coast, there's some markets that we're very cautious about going into or even up in the Northeast.
00:33:41
Speaker
because they don't have the you know growth levels that you're seeing in some other areas, will still go in those markets. It's just going to be on a much more opportunistic basis where a lot of cases we're buying an asset at a ridiculously low price. And so that's a situation where buying something at a huge discount to its actual intrinsic value. And if we identify that, we're more willing to invest on the a equity side or even invest through credit in those markets.
00:34:06
Speaker
um So we're you know we try to be very thoughtful about you know where we're putting our last dollar when investing. But historically speaking, we've been much more focused on the equity side in the Southeast Texas and Arizona because of the you know different dynamics that we talked about earlier.
00:34:26
Speaker
So I'm curious, and as you think about... um the impact of what happened in California and over the last several weeks, months or so with the fires and um the rebuild that has to occur there, that that's more than just homes. That's like hotels, that's daycares and schools and healthcare facilities and things of that nature.
00:34:50
Speaker
you think that going forward, that that presents a unique opportunity for investors um like yourself? mean, it's it's interesting. I mean, like it's going to create demand for hotels. It has created demand for hotels.
00:35:03
Speaker
and We have you know data on some the hotels that we have out in that market. We're seeing it firsthand. But that demand is not long-term demand, right? Like that's the artificial demand that you got to be careful, you know, when, you know making investments in those markets. And what I've found historically is sellers are, you know, wanting to get paid um usually at a, you know,
00:35:25
Speaker
effectively for that demand as if it's going to sustain through long term. And that's not you know that's not going to be the case. So at some point, the demand is going to normalize out. So we would be, i would say there is there's no question there will be opportunities out there, um but we'd probably be very cautious in how we approach know that market and uh but if anything the other part that you know you didn't mention that i find interesting is just insurance costs i mean it's it's gone you know the expenses just continue to increase and it's going to continue to be very challenging to get insurance especially you know out in california you know in that la market um it's going to be continue to be challenged and it's going to make it harder for
00:36:07
Speaker
for owners of assets to sell assets and it's going to have a, you know, potentially a a negative impact to some of the values out there as well. So, I mean, it's, it's not a, it's not a very, um, easy answer to, or easy question to answer just because, mean, there are a lot of components and you've got to be very thoughtful and, and I find within, you know, within real estate, even in other spaces, people tend to, you know, quickly you get excited about something and I'll use data centers, you know, like all a sudden,
00:36:36
Speaker
everyone's raised bunch money go do data centers and data centers make a lot of sense. But then all a sudden you have deep seek, you know, all of a sudden brings in question if we even, you know, how much data centers do we actually need? And I'm not a tech person by any means because we had trouble getting on this today. So, you know, firsthand I'm not the most tech savvy person. But the point is, is we We tend to try to, we don't necessarily, we always look at trends and what's happening, but our question is, is how sustainable are these trends?
00:37:03
Speaker
And we want to find you know strategies that we feel, that we identify that we feel like are sustainable long-term, like our credit strategy is something we started back 15 plus years ago.
00:37:14
Speaker
And that's a strategy that, we you know We believe it's going to be sustainable as long as Peachtree exists as a firm. We will be investing in credit. It's just at so you know certain points, we'll be investing you know close to 100% our capital and at other points, maybe we're investing less because it's just not as interesting. It's more challenging to find you know good investment opportunities on the the credit side. So we're we tend to try to create programs that we think are sustainable yeah long-term versus falling into fads or trends that may or may not sustain.
00:37:45
Speaker
so Now, I know you have some products at the firm that are real estate adjacent, not necessarily real estate. ah When you think about how you've kind of branched out, what is the area that you think is most unique and interesting, especially for, I like to talk about ego investing and value investing, especially as it pertains to ah individual investors that traditionally work with financial advisors, like the ones that work with Bonrian.
00:38:15
Speaker
you know Is there something you're doing that you think particularly plays into that that space of ego investing where it's just a really unique thing that you want to associate yourself with um in that kind of ancillary space that you guys play into?
00:38:33
Speaker
Yeah. So it's funny, we have this question a lot and, candidly, we've made a lot of money based on people investing for the ego reasons. Like I i tell everyone, you know we invest for IRR, we don't invest for r ROE, you know return on ego. So I find a lot of people will jump into the hotel space you know because they want to you know they want to own a nice luxury hotel or they want to own a hotel property, they want to be the hometown hero.
00:38:59
Speaker
on a hotel, on a restaurant, and they turn out to be a lot of cases, really bad investors and bad investments for these investors um because they they're investing for the wrong reasons. We have a film finance business that we get a lot of questions on and it's really ah receivable finance business.
00:39:17
Speaker
It just happens to be that we're financing the production of movie films. But what's happening is we're actually going in and financing the pre-sells on the distribution rights of these films that are being made.
00:39:31
Speaker
and And typically when a film is made, you know certain investors will just invest into the film without any pre-sells. They're taking on that creative risk. We're not willing to take on creative risk, meaning we don't want to know. we don't want to have to question if the movie is going to have any box office sales, if it's going to have any you know buyers like a netflix or whoever or amazon is going to buy that completion we want to know on the front end who's buying these films and then we're also taking as we're making these loans to these films are being produced we're getting ah you know we're getting a pledge of these you know agreements where you know someone's pre-selling know this movie we're also getting um all the tax credits because a lot of these films are being made
00:40:13
Speaker
you know Here in the US, like in Georgia, has a huge tax credit program. talkki ah we Even we financed several films over in Australia has a great one. And we're getting as additional collateral against our loan.
00:40:25
Speaker
So on the surface, it looks very ego driven. ah But once you start to realize what's really happening, it's mispriced risk to the benefit of investors. Because we're able to you know to go in and basically provide a senior loan. so we're attaching usually at 70 to 80% of the total production cost of this film.
00:40:45
Speaker
This film will have a bond in place to effectively guarantee... that film will get completed. So we take away the production risk and we take away a lot of the, or mitigate a lot of the, you know, creative risk by having those pre-sells and tax credits as collateral on our loan.
00:41:01
Speaker
And so, you know we feel like it's mispriced risk but because we're able to generate really outsized, you know really good outsized yields to what's really happening. And, you know, it's asset back.
00:41:12
Speaker
So. Very cool. ah Film ah financing and film funds are definitely one of the areas that we've seen interest, particularly from that ego perspective.
00:41:23
Speaker
ah So I totally can appreciate that. The story, it it's like sports rights funds in that way. It's it's sexy. But I want to thank you for your time with being with us today. As I stated, we're really excited for the opportunity to work with Peachtree. And I'm excited because we've started off so strong already.
00:41:41
Speaker
um with our advisors just loving the products that you bring on board. um Most of your products are available to custody at Fidelity and Schwab, which is a huge win. um And all the feedback we've gotten so far from the advisors you've met with that we um we helped facilitate um has been overwhelmingly positive. So we're super excited to work with you.
00:42:00
Speaker
um Thank you so much for joining the show today. And um I just want to thank everybody for tuning in Please make sure to like and ah subscribe. but If ah you like this episode, we're always looking for ideas. If there's somebody or something you want to hear about, please let us know.
00:42:18
Speaker
um And until next time, I am Shana Orzik-Sissel, founder and CEO of Bonnaroo and Capital Management. And this is What's the Alternative? Let's go boom.
00:42:30
Speaker
The opinions expressed on the What's the Alternative podcast are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or in any specific security.
00:42:46
Speaker
This is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing.
00:42:57
Speaker
Any past performance discussed during this podcast is no guarantee of future results. The guests featured on this program are participants on Bonrien Capital Management's platform.
00:43:10
Speaker
As such, Bonrien may receive payment for their participation as a platform partner. Any indices referenced for comparison are unmanaged and cannot be invested into directly.
00:43:21
Speaker
As always, please remember investing involves risk and possible loss of principal capital. Please seek advice from an licensed investment professional. Investments are not FDINC insured, nor are they deposits of or guarantees by a bank or any other entity, so they may lose value.
00:43:42
Speaker
Investors should carefully consider investment objectives, risks, charges, and expenses. This and other important information is contained in the fund prospectus and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
00:44:00
Speaker
Statements attributed to an individual represent the opinions of that individual as of the date of the published podcast and do not necessarily reflect the opinions of Bonnrian Capital Management or its affiliates.
00:44:13
Speaker
This information is intended to provide educational value, highlight issues, and should not be considered advice, an endorsement, or a recommendation. All Bonruin Capital trademarks mentioned are owned by Bonruin Capital Management Inc., an affiliated company, or its funds. All other company and product names mentioned are the property of their respective companies.