The landscape for bank loans has shifted dramatically, particularly in the wake of last year’s bank failures and the persistent balance sheet distress afflicting many financial institutions. Banks now demand higher deposits and offer lower leverage compared to what was available just a few years ago. This tightening of the purse strings has created a significant financing gap, one that private credit lenders have swiftly and decisively moved to fill. Private credit, which began gaining traction after the Great Financial Crisis, has grown substantially as bank lending has receded, emerging as a critical lifeline for hotel developers.
Private credit, provided by private equity firms and other non-bank entities, is fundamentally different from traditional bank lending. Its unique flexibility, a stark contrast to the regulatory constraints that bind banks, enables private credit providers to tailor their financing solutions to the specific needs of hotel developers. This flexibility is not just a perk; it’s a necessity in the hotel development industry, where each project is unique, with its own challenges and opportunities. Whether it’s funding a boutique hotel in a bustling urban center or a sprawling resort in a secluded destination, private credit providers can structure deals that are precisely aligned with the project’s requirements.
Another significant advantage of private credit is its speed. Traditional bank loans are often bogged down by lengthy approval processes and stringent underwriting criteria, which can delay the flow of capital by months. In contrast, private credit lenders can move with remarkable swiftness, delivering the necessary funds in a timely manner. In the fast-paced world of hotel development, where delays can translate into escalating costs and lost opportunities, this speed is invaluable.
As an example of speed, the AC Hotel San Diego Downtown Gaslamp Quarter closed its funding in under 30 days. As the lender, Peachtree Group has consistently demonstrated not only certainty of execution but also the ability to close originations in a timely manner.
As the hotel industry continues to grow, the role of private credit in hotel financing will increase. While traditional bank loans will still play a role, private credit’s advantages—its flexibility and speed—make it an indispensable resource for developers navigating the complexities of today’s market. In an environment where securing financing has become more challenging than ever, private credit stands out as a beacon of stability and opportunity.
For hotel developers, embracing private credit is not just a matter of finding an alternative source of capital—it’s a strategic move that could unlock new growth opportunities and help sustain the industry’s momentum in the years to come. As the industry continues to face new challenges, the adaptability and resilience offered by private credit will be vital in driving its success.
Peachtree Group is a direct balance sheet lender focused on funding first mortgage bridge loans, mezzanine loans, preferred equity investments, and commercial property assessed clean energy (CPACE) financing, lending to all commercial real estate asset classes with a specialty in hotel financing. The Peachtree Group team has executed more than 297 transactions, originating more than $4.5 billion for projects seeking capital to complete acquisitions, recapitalizations, refinancing and renovations. For additional information, please visit www.peachtreegroup.com/credit.
Jared Schlosser is responsible for Peachtree’s hotel originations platform and its CPACE program. Hear more from Jared during the “Connect with Active Lenders” panel at the upcoming Lodging Conference October 7-10 in Phoenix, AZ.
Tags: Peachtree Group
