After
Peachtree Group’s sixth acquisition of 2024, we asked the company’s SVP of
acquisitions and dispositions about what market dynamics he sees.
ATLANTA — Peachtree Group’s
Michael Bernath admits that a bid-ask spread will always exist, but over the
course of 2024, he’s seeing it heading in the right direction.
“I believe that the market, to a
point, has baked in some monetary stance here more recently and that’s more
based off [what I’m seeing] on the financing side,” said Bernath, senior vice president of acquisitions and dispositions for Atlanta-based Peachtree Group.
Hotel Investment Today talked to
Bernath following Peachtree’s sixth acquisition of 2024, the 100-key AC Hotel
by Marriott in Park City, Utah, from an undisclosed seller for an undisclosed
amount. Peachtree’s other acquisitions in 2024 include the 128-key Residence
Inn by Marriott in Wesley Chapel, Florida; the 114-key Residence Inn by
Marriott in Oakhurst, New Jersey; the 146-key Home2 Suites by Hilton in Falls
Church, Virginia; the 130-key Home2 Suites by Hilton in Lawrenceville, Georgia
and the 180-key Hilton Garden Inn in Denver.
Because Bernath leads on both
the acquisition and disposition side, he’s seeing the market play out in
real-time.
“We’ve seen some more attractive
financing options on our acquisition opportunities here over the last three to
four months and some of that has been baked into pricing,” he said. “If nothing
else, the perception of heading into a more favorable interest-rate environment
will help narrow that bid-ask gap and ideally facilitate transactions.”
With the Fed’s 50 bps cut on
interest rates last week, there is certainly room for optimism. “In a more favorable
interest-rate environment, [the bid-ask spread] narrows and facilitates
transactions,” Bernath said. “There’s a significant amount of dry powder
sitting on the sidelines waiting and what we believe is a favorable
interest-rate environment.”
That means more firms jumping
into the M&A market, which Bernath said he especially welcomes on the
selling side. “We’re hopeful, certainly on the
disposition side, to see more market entrants and participants in the
transaction space,” he said. “I can’t necessarily say that on the acquisition
side because the less competition, the better.”
Inside the deal
Bernath said Peachtree’s latest
deal in Park City took the better part of a year from start to finish and
closed within 60 days of being under contract. While the seller was not named,
Bernath said it’s a smaller regional-focused owner, operator and developer who
purchased and converted the asset. Peachtree Hospitality Management will now
manage the hotel.
Peachtree acquired the asset
through its current fund vehicle. Bernath said the company got market-rate debt
with attractive terms from a national lender with which it has had a long
relationship. He said no immediate CapEx changes are needed for the property.
“We just saw some operational
opportunities, both from a revenue and expense standpoint, that we feel like
our operating team can capitalize on at a very attractive basis,” he said.
Peachtree’s strategy
There aren’t a lot of
commonalities between the six assets Peachtree has acquired in 2024, Bernath
said, other than ones that fit its general philosophy.
“Our focus is more on demand in
a given area in particular and having a diversity of demand in a given market,”
he said. “We don’t want something that’s too leisure-focused. We don’t want to
be too corporate-focused. We like a nice mix of demand for leisure, transient,
and corporate groups. So, that’s the common thread of all these assets.”
Those common threads also
include strong macroeconomic trends and the diversity of demand. While four of
the six assets are extended-stay properties, Bernath said that is only part of
the company’s acquisition strategy.
While we have closed a number of deals, I can tell you we’ve looked at an exponentially, significantly larger number of deals to get to those six... There are a lot of underwriting and internal discussions before we write offers that we think will hit.
Michael Bernath
“That’s not necessarily a
strategy that we’re heavily leaning into [this year], but it’s a strategy we’ve
been employing for basically the entire existence of this company, both from an
acquisition and development standpoint,” he said. “We obviously believe in
[extended-stay’s] operating model and the brands. While we don’t necessarily go
out of our way to purchase the premium branding extended-stay, it’s a very
large piece of both our acquisition and development philosophy.”
When asked what’s in Peachtree’s
pipeline for the rest of 2024, Bernath said he doesn’t necessarily have a
number in mind but said the company is opportunistic at its core.
Regarding the bid-ask spread,
Bernath said it took Peachtree many more potential deals that wouldn’t pencil
to get to the six it acquired this year.
“While we have closed a number
of deals, I can tell you we’ve looked at an exponentially, significantly larger
number of deals to get to those six,” he said. “We’re transactional by nature.
We look at anything and everything that fits our box. So, from a market and
deal-by-deal perspective, there are a lot of underwriting and internal
discussions before we write offers that we think will hit.
“There’s a significant amount of
work over a diverse amount of assets to actually whittle it down to the six
that we’ve been able to close on.”