Stonehill, a commercial real estate direct lender, completed $1.2 billion in investments for 2022 through loan originations and commercial property assessed clean energy financing ("CPACE"), primarily in the hospitality and retail sectors, with $813 million and $163 million in investments completed, respectively. The remaining $269 million was distributed across the industrial, land, mixed-use, multifamily, office and senior living real estate sectors.
"Economic volatility coupled with uncertainty surrounding interest rates has severely decreased overall financing availability with capital providers. However, Stonehill not requiring capital markets execution has allowed it to remain active and to fill the gap in lending supply," said Mat Crosswy, Stonehill's president and principal.
The company expects to close on $300 million of investments in the first quarter of 2023 and is targeting $1.5 billion for 2023.
Stonehill, an affiliate of Peachtree Group, is one of the most active hotel commercial real estate lenders in the U.S., ranking as the tenth-largest U.S. hotel lender by the Mortgage Bankers Association. In May 2022, Stonehill expanded its commercial lending business to originate and make investments across all real estate sectors through the formation of Stonehill CRE, with Daniel Siegel serving as its president. This CRE group focuses on heavy transitional assets and sectors of the credit market that are traditionally undersupplied.
"We have spent years working on our capital formation, specifically so that we can be active and grab market share during periods of economic uncertainty," Crosswy said. "Also, by building our CPACE division in 2019, which completed $235 million in CPACE financing for the year, and now with Stonehill CRE, we are better positioned to provide lending solutions to a multitude of the market's current inefficiencies."
The demand for fixed-rate financing has significantly increased over the past 12 months and represents a significant portion of Stonehill's pipeline.
"Overall, borrowers would prefer a longer lock-out period if it comes with interest rate certainty, and it's an option and flexibility that we are happy to provide," Crosswy noted.
Many experts are forecasting a recession, with few assuming a prolonged period. The current Secured Overnight Financing Rate (SOFR) curve, a broad measure of the cost of borrowing, forecast decreasing rates by year-end and rates beginning to normalize in 18-24 months. Short-term disruptions and uncertainty will not preclude Stonehill from investing in the market and extending credit for the right deals.
"A majority of the transactions we are financing have some capital or management improvements to be made during the term for them to be competitive with their overall peer group, so the value is derived more from the execution of a business plan rather than appreciating in value based on market stability,” said Jared Schlosser, Stonehill senior vice president and head of Stonehill PACE.