Peachtree Group has provided a $40 million CPACE loan for the AC Hotel San Diego Downtown Gaslamp Quarter. The retroactive loan was provided to BLG SAN DIEGO, LLC for the newly-opened hotel.
Located in downtown San Diego’s Gaslamp Quarter, the hotel features 147 rooms, a rooftop restaurant and night club, an outdoor swimming pool, a fitness center and meeting areas.
The financing was amortized over 30 years and needed no payment for a year, followed by five years of interest-only payments.
The proceeds have enabled BLG to pay down its senior loan with California-based Preferred Bank and E. Sun Commercial Bank, Ltd. to under $20 million, reducing the banks’ exposure, Peachtree said in a statement.
“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 posting a robust RevPAR performance, headwinds, such as lagging profitability of hotels, continuing high interest rates and historically high property insurance costs, have been aggravating financial concerns for hotel owners.
When the hotel opened in 2023, there was a “sizeable disconnect” between hospitality fundamentals, which were strong particularly in San Diego, while the debt markets were “deteriorating meaningfully,” said Brad Honigfeld, founder, chairman and co-CEO of Briad Group. “The Fed’s tightening process and rising fund rates drove up the cost of debt considerably.”
Hotel and commercial real estate owners have been facing a tough several years as trillions of dollars in debt become due and refinancing becomes harder, compounded by banks’ stricter lending norms, Peachtree said.
About $5.8 billion worth of U.S. hotel-securitized loans will come up for maturity by the end of this year, according to JLL Research. These loans will need full repayment, refinancing, extension or sale. If this “wall of maturities” were refinanced at today’s interest rates, a significant $4.2 billion of the total volume is likely to be under critical stress.
Commercial Property Assessed Clean Energy (CPACE) financing has become an integral source of liquidity in such a challenging lending market, Peachtree said. The financing option is increasingly becoming popular as owners are faced with imminent debt maturities and limited refinancing opportunities.
Citing PACENation, Peachtree said CPACE funding has reached a total of $7.2 billion in the U.S. in the last 10 years, highlighting the rising acceptance and adoption of the financing as an effective solution. Peachtree has over $800 million in CPACE originations.
Although the AC Hotel San Diego was benefiting from its location and performing to its original underwriting, debt costs were impacting cash flows, said Honigfeld.
Property owners stand to gain from retroactive CPACE funding. While it operates similar to normal pre-project funding, the main difference is that 100% of the loan proceeds can be used to reimburse the owner for costs which were already incurred. This unique advantage makes retroactive CPACE a viable resource for owners exploring better loan terms or improved cash flows for finished developments.
“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.
