Over the last few weeks, I have received a lot of questions about the current market situation and how the failures of two significant US banks will impact commercial real estate (CRE) and our business here at PEG. Some of the more common concerns we hear include the impact of rising capital costs and access to financing—both very valid and with good reason. It is highly likely that there will be additional CRE loan defaults, particularly in CMBS and office loan where there are substantial debt maturities over the next several years, however, I want to assure you at this time that PEG is well-prepared to manage these risks and more.
We believe the current health of the overall banking system and market liquidity conditions are notably better than they were during the Global Financial Crisis (GFC). Although we anticipate additional defaults in the CRE sector, we do not expect a systemic crisis similar to what occurred during the GFC. Looking back at the economic downturn of 2008, we see stark differences between then and now. Back then, commercial real estate drove the downturn, whereas today, interest rates and overnight buying rates are driving the current economic cycle. Furthermore, in 2008, bank liquidity was a major issue, whereas today, we are seeing ample liquidity in both the private and debt markets.
As a company, we have taken steps to mitigate our exposure to CRE risk. We have carefully underwritten our loans and maintained a conservative approach to lending. We have also built, over time, a diverse portfolio which includes Class A and Class B multifamily properties nationwide, select-service and hospitality assets through development and acquisition in strong markets, as well as student housing and office throughout the Mountain West. Our recent projects are a testament to these principles, as we have completed or are currently working on exciting projects including multifamily, hotels, build-for-rent (BFR) single-family home rental communities, and mixed-use developments. We continuously work to focus on enduring investment strategies that are more resilient to market change while delivering healthy returns. Through it all, we remain steadfast in our principles: maintain a healthy amount of leverage, avoid risky assets, and operate with good partners.
Lastly, we are mindful of the current state of the real estate market throughout the country and in the Mountain West region where interest rates and liquidity issues are affecting CRE. As we analyze trends and forecast the future, we recognize the potential challenges and opportunities that lie ahead with cap rates and over one trillion dollars’ worth of debt coming due. To capture these opportunities, we will continue to focus on conversions from extended stay hospitality to Class B multifamily and will be announcing shortly our next fund focused around this strategy. We are also reviewing opportunities with office conversions to multifamily and will be sharing more regarding our findings in the weeks to come. Given the current CMBS debt coming due in hospitality, we do anticipate potential hotel acquisition opportunities as well. To learn about the investment opportunities we’re creating, and more around our point of view given today’s economy and the future we see for PEG, please join us, May 3, at Sundance Mountain Resort for our 2023 PEG Annual Investor Meeting. This year, we are honored to be featuring speakers including Utah Governor Spencer Cox, Utah economist Natalie Gochnour, Hyatt CEO Mark Hoplamazian, WaFd Bank CEO Brent Beardall, Larry H Miller Company CEO Steve Starks, Okland Construction CEO Bill Okland, and more.
We are grateful for your ongoing support and excited to continue innovating and growing together. Thank you, as always, for your valued partnership and dedication as we are always striving to execute on our vision of building trust, reimagining communities, and broadening horizons everywhere.
