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Rising To THe Peak

February 2023 Newsletter

Welcome back to the Peak 15 Newsletter! On behalf of everyone here at Peak 15, we want to wish you a very happy and prosperous new year.

Every year at Peak 15, we get our whole management team together for a summit at our headquarters in Charlotte, North Carolina. This gives us a good opportunity to recap the last year, discuss what went well, what didn’t, and how to approach the new year. Our summit wrapped up last week and we have plenty of news to share with you, so let’s hop right in.

The first thing to address in this new year is actually last year and how Peak 15 dealt with the rapidly changing market. As many of you know, the biggest story of last year was the rapid interest rate hikes that significantly raised the price of debt. This change occurred over the course of the year and is just now beginning to plateau. As we have mentioned in many of last year’s newsletters, the enemy of an effective real estate market is not actually high interest rates, it is instability. The reason for this is that buyers and sellers will interpret the market moves differently and a buyer-seller disconnect will occur meaning very few transactions are possible. The price of debt gets expensive so buyers want to purchase assets at a lower price, and sellers simply do not want to lower prices. This dance between buyers and sellers was visible to us in almost every market; we found very few deals that made sense in the latter half of 2022. 

We are not the only ones who felt this market shift. Sponsors of all sizes that we have talked to express similar frustrations with the price of debt moving faster than sellers’’ price reductions. Luckily, over the last few weeks, prices have been coming down at a faster rate and interest rates, while still rising, are no longer increasing 0.75% at a time. 

So what will change inside of Peak 15 in 2023? Well, many things, but let’s start with this newsletter that you are reading right now. We have decided that we want to communicate even more with all of our partners which is why we have made the decision to publish weekly newsletters. These newsletters will provide small updates on the operations of Peak 15 and give insight into the properties that we own and how our business plans are moving forward. As many of you know, we plan to invest in 5-7 deals this year through our Co-GP fund meaning there will be 5-7 business plans being executed and a lot to keep our investors up to date on. 

Many of you appreciate the longer, more abstract newsletters that became standard for us in 2022. Rest assured that these newsletters will still be published once a month, but with a bit more focus and direction. Instead of getting a look into how strange my reading list is, we will be exploring economic concepts in a connected series so that each newsletter builds on the last. In addition to this, all of our newsletters and blog posts will always be available on our website.

Now onto more of the operations side of Peak 15; we wanted to redesign the way we operate and take a look at the systems that make our business function without compromising on our mission: to add value to the world around us. 

First and foremost, we add value to our investors’ portfolios by structuring our investments to be as favorable as possible. Not only are we providing investors with partner-level returns as opposed to the typical limited returns that they are used to with other firms, but we are allowing them to participate on the fees of private equity deals. Acquisition fees are typically reserved for the operators of the deal, but through our fund, we are sharing the acquisition fee with our investors 50/50. This means that our investors will receive a distribution right at closing instead of having to wait, like a typical LP would, until after stabilization in many cases.

The Co-GP fund is the centerpiece of our company and it would not work if it wasn’t for the incredible operators that we partner up with. We choose to work with best-in-class sponsors in their markets of expertise, and we are welcome into these deals because of the value that we are able to offer to them. A sponsor that has expertise in running a certain kind of deal in a certain market may only be able to manage a handful of deals per year not because of the time constraint, but because of the money constraint. Generally, the general partner is expected to invest 10%-15% of the equity portion of the capital stack: a big ask for an independent sponsor, even with experience. Our fund is relieving that burden and covering up to 90% of that portion of the equity. This value that we are providing to these sponsors will allow them to take on more deals every year and, thus, create further value in their market.

John has said many times, “it takes a village to take down a deal”. This has been true for John’s whole career, and it is just as true now in 2023. Luckily, Peak 15 is in the very fortunate position of having productive partnerships with many institutional investors in the real estate world. We are able to keep these relationships because of the value that we are able to offer them in the form of saving time. When our institutional investors see a deal from us, they already know our reputation and the kinds of deals that we acquire. They can be confident that any deal we present to them, while it may not always be the right fit, will not be a waste of their time. Through us, hundreds of institutional investors gain access to many more well vetted deals than they would see otherwise. 

We anticipate 2023 to be a year full of opportunity for Peak 15. The interest rate plateau that we anticipate for the majority of the year will usher in a much needed round of price discovery. Many sellers in this market are not necessarily excited to sell, but many will not have much of a choice because of their debt payments. Debt payments on some assets may be double what they were just two years ago and many groups did not underwrite as conservatively as they should have. While this is part of the “pain” that we were promised by the Fed, there is also great upside for groups like us to purchase assets at a discount, which is exactly what we intend to do.

So here we are, in an environment with tremendous opportunity and a motivated, energetic team ready to take on challenges. We at Peak 15 have set our goals high for this year knowing that the stars are aligning for our strategy and our value proposition. We couldn’t be more excited for the possibilities this year, and we are honored that you are joining us on this journey.

Keep Climbing!

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