Since Peakhill was established in the thick of the pandemic in 2020, the firm has approximately doubled its originations every year and is on pace for $6 billion in 2024.
Now, founder and managing director Harley Gold said the firm is working to replicate its Canadian success in the United States.
“In the U.S., there is a good opportunity to be a middle-market lender,” Gold said in an interview.
Green Street News talked with Gold about the state of the Canadian market and opportunities south of the border.
Can you reflect on any challenges or opportunities over the past four years?
Being a newer firm is a challenge in a market where you have more established names, but we’ve developed good products and business that has attracted capital as we go. A lot of family offices and institutional investors want to see a three-year track record. Now that we have a nice track record, it’s going to get easier to raise capital.
“Now that we have a nice track record, it’s going to get easier to raise capital”
What brings the opportunity is, as a newer firm, we’re not dealing with legacy issues, such as loans or equity investments in the office space, like some other companies are dealing with. We don’t have regulatory issues like banks would have. We’re operating freely in terms of seeing the market as it is today, so our portfolio is performing well.
What was it like staring in the thick of the pandemic? What challenges or opportunities did that present?
We saw multifamily as the place to invest in, so that’s where all of our energy went, along with industrial, because industrial was taking off with e-commerce growth.
What’s Peakhill’s proposition?
Our 20-plus years of industry experience has enabled us to provide solutions to the marketplace that are quick, nimble and appropriately priced. Our experience with CMHC is valuable to the business.
We’ve created a balance sheet of capital that we can invest in the various funds that we’re now managing. And being entrepreneurial — there aren’t that many entrepreneurial firms in Canada that have started in recent years. I think that’s brought us a lot of success in terms of clients and investors who have seen that entrepreneurial spirit and growth prospects.
What can you tell me about your active funds right now, including your flagship open-ended debt fund that started in 2020?
That’s still ongoing, and it’s been successful. We have institutional investors in there, high-net-worth family offices, and we’ve had market-leading returns in there compared to our peers, and a low management fee structure.
That’s a Canadian credit product focused on bridge-to-CMHC loans, so a lot of multifamily, a little bit of industrial loans and some retail loans all across Canada. That has grown almost two-fold every year since we started it. It started at $20 million, and it’s going to hit $300 million shortly.
Can you talk about your other funds and your two strategies in the U.S.?
The other [funds] are on the equity side. We run a strategy of doing joint venture development of rental properties in the United States. Those are deal-by-deal investments we’re making with our principal capital, and some LP institutional investors, who are investing alongside us.
“We’ve done a few notable deals, such as projects in New York City, Miami, Dallas and one in California we’re looking to do soon”
We’ve done a few notable deals, such as projects in New York City, Miami, Dallas and one in California we’re looking to do soon. Those are 200- to 300-unit rental projects that we’re investing in as equity partners.
That’s part of our U.S. strategy. We have two strategies in the U.S.; we have that and we have a lending strategy that focuses on bridge financing and preferred equity financing, purely on multifamily.
In 2023, Peakhill anticipated completing a $300 million preferred equity fund with institutional clients. Any progress to report?
That’s still in process. We funded several loans and should have an announcement soon on the status of that. We’ve been doing deals and are still in process of fundraising in that space. We have a prominent U.S. family office investing $50 million into that strategy with us. We’ll announce that soon.
Can you talk about Peakhill Equity Partners and what opportunities they’re able to engage that Peakhill Capital can’t?
Peakhill Capital is focused on equity primarily in the United States. Typically, they’re investing at the general partner level on the equity side with developers, primarily focused on multifamily. They’re development projects we’re investing in.
We’ll provide additional guarantees to the developer that maybe the bank won’t. Today it may be harder to obtain a bank loan, so we can provide that credit enhancement using our balance sheet, using our funds to provide that guarantee, basically helping a developer get a project more advanced, or come in at an earlier stage.
“If we’re involved in a deal, we can help support the deal on the equity side and then bring in additional institutional LP money”
And also attract capital. If we’re involved in a deal, we can help support the deal on the equity side and then bring in additional institutional LP money. Typically, these are larger projects. They might be $150 [million] to $250 million projects, and we might invest $10 [million] to $15 million in that project, alongside the developer.
We may bring in an institutional LP like a life insurance company or pension plan that would come in for the remainder of the equity. For us, getting involved in that provides a little more enhancement to make the deal safer so institutions can come in.
What else can you tell me about your U.S. strategy?
In the U.S., there is a good opportunity to be a middle-market lender. In Canada, we’re very successful in the $5 [million] to $15 million space. In the U.S., you’ve got your regional banks that tend to focus on construction and regional business; they tend to do larger loans. Then you have national players who focus on the larger lending space.
But in the middle-market space, there aren’t as many players as one would think, that run fund structures. There’s a lot of structured financing, like CMBS, CLOs, but not a lot of straight funds, where it gives you more flexibility to be in the market all the time.
Being a CLO or CMBS issuer depends on capital markets, and capital markets today aren’t very strong, so it’s very hard to always be in the market and be a lender that’s active. So I would like to replicate what we did [in Canada] in the United States over a period of time. It’s going to take a longer time there than it did here.
Where would you like Peakhill to be in five years?
We’re looking to be a larger investment and asset manager, in various strategies besides real estate, I would say would be our next step. We’ve expanded our capital raising team in the United States to get our name out and grow the strategies we’re looking to run.
Has anything surprised you in the last few years?
I’m surprised there haven’t been more defaults in Canada, given the extended higher interest rates, so I think there is potential for more stress coming. In the United States, there was quite a bit [of stress] really quick, but it has recovered.
“I’m a little surprised there haven’t been more notable deals”
Lenders in the United States were more conservative than in Canada, so that’s maybe why the U.S. is hanging in there better. It will be interesting to see what happens here over the next 12 months with regards to development projects that have been pushed out. I’m a little surprised there haven’t been more notable deals.
