GSP Insights

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    Mezzanine Financing for Affordable Housing

    Hot Money

    September 19, 2018

    George Smith Partners identified a private commercial real estate finance company that provides non-recourse mezzanine financing for the acquisition, renovation and development of multifamily properties (with at least 20% of the units classified as affordable) located in the Western U.S. The financing is structured as a tax-exempt private activity housing bonds or 501(c)(3) bond. They can be used on mixed use 80/20 projects, for non-profit corporations, can be subordinate to HUD and Rural Development Loans and can be repaid from the sale of tax credits. With the ability to advance 90% of mezzanine loan programs range from $5,000,000 to $15,000,00. Interest-Only pricing for Acquisition / Rehab ranges from 8% – 10%, compounded monthly and Development ranges from 10% – 12%, compounded monthly.

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    10 Year Treasury Above 3%

    Pascale’s Perspective

    September 19, 2018

    The 10 year treasury yield is above the key psychological and technical level of 3%. Factors include continued US economic growth seemingly unaffected by trade disputes, ECB discussing an end to their longtime bond buying program, and supply demand dynamics.

    David Pascale, Senior Vice President at George Smith Partners, joined RealCrowd on a podcast to discuss how the Federal Funds Rate impacts real estate.

    Mr. Pascale joined George Smith Partners more than two decades ago, leaving behind a successful career in intellectual property rights management.  Mr. Pascale has directly overseen the placement of nearly $4 billion capital into commercial real estate. He has an expertise in virtually every aspect of commercial real estate debt placement with distinct specializations in CMBS, bridge loans, credit tenant leases. He has worked extensively on retail, multifamily, hotel, office, and mixed use transactions. With a background in law, Mr. Pascale also brings loan document expertise and is able to explain and negotiate deal points and structure.  Click here to listen to the podcast or read the full transcript.

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    Thoughts on 10 Years Since The Crash and Great Recession

    Pascale’s Perspective

    September 12, 2018

    The Lehman Brothers bankruptcy in September 2008 was the culmination of a chain of events that brought markets worldwide to their knees, prompting governments and central banks to institute unprecedented measures (TARP, Massive Stimulus, Quantitative Easing, Regulation and then Deregulation). The commercial real estate market was devastated: credit froze, property values plunged, tenants failed or renegotiated leases, vacancy spiked, transactions of all types virtually stopped (buying/selling, leasing, refinancing). As many of us recall, the only financing available for years was government (Fannie, Freddie, SBA). But underwriting was very conservative and spreads were wide, private lenders (hard money at big rates for conservative transactions). The main culprit of the crash was excesses in the residential financing market: ridiculously loose underwriting standards allowing unqualified buyers to chase hyper inflated home prices and their mortgages to be packaged, insured and sold as investment grade securities. Commercial lending had its own issues with excess as the typical 2006-2008 CMBS loan structure was 80% LTV (or more), 10 years interest only, sub 100 spreads, and income included some pro-forma aspects (future lease up). Markets slowly responded: 2010 saw the first post-crash CMBS activity (with much more stringent underwriting), regular bank lending came back in 2011, construction lending picked up in 2012-2013.

    As of today, all sectors of the Capital Markets are extremely active and liquid. Unregulated debt funds (also known as hedge funds, private equity) are very active in the commercial real estate lending markets. CMBS is back and thankfully underwriting has been restrained compared to pre-crash levels. New regulations involving risk retention and originator reps have winnowed down the number of originators to well capitalized banks and funds. Residential lending standards have tightened, but the general housing market is approaching bubble levels (mostly due to supply/demand imbalances, not pre-crash style over building). The hope is that when the next downturn in prices comes, the increased equity required for borrowers will not lead to a contagion in foreclosures. The “Too Big to Fail” Banks are now bigger and more regulated (but the political appetite for bailouts is gone, so they better not fail). The worldwide central banks (Federal Reserve, ECB, Bank of Japan, Bank of Britain) are trying to bring the world back to the “old normal” after years of stimulus. Massive liquidity has not led to inflation yet. The questions are: where will the next crisis come from and will the financial system be able to survive it without a 2008 style collapse?

    “Turmoil on Wall Street and in the credit markets as Lehman Brothers declares bankruptcy, Merrill Lynch has been sold, AIG has been propped up by the US Government”.  To read the full FINfacts “Market Update” from September 17, 2008 click here.  Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Bridge Loans California – Non-Recourse Bridge Financing at 4.99% Pay Rate

    Hot Money

    September 12, 2018

    George Smith Partners is working with a private bridge lender providing non-recourse short-term pay rate loans secured by first trust deeds on commercial and non-owner-occupied residential real estate in prime California markets. The loan product offers “Pay Rate Protection,” which reduces borrowers’ monthly payment to 4.99% per annum for the entire loan term and defers the remaining interest until loan pay-off without compounding interest. Leverage for Multifamily, Office, Retail, Industrial, Mixed-Use, Covered Land, and Non-Owner Occupied Residential up to 65% of As-Is value for transactions up to $7.5 million with fixed interest rates between 7.99% and 8.99%. Transactions can be completed in seven business days and there are no prepayment penalties.

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    Treasury Yields Spike As Economy Shrugs of Trade Tensions, A Harbinger of Things to Come?

    Pascale’s Perspective

    September 4, 2018

    Yesterday’s positive ISM manufacturing report was significant, the index hit a 14 year high (61.3% vs expectations of 57.9%). This comes on the heels of last week’s report that 2nd quarter GDP rose at a 4.2% rate, the best since 3rd quarter 2014. The data indicates that US Companies are expanding unfazed by the constant headlines regarding trade disputes. The trade tensions have been a major factor in “flight to quality” purchases of Treasuries. This has resulted in a downward pressure on yields, keeping them below the levels that are expected for this level of economic expansion in the US (remember Jamie Dimon’s recent remarks that the 10 year yield should be 4% or 5%?). Another factor point to a possible run up in yields this fall: on September 15, a special extension for pension funds to purchase Treasuries and deduct the contribution at last year’s lower rate expires, so a major buyer may slow purchases. With record supply spurring frequent and large auctions of debt and the Fed continuing to pare down its balance sheet of Treasuries, we may see the yield curve return to a more normal form with higher yields at the long end. The 10 year is sitting at 2.90%, watch for the next few key levels of 3.00% and then 3.15%. Will this week’s employment report (Friday) continue this narrative? Stay tuned.

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    Bridge Loans – Bridge Lender Offering Aggressive Pricing

    Hot Money

    September 4, 2018

    George Smith Partners is working with a national middle-market portfolio lender funding bridge transactions from $10,000,000 to $75,000,000 on a non-recourse basis. Leverage for multifamily goes up to 75% and pricing starts at LIBOR + 3% for loans sizing to a going-in 3.75% debt yield. The lender will finance Multifamily, Office, Retail, Industrial, Hotel and Student Housing. With the ability to close in 30 days from executed application, three to five year terms are available. Cap strike prices and term lengths are structured to accommodate the business plan and minimize cost. All decisions are discretionary; loans are serviced locally and not part of an underlying bank line or targeted for a CLO execution.

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    Treasuries Rally on Good Vibes from Jackson Hole, Did the Market Read it Correctly?

    Pascale’s Perspective

    August 29, 2018

    Both stock and bond markets rallied on Fed Chair Powell’s comments at the annual Fed meeting in Wyoming. This meeting is often a venue for major policy speeches by Fed officials. The markets seized on Powell’s statement that “further, gradual” rate hikes are in order at this time in the cycle. It seems that the message is for less forward guidance and a wait and see approach to further rate hikes. Markets interpreted the message as “dovish” and possibly indicating one more rate hike in 2018 (September, with a previously assumed December hike now “off the table”) and only two more hikes in 2019. Some analysts (including Goldman Sachs) are pointing to new research papers from the Fed that bolster the case for the central bank to reign in inflation and potential asset bubbles with two hikes this year and four next year. After the speech the 10 year yield dropped to 2.81%, it has since risen to 2.88% on some positive trade news (US and Mexico), even though the much anticipated US and China talks don’t seem to be heading towards a major agreement. Regardless, the threats of massive trade wars seem to be ebbing (for now). Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Mezzanine/Preferred Equity Capital for Value-Add and Opportunistic Construction Loans

    Hot Money

    August 29, 2018

    George Smith Partners identified a national lender offering preferred equity programs ranging from $10,000,000 to $100,000,000 in primary and secondary markets. Asset types include industrial, office, hospitality, retail and multifamily. With the ability to advance 70%+ of purchase price for bridge debt, pricing starts at LIBOR + 290 with floating rates up to five years. Preferred Equity will extend to 75-90% of cost for value-add and opportunistic transactions at 12%+.

    For common equity, the value-add fund is seeking project level returns of 14%+ with average cash on cash yields of 6%+ across the country with a focus on industrial, multifamily, office, and retail with a minimum equity check size of $15 million. The opportunistic fund is seeking returns of 18%+ in primary and emerging primary markets across the country, covers all product types and will do development as well. Minimum equity check for the opportunistic fund is $25 million.

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    Treasuries at Multi-Month Lows After Fed Statement

    Pascale’s Perspective

    August 22, 2018

    Today’s Fed statement indicated “cautious optimism” on the economy. On one hand, confidence: the September rate hike is on track. On the other hand, caution: the December rate hike that was “on” is now “maybe” with minutes indicating a divided Fed. The statement cited trade disputes and tariffs as a potential hindrance to economic growth. Trade talks between the US and China begin this week with a possible summit meeting and agreement in November. If there is no deal, there may be no rate increase in December. The Fed also looked hard at slowdowns in residential construction and home-buying (mortgage data). This market is extremely sensitive to interest rates and this slowdown may be partially the result of recent Fed rate increases. This “unsureness” combined with trade tensions, emerging markets contagion (Venezuela, Turkey) and this week’s court proceedings involving administration officials all have combined to create a flight to quality trade. The 10 year yield is down to 2.81%. Stay tuned.  By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Large Non-Recourse Bridge Financing Up to Seven Years

    Hot Money

    August 22, 2018

    George Smith Partners has funded large reposition transactions with a national capital provider lending from $50,000,000 to $250,000,000 on a non-recourse basis. With the ability to provide up to 7 years of bridge financing for senior and subordinate loans in primary and secondary markets and across all major product types; [insert semi-colon] this lender will provide new/refinance senior and subordinate loans via a variety of different structures for projects in transition (vacancy lease-up) and traditional value-add. Pricing starts at L+220 for cash flowing assets and ramps up to 500 over LIBOR for heavy construction/reposition assets.

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    Three Solutions for When Your EB-5 Raise Has Come Up Short

    In the Press

    August 20, 2018

    Zack Streit, Vice President at George Smith Partners explains solutions for when your EB-5 raise has come up short.

    There has been a considerable slowdown in the EB-5 market over the last two years. What was once a fertile and cheap source of financing for multifamily and hotel developers is largely absent. The two primary reasons for the slowdown are retrogression (over-allocation of visas to Chinese investors) and Chinese government capital controls. The wait time for EB-5 investors to obtain visas in the U.S. has doubled from a 3-5 year timeframe to 7-10 years…

    Click here to read the full article as seen in the August 17, 2018 GlobeSt publication.

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    Non-Recourse Portfolio Permanent Loan Program

    Hot Money

    August 15, 2018

    George Smith Partners is currently placing non-recourse permanent financing from $1,000,000 to $15,000,000 for stabilized properties located in California, Washington, and Oregon with a West Coast portfolio lender This unique program offers a 5+5 option for commercial and multifamily asset classes priced at 4.5% to 4.75% fixed for 5 years on the ten-year term. Not found anywhere else in the capital markets is their ability to place a 50 basis point rate cap on the Year 6 adjustment. The amortization clock is also wound back to 30 years, reducing the mortgage constant on the remaining loan balance, increasing net cash flow after debt service after the fifth year. Prepayment steps down from 3% and is open the last 12 months of each of the five year segments.