GSP Insights

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    “Normal” Inflation Continues But Oil Prices May Put the Brakes On

    Pascale’s Perspective

    November 14, 2018

    Today’s major data points can be interpreted as a look to both the present and the future, and forward looking markets are acting accordingly. This morning’s CPI report showed consumer prices rising at their highest level in 9 months, keeping the “inflation is back” narrative alive. But a closer look reveals that 1/3 of the increase is due to gasoline and other energy components. With worldwide oil markets plunging, the near future may see a cooling of inflation. Oil prices often impact interest rates, as markets view oil demand as a bellwether of global growth. So today saw Treasury yields drop, the 10 year is at 3.12%, after hitting a recent high of 3.25% earlier in the month. CMBS and other Fixed Rates: CMBS bonds stopped their slide (spreads had been widening), a cutback in supply as we approach year end helped. CMBS spreads for full leverage loans are still in the 200 range (about 190-210 over the Swap). Life companies at lower leverage are anywhere from 130-180 over the Treasury. So all-in coupons range from 4.50 to 5.25%, depending on quality and leverage. Stay tuned.  By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Collateralized Revolving Line of Credit

    Hot Money

    November 14, 2018

    George Smith Partners is funding bridge and stabilized transactions from $500,000 to $10,000,000 on a recourse basis in California, Arizona, Nevada, Washington and Oregon. This portfolio lender offers the ability to finance the senior note as well as record a second trust deed behind their own first to be used as a revolver. As the credit facility is secured, there is no 364 day “clean-up” required. Interest is only paid on the outstanding balance if any and there is no stand-by fee or utilization fee. Revolver rates start at 6 month LIBOR for terms up to 30 years.

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    Gridlock in Washington, Wages Finally Pop, Trade Tensions Remain

    Pascale’s Perspective

    November 7, 2018

    Equities rallied today on the election results. Traditionally, Wall Street likes divided government and gridlock as that provides more certainty as the chances of major legislation being passed are diminished. Treasury buyers were nervous about the chances of another major tax cut increasing the already huge supply of government bonds. Fed Watch: Last weeks employment report confirmed that we are finally “here”.  Years of ultra-accommodative monetary policy is helping to produce significant wage gains. Anecdotal evidence suggested that even with the tight job market, employers had been increasing everything except wages (perks, benefits, bonuses, etc). Employees finally have pricing power on wages.  Last week’s report showed healthy gains of over 3.0% in line with the Fed’s “mandate” to put the average American in a position to succeed. A rate increase in  December is a virtual certainty. A breakthrough in US China trade talks could unleash yields further upward, today the 10 year sits at 3.21% about 6 bps below its recent high. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Bridge Financing Fixed at 5.25% Rate | Bridge Loans & Bridge Lender

    Bridge

    November 7, 2018

    George Smith Partners is working with a national bridge lender funding fixed-rate reposition transactions from $15,000,000 to $75,000,000 in primary and secondary markets. Bridge rates start at 5.25% fixed for terms up to three years. In today’s rising interest rate environment, many investors and developers prefer fixed rate bridge options in order to mitigate the risk of rate fluctuations and avoid purchasing a rate cap agreement at closing. Leverage for Office, Multifamily, Industrial, Hotel, Self-Storage & Grocery Anchored and High Street Retail up to 80% of cost. The bridge program offers future funding and prepayment with a minimum 12 months of call protection.

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    Mezzanine Financing for Affordable Housing

    Hot Money

    October 31, 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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    Market Volatility Driving Yields Downward

    Pascale’s Perspective

    October 24, 2018

    Stock markets worldwide are in a fear-driven, bumpy ride. This has brought bond yields down in a flight to quality. Markets are always watching what is coming next. The fear is that companies are experiencing “peak earnings” and that tariffs and other factors are taking their toll (nascent inflation, labor shortages, etc). Caterpillar’s earnings spurred a major selloff this week as they indicated margins are being cut due to increasing costs partially related to tariffs. Also, new home sales dropped, has housing peaked also? This seems not to be supply/demand driven but buyers are reeling from peak sales prices and higher interest rates. This begs the question in the post crisis economic world: can the economy thrive as ultra low interest rates go away? Geopolitical concerns: (1) Saudi Arabia and Turkey: tensions are rising between two major global economic powers; (2) Italy: populist government submitted a budget rejected by the EU, setting up a showdown. The EU is very concerned about Italy’s debt load becoming unsustainable. Note that an economic collapse/default in Italy would have serious worldwide repercussions. Italy’s economy is the 4th largest in Europe and 10 times the size of Greece’s economy (and the possibility of a Greek default caused major consternation a couple of years ago). Interesting that the Italian 10 year bond is trading at 3.61%, only a 0.50% premium to “ultra safe” US Treasuries; (3) China: remember that China’s growth was the only bright spot in the years after the financial crisis, now, the economy is sputtering despite regulators moving to increase liquidity. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    National Full Capitalization Hotel Financing

    Hot Money

    October 24, 2018

    George Smith Partners identified a national “Full Structured” hotel financier funding permanent hotel bridge, mezzanine loans and preferred equity investments secured by hotel assets for acquisitions, recapitalizations, cash-out re-financings, and renovations. Permanent financing up to $50 million; fixed for 20-30 years at 4.5%-6.5% with terms up to 10 years and leverage up to 80% of cost. Bridge debt to $50 million; fixed or floating at 6.0%-9.0% with terms to 5 years and 85% of stabilized value. Mezzanine tranches to $10 million; rates from 12%, Interest only or matched to senior loan. Leverage is limited to 85% of value. Preferred Equity to $10 million; rates between 13% to 20% to 95% of cost. There is no participation for the Pref Equity once their returns are realized.

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    Gary M. Tenzer on the Trial Technology & Litigation Support Podcast

    Podcast

    October 23, 2018

    Gary M. Tenzer, Co-Founding Principal of GSP was a guest on the Trial Technology & Litigation Support Podcast.  Gary handles the litigation support practice for GSP; he has extensive experience as an expert witness having been retained in over 300 matters and testifying in over 100 cases nationwide.

    Click here to listen to the podcast.

    Clickhere to read the transcript from the podcast.

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    Rising Rates Affect on Consumers, Fed Minutes Indicate Resolve

    Pascale’s Perspective

    October 17, 2018

    Increasing rates are supposedly the solution for an overheating economy. Rising rates are affecting the housing markets (negatively) and apartment metrics (positively in a contrarian way). Higher rates are slowing down the home refinance market to a crawl and also putting pressure on buyers and sellers. (higher rates = less loan proceeds of course). Today a Freddie Mac study indicated higher mortgage rates are turning some would be buyers into renters (at least until prices go down), thereby increasing occupancy and rents for apartment owners. Of course many apartment owners are bemoaning the increase in fixed and floating rates for their acquisitions and perms. Today’s Fed minutes indicate the committee is united (last month’s increase was unanimous) and convinced more hikes are in order. This is a significant message to markets that the Fed is not bowing to pressure from the executive branch. The 10 year T hit 3.20% again today after a week of huge market volatility. In other contrarian news, the Sears bankruptcy will be good news for many retail owners as many of the affected Sears (or Kmart) locations involve rock bottom below market rent for good infill retail locations. Savvy and well capitalized operators can repurpose the space. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Co-GP Equity Provider

    Hot Money

    October 17, 2018

    George Smith Partners identified a Co-GP equity provider for multifamily, student housing, senior Independent-living, hospitality, industrial, office (including medical and other uses on a selective basis), self-storage and mixed-use sectors. Looking for value-add and opportunistic opportunities (mostly 90/10 or 95/5 deals) in primary and secondary markets nationwide. Target equity investments between $1-10M per deal with an investment period of 2 to 10 years.

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    Wall Street Correction, Is This Part of “Normalization”?

    Pascale’s Perspective

    October 10, 2018

    Last week’s comments from Fed Chair Powell have resonated with the markets. He said that we are a “long way” from neutral on interest rates and that the “really extremely accommodative low interest rates are not appropriate anymore”. This is a vote of confidence in the strength of the US economy, so it’s good news, right? Also, note that the Fed has indicated that they may increase rates above the neutral rate if necessary in order to restrain inflation. It seems that there is some technical support for 10 year rates above 3.00% (the yield did not “snap back”, it is staying high partly due to continued record supply). Many accused the Fed of inflating asset bubbles with years of low rate and accommodative policy. Well then, now those assets may be “marked to market” and we may be seeing the “real” values of stocks and other financials. Note that during much of today’s plunge in stocks, both stocks and bonds were selling off (which is unusual). However, there was some “flight to quality” bond buying at the end of the day, the 10 year yield dropped to 3.16% as traders noted that tomorrow’s Dow futures indicate a triple digit drop. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    National Portfolio Permanent Lender With Zero Prepayment

    Hot Money

    October 10, 2018

    George Smith Partners is working with a national portfolio lender that is structured with no pre-payment penalty and loan origination fees of 0.50% for transactions up to $50,000,000. Rate is set at acceptance of LOI and most loans close within 60 days of pre-screen. Partial or non-recourse deals on strong credits that reflect a low LTV and higher than normal debt coverage for properties located in sub-market areas with communities of 100,000+ population.