GSP Insights

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    95% Leverage Equity Capital

    Hot Money

    January 16, 2018

    Treasuries Stabilize as Asian Fears Subside, Inflation Rumbles……Both the Japanese and Chinese induced “taper tantrums” appear to be false alarms or saber rattling. The 10 year treasury yields jumped to 2.60% on rumors and reports of less bond George Smith Partners identified an institutional capital provider with the flexibility to capitalize cash flowing and non-cash flowing commercial projects utilizing preferred equity, and joint venture equity on a nationwide basis. Minimum sub-debt/equity capital investment of $2,000,000 are required; leveraged up to 95% for multifamily projects. Preferred property types include multifamily and Net Leased Assets.

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    Treasuries Stabilize as Asian Fears Subside, Inflation Rumbles

    Pascale’s Perspective

    January 16, 2018

    Both the Japanese and Chinese induced “taper tantrums” appear to be false alarms or saber rattling. The 10 year treasury yields jumped to 2.60% on rumors and reports of less bond buying (of Japanese bonds) from the Bank of Japan and less buying of US Treasuries from China. The Bank of Japan purchase adjustment may be technical and markets are not yet convinced that the stimulus policy has been abated. But the BOJ’s actions will be closely watched as it is the last major central bank in “maximum” accommodative policy mode with regards to aggressive bond buying. The China situation is interesting, the state foreign exchange regulator refuted the news reports of an end to bond buying as “fake news”. But why did they wait a full day as markets sold off? Maybe it was a reminder to the US as to the power and influence they have over our rates and economy in advance of some major trade decisions. What about inflation? Is 2018 finally the year that prices move upward in a meaningful way? Last week’s CPI showed some strength, oil seems to be strengthening at a key technical level of $60 barrel (considered a minimum level that encourages more capital spending and exploration) and some cities are reporting worker shortages and wage inflation (an all-important metric for the Fed). Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Asian News and Rumors Spark Bond Market Selloff, Yields Threaten Key Technicals, Auction Stabilizes Market

    Pascale’s Perspective

    January 10, 2018

    First off(rumors and expectations): The selloff started with the Bank of Japan’s unexpected move to reduce their purchases of their bonds rekindled the “taking away the punch bowl” narrative as the world’s central banks wind down the post-crash stimulus (as we approach the 10 year anniversary of the Lehman bankruptcy). As usual, the market reaction was magnified by the unexpectedness of the announcement.  The US Fed stopped buying bonds long ago and the ECB has assured markets that their wind down will be well telegraphed.  So the mini “taper tantrum” gained steam as Bloomberg reported that China is considering slowing down or even stopping their purchases of US Treasuries.  Note that China is the largest owner of US debt.  The fact that the report was not refuted by officials or insiders gave it legitimacy and the sell off was on.  The 10 year T hit 2.60% today, up 15 bps since last Friday.  The China stance is complicated and multi-faceted: (1)  China is the largest holder of Treasuries (approx. $1.2 Trillion) and illiquidity in the market can devalue their portfolio; (2) Major trade decisions on aluminum, steel and other commodities by the US are pending, this could be a “warning shot” against potential tariffs; (3) Destabilizing the US Economy would not help China’s export business, increasing interest rates lessens US consumer buying power.  As yields rose, markets pondered the “unthinkable”: China selling Treasuries as our Fed trims its balance sheet (also selling Treasuries) as tax cuts and growing entitlement obligations balloon the deficit and increase supply into a marketplace of dwindling demand.  The 10 year yield fell short of its key technical, the March 2017 recent high of 2.63%.  Then an actual auction calmed markets (for now) as $20 billion of 10 year notes were well received as buyers were attracted to the higher yields, the 10 year dropped to 2.55%.  Now, all eyes are on Friday’s CPI reports for signs of inflation. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    CMBS and B Piece Buyer in One

    Hot Money

    January 10, 2018

    To further reduce uncertainty of execution, an active CMBS lender is advancing up to 75% of value with plans to hold the B Piece on their balance sheet to maintain certainty of execution. Debt Yields as low as a 7.5% for non-recourse fixed rate requests will be underwritten. Transactions range from $5,000,000 to $100,000,000 and term can be up to 10 years.

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    New Year, New Fed Chairman, New Tax Bill, Same Old Yield Curve

    Pascale’s Perspective

    January 3, 2018

    Happy New Year to all as the macro-economy is roaring into the New Year. Retail sales over the Holidays were solid, both e-commerce and in-store. Stock markets are still hitting new highs with very little volatility. The 10 year Treasury continues to trade in a tight range, after spiking over 2.50%, it is back down in the low 2.40’s this week. Tax Bill Effects: The bill contains positive provisions for REIT’s and other owners of commercial real estate due to favorable treatment of “pass through” income. The residential market effects may be more “checkered” with limits on mortgage interest and state tax deductions may negatively impact high end housing markets in California, New York, New Jersey and other high tax states. Increased purchasing power among regular consumers is complicated by uncertainty over corporation passing savings/bonuses to workers (some major companies have started) and the sunset provision for many of the individual cuts set for 2025, setting up a potential “fiscal cliff” for future congresses to deal with (or not). Interest rates: Higher rates are expected as increased deficits will necessitate a bigger supply of Treasuries. Today’s Fed Minutes release from last month’s meeting showed classic policymaker dilemma over the tax bill:tax policy does not dictate corporate or individual behaviors. For example: Will corporations increase investment in capital spending, which can increase economic capacity without spurring inflation? Or will they use it to execute financial investments such as stock buy backs or debt reduction? This could spur inflation. The Fed’s stated course is three rate increases in 2018 and their projections indicate, that will be sufficient. 2018 Government Action: Dodd Frank “adjustments” are on tap, including the elimination of stress tests for many regional and community banks, this may spur lending among these middle market players. Also, various proposals for Fannie Mae and Freddie Mac “reform” are being discussed, but the main stumbling block is the lack of a pure private market in mortgage bonds, even 10 years after the crisis. It is doubtful that Congress will want to increase uncertainty in that market so quickly on the heels of the tax bill. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Mezzanine/Preferred Equity behind existing CMBS/Bank Debt

    Hot Money

    January 3, 2018

    George Smith Partners identified an institutional capital provider funding subordinate debt behind existing CMBS debt for all property types nationwide. The sub-debt lender will fund fully stabilized assets up to 85% of cost/value with various pay structures. Terms are up to ten years and pricing starts at 8% for a current pay and requires accrual or equity participation. All structures are within full compliance of the existing senior debt.

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    Tax Bill, Data, Relative Value to the Bund Combine to Push 10 year to 2.50%

    Pascale’s Perspective

    December 20, 2017

    After trading in a relatively tight range for many weeks, the 10 year T jumped 14 bps in 2 days as the tax bill passed the House, Senate, the House (again) and is now ready for signature (note that the bill most likely will be signed after New Year’s). The rise actually started with an allocation announcement by Germany regarding their bond issuance. Germany is the Euro zone’s benchmark bond issuer and they announced that they will borrow more in 2018, specifically by issuing more than expected long bonds (30 years in particular). This supply news caused a selloff in 10 and 30 year bonds in Europe, driving yields up internationally and domestically. With stronger than expected existing home sales in the United States combined with the final tax bill passage convinced investors that growth and deficits are on the horizon. The combination of expected events (tax bill) and unexpected (Euro announcement) proved to be volatile. All of this is exacerbated by end of year illiquidity as many institutions have filled their allocations and are winding down 2017. The movement spiked the 10 year yield past key technical levels including the October top of 2.46%, the next test is the March top of 2.62% (before the legislative dysfunction that slowed down policy movement). The next test for Washington is avoiding a government shutdown on Friday. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

    On December 18th, David Pascale was interviewed by Howard Kline, Esq. of CRE Radio to discuss the most recent December Fed meeting and rate hike. Click here to listen to the podcast.

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    National Direct Lender from $3,000,0000 to $25,000,0000

    Hot Money

    December 20, 2017

    George Smith Partners identified a national floating-rate balance sheet lender funding bridge transactions up to $25,000,000 on a non-recourse basis. With the ability to advance up to 80% of total capitalization, pricing starts at LIBOR + 400 for partial or non-cash flowing assets. All core asset classes in primary and secondary markets are underwritten with no minimum DCR or debt yield required at funding.

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    Podcast Interview with David Pascale, Yellen’s Swan Song

    Podcast

    December 18, 2017

    David Pascale, Senior Vice President of George Smith Partners was interviewed by Howard Kline, Esq. of CRE Radio to discuss the most recent December Fed meeting and rate hike.  For the past two decades, Mr. Pascale has positioned George Smith Partners as a thought leader, providing insight on the macro and micro-economic factors influencing the commercial real estate capital markets through his weekly column, “Pascale’s Perspective” published in the FINfacts weekly newsletter.

    Click here to read a transcript : Podcast Transcript 12.18.17

    Subscribe to FINfacts

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    Yellen’s Swan Song – A Highly Telegraphed, Expected and Non-Unanimous Rate Increase

    Pascale’s Perspective

    December 13, 2017

    The mid-December rate increase has become a holiday tradition over the past 3 years. Today’s rate hike was no surprise, the “action” was all in the commentary and the two no votes. Yellen’s final press conference as Chair was notable for commentary on the tax cut (it may deplete ammo to fight future recessions), bitcoin (highly speculative), her greatest disappointment (inability to achieve the Fed’s target inflation of 2.0%). The inflation “miss” was highlighted by this morning’s lower than expected CPI report. The lack of wage inflation is especially troubling to the Chair. The rate hike is notable as it shows confidence in the strength of the US Economy. The two “no” votes show some members afraid that rate hikes may damage the recovery and/or that the recovery is weak. The “dot plot” indicating three rate hikes for 2018 (and 2 or 3 more in 2019) is being looked at skeptically by markets, the futures index indicates they expect 2 next year. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Life Company with Allocation for Construction, Bridge, and Permanent Loans for Unique Assets

    Hot Money

    December 6, 2017

     

    GSP is originating debt with a national life company for transactions from $5,000,000 to $125,000,000. Fixed or floating non-recourse bridge loans start at $5,000,000 and above with pricing starting at LIBOR plus 4.50% with leverage up to 80% LTV. Properties with below break-even debt coverage will be reviewed on a case by case basis. This balance sheet lender will finance non-recourse construction loans $50,000,000 and above to 65% LTC starting at LIBOR plus 4.50%. Typical terms for bridge and construction are interest only for 3 years fixed with leverage up to 70% LTV. Permanent loans are 5 to 20 years fixed. The capital provider will fund asset classes that other life companies typically shy away from.

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    Yellen’s Finale, “Sticking to the Script” ?

    Pascale’s Perspective

    December 6, 2017

    Next week’s Fed meeting, policy announcement and accompanying statement/presser has been heavily telegraphed in advance. There should be no surprises. First off, a 0.25% rate increase is a slam dunk, with the futures market at about 90% likelihood (note that the other 10% is on a 0.50% increase). Also, with Jerome Powell set to take over in early 2018, Yellen is unlikely to lay out policy for next year. So the focus will shift to Powell’s upcoming speeches/remarks and his first meeting as Fed Chair next month and beyond. Meanwhile, 30 day LIBOR is already up from 1.25% to 1.40% in the last month on anticipation of the move and year end liquidity issues. LIBOR’s “expiration date” of year end 2021 is gaining certainty as the Bank of England last week announced it is requiring participating banks to continue reporting until 2021, but they may stop reporting after that. This should add momentum to the alternative rates being discussed (SONIA in England, Overnight Treasury REPO in the USA). There is a lot of work to do in the next 4 years as trillions of dollars in derivatives and contracts need to be adjusted. Treasuries: The yield curve is flattening even more dramatically as the short end is certain of increases (see above) and the long end is still “show me the inflation and/or growth”. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners