GSP Insights

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    “The Long Bull Market in Bonds is Over” “The Punchbowl is Being Removed”

    The headlines have been “on hold” for years, but are now coming fast and furious as the 10 year yield hit 3.10%, the highest level since July 2011. Traders are shrugging off geopolitical events (US-North Korea tensions flaring up again, Mid-East tensions, Trade Talks) based on this week’s solid growth and inflation news: retail sales growth (Macy’s is back!), housing starts, and industrial production – all reports came in strong. Combined with supply/demand concerns (US deficit, Fed balance sheet reduction), yields are busting through key technical levels. The velocity of the rise is also noteworthy. Yesterday we saw a quick 9 bp increase in the 10 year rate. It’s seeming more like a trend than a peak, but those pronouncements have been made before, only to see yields drop as growth sputters or events such as Brexit spook investors back to the safe haven of Treasuries. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Middle Market Portfolio Lender Providing Bridge, Mezzanine and Preferred Equity

    Hot Money

    May 16, 2018

    George Smith Partners identified a national portfolio lender funding mortgage loans and sub-debt transactions ranging from $7,000,000 to $50,000,000 on a non-recourse basis. Up to 85% leverage, pricing will range from LIBOR + 300-500. Preferred product type is multi-family, industrial, office, anchored retail, self-storage and hospitality and will consider deeper value-add transactions with sub 1.0x DSCR deals.

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    Malcolm Davies was mentioned in The Registry-San Francisco

    In the Press

    May 16, 2018

    Dutchints Development Spends $48MM for Los Altos Property

    The debt portion of the financing was provided by George Smith Partners, which helped arrange the high-leverage $41,000,000 bridge loan for the acquisition. We were able to fulfill this requirement in a 60-day period and secure financing for 24 months at an 85 percent loan-to-purchase price.

    Click here to read the full article.

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    Treasuries “Hang Out” at 3.00%, Loan Coupons Still Sub 5.00%

    Today’s auction of $25 billion of 10 year treasuries was closely watched to see if the yield would hit 3.00%, a key psychological level. The closing yield was 2.995%, so very close. The 10 year yield is seeing upward pressure from the recent US withdrawal from the Iran nuclear agreement as the market sees this as inflationary. Oil is firming up at a $70 per barrel figure for the first time since 2014 (when it slid down from a high of $110). The return of inflation is now an accepted reality, the 10 year yield trading tightly around 3.00% indicates the markets are looking for direction (data that will yield confirmation or possibly confusion). Last week’s employment report was very “Goldilocks” with tight unemployment but it was due to a smaller labor force and wage growth was tepid. Tomorrow’s consumer inflation report, if inflationary, could push yields above the recent key technical level of 3.03%. The CMBS market remains robust, with some recent widening due to underwriting dynamics in particular pools, not overall sentiment. Spreads for full leverage loans are about 1.70-1.80, so coupons are creeping up towards 5.00%. Stay tuned.  By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Second Trust Deeds on Commercial and Investment SFRs to 75% of Value

    Hot Money

    May 9, 2018

    George Smith Partners is working with a California focused, direct portfolio lender financing commercial, multi-family, mixed-use and residential investment properties from $1,000,000 to $10,000,000. Product types include 2nd position mortgages on non-owner residential properties and can provide leverage up to 70% of value, 1,3,5,7,10 and 15 year terms with a 30 year amortization and no prepayment penalty. Rates starting at 7.75% on 2nds and senior lender approval or an inter-creditor agreement is not required.

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    Are We There Yet? Yes, Now What Happens?

    For years we have been in the world of the “new normal” where ultra-accommodative central bank policies (near zero interest rates, quantitative easing through massive bond purchases, etc.) result in little or no inflation. These metrics would be considered unthinkable in the pre-2008 era, when inflation was a constant and a real threat. During the last few years, the Fed has made it clear that their targets for full employment and normalized price increases were “2 and 4” (2.0% inflation and 4.0% unemployment). So Monday’s report indicating that the Fed’s preferred inflation gage, Personal Consumption Index (PCE), rose 2.0% for the year. Also, this is not an anomaly; the classic elements of a true inflationary environment are in place. Oil prices are firming up and the employment cost index rose 2.7% for the last year (and 0.8% in the first quarter alone). However, first quarter GDP cooled to 2.3% after hovering around 3.0% previously (this may be seasonal as consumers often cool off in the early part of the year). Today’s Fed meeting statement confirmed that inflation should “run near” 2.0% (this is an update from the March statement indicating that inflation would “move up” to 2.0%). The new fascinating term in the statement is “symmetric inflation”, this is being interpreted as a signal that the Fed won’t overreact to inflation at 2.0% and may tolerate a number slightly above that after so many years below. So two more hikes this year and possibly three are a certainty barring some unforeseen market issues. Keeping to the schedule of rate increases, it looks like June and September are the likely dates, with December as a “wild card” potential 4th increase in 2018. Note that the most influential Fed officials have targeted a “neutral rate” of 2.50% (a couple years ago the target neutral rate was 3.25-3.50%, the lower rate indicates officials believe a long period of “secular” low interest rates is appropriate). Last week’s dovish ECB statement putting off the end of their quantitative easing helped lower the 10 year T to 2.96% as 3.02% remains the recent peak (again). Always remember that the Fed controls a short term rate, long term rates are products of supply/demand dynamics and expectations for future inflation and growth. Stay tuned.  By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Whole Loans/Stretch Senior, Mezzanine/Preferred Equity Capital for Ground-Up Construction

    Hot Money

    May 2, 2018

    George Smith Partners identified a national capital provider offering whole loans/stretch senior, mezzanine and preferred equity programs starting at $10,000,000 in primary and secondary markets. Asset types include office, hospitality, retail and multifamily. With the ability to advance 80% of purchase price for stretch senior debt, pricing starts at LIBOR + 325 with floating rates up to seven years or fixed rate coupons for terms between two and five years. Mezzanine and Preferred Equity will extend to 85% of cost @ LIBOR+700 for ground-up development.

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    Jonathan Lee Moderates Panel Discussion at Interface Las Vegas Multifamily Conference

    Event Recap

    April 26, 2018

    Jonathan Lee moderated the discussion for the Capital Markets panel at the Interface Las Vegas Multifamily Conference on Tuesday, April 24th, 2018.  The panelists included: Gary Bechtel of Money 360, Dan Gaylord of ReadyCap, Scott Monroe of NorthMarq Capital and Cheryl Colbus of U.S. Bank.

    The discussion focused on the construction of new multi-family projects and the current appetite in the Greater Las Vegas MSA.  Bridge (Value Add) and Permanent financing were areas of conversation.

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    10 Year Treasury Over 3.00%, Is this a peak or a stepping stone?

    Pascale’s Perspective

    April 25, 2018

    Treasury yields are rising due to a combination of factors: easing of geo-political issues (North Korea-U.S. tensions, tariff/trade war); positive economic reports (consumer confidence, home sales) and inflation rumblings. The 10 year T hit 3.01% in late 2013 and dropped to 2.50% by mid-year 2014. That point is the recent high since 2011. Is 3.00% just a data point on an upward trend to (?) Or will inflation and growth slow (maybe because of high rates)? Monday’s market sell off to Caterpillars earnings report was interesting. The company indicated that the economy and earnings were at a “high water mark” and a leveling off or slowdown is looming. Investors fear a scenario of slowing growth and rising rates, it’s reminiscent of “stagflation.” Another interesting aspect of the report is it noted rising commodity costs along with an inability to raise product prices accordingly. This dis-connect may come up in future Fed debates about rising rates and what constitutes inflation. Commodities, finished goods and wages may disconnect in the “new normal” as technology and information access have changed the game. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    2018 Q1 Recap

    Event Recap

    April 23, 2018

    Click below to read the 2018 Q1 Recap.

     

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    Non-Recourse Bridge Financing Fixed at 5.9%

    Hot Money

    April 18, 2018

    George Smith Partners is working with a California focused lender funding bridge transactions over $10,000,000 on a non-recourse basis. Rates start at 5.9% for terms up to 18 months. Leverage for all asset classes up to 65% of purchase price. Loans are serviced locally, no third party reports are required and can close in under two weeks from executed application.

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    Small-Balance Non-Recourse Bridge Program

    Hot Money

    April 18, 2018

    George Smith Partners identified a national non-recourse bridge lender specializing in intermediate-term mortgages for value-add projects with opportunistic characteristics. Bridge debt can go up to 75% LTV on loan sizes between $3,000,000 and $15,000,000 with terms up to five years. The lender will finance traditional properties such as retail, multifamily, office, self-storage and industrial properties as well as student housing projects and self-storage facilities. The loan product offers floating rates over LIBOR, flexible prepay and no interest charges on future loan advances until they are disbursed.