GSP Insights

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    Taylor to Rule in 2018?

    Pascale’s Perspective

    October 18, 2017

    The recent buzz in Washington regarding the next Fed Chair is centering on a new favorite, Stanford professor, John Taylor.  He is the author of the “Taylor Rule” which is designed to provide recommendations to central banks based on data such as inflation, economic activity, etc.  Proponents of the rule argue that it takes out much of the leeway and discretion from the FOMC in setting rates.  The markets view Taylor as “hawkish” and some analyses indicate that the application of his rule would triple short term rates.  His interview was said to “go well”, but interviews with dovish candidates such as Powell and Yellen are scheduled for the coming weeks.  General sentiment towards higher rates and a flatter yield curve are coming from Chinese President Xi Jingping’s speech (pro-growth), progress on tax reform in Washington, and record highs on Wall Street.  The 2 year T (sensitive to short term rate expectations) jumped to its highest level in 10 years on reports of Taylor’s strong interview, the 10 year is up nearly 10 bps in the last week (2.34% today). Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    National Portfolio Funding with No Lending Limits or Prepayment Penalties

    Hot Money

    October 18, 2017

    George Smith Partners is placing acquisition and refinance debt with a national portfolio lender offering a generic fixed rate structure with no lending limits or prepayment penalties. This capital provider offers 3, 5, 7, 10 and 15 fixed rate terms for multifamily, office and retail up to 75% of cost/value. Funding is underwritten using traditional CMBS guidelines with 1.25 minimum DCR for this on-book execution.

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    Wage Inflation Finally Arrives, Will it Stay Around?

    Pascale’s Perspective

    October 11, 2017

    The headline on last Friday’s monthly employment report was the first monthly decline in jobs in 7 years (down 33,000).  But the Fed found solace in the wage growth figure (up 2.9%).  This metric has been critical in the Fed’s decisions to keep rates low as many FOMC voters consider wage growth a critical part of their mandate.  The thinking is wage growth raises living standards and leads to general inflation.  The 2.9% increase was surprising and welcome news, but next month’s number will be closely watched as the increase could be hurricane related (exacerbating short term labor shortages).  Today’s release of Fed minutes all but confirms a rate increase in December (the futures market shows an 87% probability).  The minutes show some members voicing concern that the existing low inflation environment may be “persistent”, with others afraid that inflation could “run away unchecked” if they keep rates too low too long.  Meanwhile, the “great unwind” (balance sheet reduction) is beginning this month. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Fixed Rate Non-Recourse Loans Up to 85%

    Hot Money

    October 11, 2017

    George Smith Partners identified a national capital provider funding fixed or LIBOR-based floating rate loans from $3,000,000 to $75,000,000, starting at 4.5%.  This lender will finance Multifamily, Retail, Office, Industrial, Self-Storage, Mobile Home Parks, and Hospitality properties located in primary and secondary markets nationwide. 30 year amortization and terms up to 10 years on a non-recourse basis up to 85% LTV.

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    Treasuries Trading in a Tight Range, Looking for a “New Direction”?

    Pascale’s Perspective

    October 4, 2017

    The 10 year T has been sitting in the 2.30 – 2.35% range for a couple weeks, the market seems to be “waiting for direction” from a couple places: (1) The data: this Friday’s monthly jobs report will be closely scrutinized for the usual (general trends, wage inflation, etc) and the particular (fallout from recent hurricanes, will this cause a spike in hiring with labor shortages ?); (2) The next Fed Chair speculation: Washington’s favorite subject is often the next big appointment, who is the “favorite”? Is there a potential surprise “dark horse”? With Fed Chair Yellen’s term as Chair ending in January 2018, the rumor mill is in overdrive. The favorite is Fed Governor Jerome Powell, a “dove”, the other major contender is the hawkish former Fed governor Kevin Warsh. Powell is seen as a continuation of Yellen, while Warsh is a wild card that could accelerate the pace of rate hikes or the Fed balance sheet reduction. As one or the other is perceived to be the favorite, bond yields may spike or drop accordingly. (3) Congress and the Administration: Tax reform and/or Tax Cuts: On the agenda, the question is will something pass and if so, what will it look like? Higher deficits? How stimulative will it be? Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Non-Recourse Bridge Lender Providing High Leverage

    Hot Money

    October 4, 2017

    George Smith Partners is placing high leverage senior financing bridge loan requests with a non-recourse capital provider focusing on the Western United States.  Funding from $5,000,000 to $50,000,000, pricing ranges from LIBOR + 400 to 650 for a one-year term up to 85% of capitalization. The lender will focus on real estate projects with renovation and business plan execution risk.

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    “Reflation Trade” Is Back, But Is It Justified? 

    Pascale’s Perspective

    September 27, 2017

    Remember when Treasury yields spiked after the November election on expectations of a functional government implementing major fiscal policy?  The 10-year T went from 1.77% on election night to 2.60% in December as infrastructure and tax reform were “scheduled” for the “first 100 days”.   Those days came and went with gridlock and unsuccessful attempts to pass healthcare legislation and Treasury yields dropped.  Today’s announcement of some (but not all) of the details for tax reform spurred a bond selloff, the 10-year yield jumped from 2.24% to 2.31%.  Combined with last week’s announcement regarding Fed balance sheet reduction, aka the “Great Unwind”, the market is considering $5 trillion in tax cuts plus over $3 trillion in bond runoff will result in lots of supply.  The other side of the coin is that the devil is in the details and tax reform is by no means a “done deal” as warring factions within congress and an army of lobbyists can water down or kill any plan.  Also, the pace of balance sheet runoff is slow and gradual and could be even slower depending on future economic growth.  This week’s Fed committee member speeches have featured some disagreement on future rate hikes with Yellen seemingly setting a December rate hike “in stone” regardless of inflation.  Other speeches showed some dissent with that approach. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Bridge Balance Sheet Lender

    Hot Money

    September 27, 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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    The Path to Normalization: Long Awaited and Unprecedented Fed Balance Sheet Reduction Announced, But Investors Focus on Rate Hike Signal

    Pascale’s Perspective

    September 20, 2017

    Fed Chair Yellen has been very focused on telegraphing Fed moves well in advance, thereby avoiding “market shock” (see 2013 “taper tantrum”).  So today’s announcement of the “Great Unwind” (balance sheet reduction) was expected.  Still, there is some apprehension in the market for two reasons: (1) The Fed balance sheet expansion was unprecedented as will be the contraction and (2) The unwinding is another milestone signaling the end of the ultra-accommodative worldwide central bank intervention, or simply put: “you’re on your own, the training wheels are off”.  The pace of the contraction is very slow and measured: $10 billion per month through year end, then $20B in the first quarter 2018, $30 billion in Q2, $40 billion in Q3, then $50 billion per month ongoing.   At that pace, the “normal” Fed balance sheet of $1 trillion will not be reached until sometime in 2023.  That is assuming an uninterrupted pace which is very optimistic as the Fed may suspend the contraction if economic conditions deteriorate.  That is a much slower pace than the expansion rate of about $80 billion per month during most of QE.  Most likely a sell off at that pace would rattle markets.  The real news was more “telegraphing” as the Fed “dot plot” indicated a clear majority of committee members predicting a December 2017 rate hike.  The futures market jumped from less than 50% probability to 60%.  This showed a Fed willing to continue their pace of rate hikes regardless of recent reports indicating lower inflation than the stated 2.0% goal (however, last week’s CPI jump of 0.4% was a classic harbinger of inflation).  The dot plot also indicated a consensus for three hikes in 2018 and two in 2019, with a normalized overnight rate of 2.80% (up from 1.25% today. Stay tuned.  By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Heavy Bridge Capital and Non-Recourse Ground-Up Construction Nationwide

    Uncategorized

    September 20, 2017

    GSP is originating debt with a balance sheet lender specializing in heavy bridge loans from $20,000,000 to $100,000,0000 to 65% LTV.  Recent tombstones include vacant buildings and a fractured condo.  Ground-up construction financing is also available on a non-recourse basis to 60% of cost.  Pref-equity may be layered on to 75% of total capitalization.  All structures are priced from LIBOR + 425 and 1 point.  There is no exit fee for the three year term.

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    George Smith Partners Appoints Two New VPs; New Positions Bolster Firm’s Growth & Expansion

    Uncategorized

    September 13, 2017

    George Smith Partners has announced two new additions to its team, Allison Weiss as Vice President/Director of Platform Development and Dana Light as the Vice President of Research/Marketing. Both Weiss and Light will work to increase the velocity of the firm’s ongoing growth and expansion, according to Principals and Co-Managing Directors Jonathan Lee and Shahin Yazdi. In her newly created role, Weiss will be responsible for recruitment and hiring on a national basis. In her new position, Light will focus on researching responsible lenders and lending programs for George Smith Partners. This work will support the firm in upholding its exemplary reputation, which was established by George Smith when he founded the company 25 years ago.

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    Treasury Yields Rise as “Fear Factors” Subside, Fed to Unveil Balance Sheet Strategy

    Pascale’s Perspective

    September 13, 2017

    Last Friday, the 10 year T yield dropped to 2.01% on a huge “risk off” trade.  Today the 10 year T closed at 2.19%.  Why?  Investor fears have subsided due to: (1) Hurricane Irma damage (while very serious) was less than anticipated as the storm’s path avoided the heart of Miami-Dade and it weakened as it moved inland; (2) North Korea did not provoke hostilities (no missile launches, etc.) on it’s anniversary over the weekend; (3) Weekend chatter in Washington in the wake of the debt ceiling deal turned to further cooperation on tax reform.  This week’s economic reports included an all-time high in median household income (but disparities are increasing) and an increase in PPI (but less than expected and the increase was partially driven by a spike in energy costs due to Hurricane Harvey’s effect on the sector).  On the Fed front, it looks like there is only one more opportunity to raise rates this year and that will come in the December meeting.  There are only two meetings remaining that will be accompanied by a press conference by Fed Chair Yellen (September and December).  Next weeks’ meeting is expected to feature an unprecedented announcement whose effects cannot be easily predicted: the beginning of the Fed’s balance sheet reduction.  The press conference and it’s aftermath will be closely watched.  The reduction will increase the supply of Treasuries in the private sector.  The move has been telegraphed since early this year in the hopes of avoiding a 2013 style “Taper tantrum” that led to major volatility in treasuries. Market reaction could influence the Fed’s rate decision in December.  As of now, the futures market is slightly weighted toward no change in rates, but it is very close.  Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners