George Smith Partners has identified a capital provider funding bridge loans up to 85% LTV. The loans are non-recourse and do not require a DCR test on the stabilized cash flow; allowing the lender to provide higher proceeds despite the current interest rate environment. Fixed rates start at 5.50% and floating rates start at SOFR + 5.00%. This capital provider lends nationwide on all major asset types including RV parks, self-storage, and student housing.

Fed Chair Powell has made it clear in recent statements – the Fed’s inflation response will continue to be driven by “the data.” Today’s release of the June CPI report indicated stubborn price increases across a wide spectrum of goods and services. The “headline” number of 9.1% is the highest annual gain since November 1981, expectations were 8.8%. Core CPI (excluding food and energy) rose 5.9% (5.7% was expected) and the highly watched core monthly increase was 0.7% (0.5% was expected). Key categories were up sharply over the last month: food (1.0%), energy (7.5%), gasoline (11.2%), apparel (0.8%), household furnishings (0.4%). There was some speculation that non-food retail goods like clothing and appliances would see price decreases as many retailers indicated they are overstocked, so these increases are indicators of broad-based inflation pressure. The Fed is now expected to increase rates by 100 basis points at the July 27th meeting. Futures markets show a 78% probability tonight, yesterday it was about 10%. A full point increase would be the largest since Fed Chair Greenspan fought inflation in the summer of 1988. The increase would put the Fed Funds’ rate (and 30-Day SOFR) up to 2.50% by the end of the month. The September futures indicate a 70% chance of another 75 bps up to 3.25% after the September 21st Fed meeting (there is no August meeting).

The bond market sold off on the short end and rallied on the long end, inverting the yield curve farther than any time since 2000. The 10-Year started the day spiking up to about 3.07%, before dropping to 2.91%. The 2-Year jumped to 3.16%; a 25 bp inversion between long and short. The Fed is pushing to avoid inflation expectations to become entrenched and alter consumer, employee, and employer behavior. The fear is that workers who are expecting price increases to continue will negotiate higher wage increases. That will then put pressure on companies to raise prices in an “inflation feedback loop.” Markets seem “resigned” to the Fed’s harsh medicine likely triggering a recession. Note that the Atlanta Fed’s “GDP now” index indicates that a recession is happening now. It predicts a negative GDP for Q2 (the actual GDP estimate comes out on July 28). The hope is that inflation peaks soon and a short recession will be the perfect excuse to cut rates in early 2023. Stay tuned…

By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

If you have an inquiry regarding George Smith Partners’ commercial real estate financing, please contact your GSP representative or Todd August, Chief Operating Officer at (310) 867-2995 or taugust@gspartners.com