GSP Insights

  • Non-Recourse Bridge Financing with Rates Starting at 6%

    Hot Money

    October 21, 2020

    George Smith Partners is working with a national capital provider funding non-recourse bridge debt to 70% of total cost. The Lender is looking for true proforma based underwriting with a strong appetite for multifamily, industrial and cash-flowing senior living properties. The Lender offers fixed rate pricing starting at 6%, flexible loan prepayment structures with terms up to one year for transactions from $20,000,000 – $100,000,000.

  • Treasuries Spike on “Real Progress” Towards Stimulus Deal

    Pascale’s Perspective

    October 21, 2020

    Stop me if you have heard this before, but stimulus talks have taken on new urgency with a potential agreement in the next few days. The question now is if the votes to approve will take place before or after the election. The talks have taken on new urgency as jobless claims increase, highly publicized layoffs by large companies, an anticipated spike in COVID infections, etc. Equity markets have rallied and treasury yields have spiked based on the expectations of an agreement. The 10 year treasury is at 0.82%, the highest level since June. Note that the 10 year Treasury dropped as low as 0.31% in March during the initial COVID crash. Other factors contributing to the rise in yields are the Federal Reserve’s decision not to implement “yield curve control” (meaning the Fed would buy enough Treasuries to keep long term rates at a certain level) and the huge supply of Treasuries (due to the US budget deficit). Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • Treasury Yields Drop, CRE: Focus on Office and Location Pandemic Trends

    Pascale’s Perspective

    October 14, 2020

    The 10 year Treasury was flirting with 0.80% last week about 15 bps above its recent average level. Interestingly, vaccine concerns led to a 5 bp drop to 0.72%. Reports from J&J and Eli Lilly regarding delays in progress on COVID vaccines and treatments reminded investors that the road to “normal” is bumpy. This leaves Pfizer and Moderna as the only two major vaccine candidates to have any chance at approval by year end. These developments remind us that regarding commercial real estate, any return to pre-pandemic normality will be well into 2021 and many changes may be permanent. A recent analysis by Cushman and Wakefield predict an increasing of office vacancies well into 2022 with a return to pre-COVID levels being achieved in 2025. The work-from-home movement has been accelerated by COVID: permanent at home workers increased from 5-6% pre-COVID to 10-11% today. The “hybrid” worker is on the rise. Pre-COVID hybrids accounted for 35% of office workers. Today this number is 50%. The hybrid worker splits working time between the office and home.

    Another major trend is affecting the real estate mantra “location, location, location”. The pre-pandemic location trend was driven by urbanization and densification around downtown cores of major cites. As mentioned by Peter Grant in today’s WSJ, the urbanization trend is being reversed. Downtown offices and attractions are less alluring to residents today. This has led to a flight to the suburbs and other secondary locations, as residents seek more space. This is not expected to “snap back” with the availably of a vaccine. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • Bridge, Construction and Permanent Funding During COVID

    Hot Money

    October 14, 2020

    George Smith Partners is currently originating and closing fixed rate loans for bridge, permanent, and construction projects with an institutional portfolio lender. The capital provider offers aggressive pricing starting at 3.50% for 3- and 5-year terms, Interest Only and up to 70% LTV for multifamily properties. This lender has a strong appetite for medical offices and owner-occupied, multi-tenant and credit tenant industrial properties. Investor owned commercial real estate rates start at 3.75% and can go up to 60% of value.

  • Zack Streit Recognized in Real Estate Forum’s 50 Under 40

    In the Press

    October 8, 2020

    As SVP of George Smith Partners, Zack assists sponsors in capitalizing their institutional-level deals. Streit has arranged and closed more than $1B and has underwritten more than $6B od debt and equity financing for an array of transactions. In 2019, he notably co-brokered the $460 million non-recourse senior construction financing for a Ritz Carlton Hotel, Residences and Offices development in Portland, OR, which served as the company’s largest transaction to date and the third largest construction loan in the country when it closed last year.

    The full article can be found here: https://www.reforum-digital.com/reforum/october_2020?folio=16&utm_source=newsletter&utm_medium=email&utm_campaign=TXREFO201005003&utm_content=gtxcel&pg=28#pg28

  • Non-Recourse Bridge Lender – Closed 5 Deals During COVID

    Hot Money

    October 7, 2020

    George Smith Partners is working with a non-recourse capital provider who is actively funding bridge loans from $15,000,000 to $250,000,000. The portfolio lender will fund up to 85% of value with a focus on Residential (Condo/MF/Student), Retail, Office, Vacant Land and Hospitality properties in primary, secondary and tertiary markets nationwide. Rates start at 6.5%+ and terms up to four years, the program highlights include no prepayment and interest only. Decision making is flat, and they can close as fast as one week depending on deal structure.

  • Stimulus Roller Coaster, Markets Ride Along

    Pascale’s Perspective

    October 7, 2020

    The “must pass” stimulus has been rocked by conflicting messages as markets plunged yesterday on “no deal until after the election” talk followed by some optimism today. The familiar pattern played out this week. Federal Reserve bankers pleading with Congress that their monetary policy only goes so far and that fiscal policy is desperately needed. The bankers indicated that the June-July bounce back in hiring was “low hanging fruit” and that the remaining job losses may be long term or permanent. Disney, Regal Cinema and the airlines announce major job cuts in the last few weeks. It seems that the private sector is not ready to create jobs without assistance. The next week or two should be interesting.

    Treasuries & Rates: After sitting in a tight range of about 0.65% for weeks, the 10 year T is at 0.78% today, a 4-month high. Why? Disappointment over the Fed’s September meeting minutes. As record deficits create huge supplies of treasuries, there has been some hiccups in long bond purchase volume. The Fed was expected to announce “yield curve control” measures soon, promising to keep 10 and 30 year rates within a desired range by purchasing enough treasuries to push the yield low enough. The minutes today showed that as of now, this is not the policy. So some selling occurred on that announcement and on today’s muted optimism for a stimulus deal. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • Stimulus Talks Take on Urgency as Airline Layoffs Begin

    Pascale’s Perspective

    September 30, 2020

    Congressional and Administration officials are trying one last time to pass a stimulus bill before the pre-election recess.    American Airlines announced 19,000 furloughs today which will be reversed only if new aid from Washington is forthcoming.   Other major airlines (United & Delta) are expected to follow suit, and these layoffs will have a ripple effect throughout the economy.  Many analysts are pointing to statistics that indicate the recovery from the 2008 Great Recession was slowed by the lack of continued stimulus.  A large bill was passed in early 2009, but follow-ups were doomed by partisan wrangling.   San Francisco Federal Reserve President Mary Daly today called for stronger fiscal policy from Congress:  “We aren’t out of the woods yet, so we need a longer bridge”.  She also said that there is weakness in the jobs market that the unemployment rate is not capturing.

    Spotlight on Hotels:   The hotel sector has been hardest hit by the pandemic.   Recent weeks have seen permanent closures of high-profile hotels such as, The Luxe on Rodeo Drive in Beverly Hills and the “Crossroads of the World” Hilton on Times Square.  Experts indicate that without significant aid from Congress the wave of closures is just beginning.   CMBS has been the preferred loan execution for hotels for many years with $85 billion in outstanding hotel loans.  Statistics from Trepp, the leading CMBS analytics group, indicate unprecedented stress on the sector.  Loans delinquency are at 23.4%, highest on record (December 2019 it was 1.3%).   The volume of delinquent loans exceeds the highest level reached during the Great Recession by 53%.  Over 35% of CMBS loans are on servicer “watchlist” with 24% in special servicing now.  The hardest hit MSA’s are New York/Newark, Houston, Chicago, Dallas, LA, Atlanta.   All these metros were major convention and business travel hubs.   There are some bright spots in the industry as many desirable drive-to destinations are experiencing high occupancy.  Travelers are getting comfortable with procedures such as contactless entry, intense cleaning procedures, etc.   It is apparent that a return to “normal” levels of air travel and business meetings will be dependent on the widespread distribution of an effective vaccine.   This is estimated to occur in mid-2021 at best, so Congress must act or the industry will see waves of foreclosures over the next several months. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • Rescue Capital for Transitional to Stabilized Properties Nationwide

    Hot Money

    September 30, 2020

    George Smith Partners is working with a national lender offering floating rate and mezzanine programs for transitional to stabilized office, retail, mixed use, industrial, multifamily and hospitality properties. The floating rate program starts at $5,000,000 with 3 to 5-year terms, up to 80% LTV/LTC depending on the asset quality/market and pricing is based on market rate spreads plus one-month LIBOR. The mezzanine program starts at $5,000,000 with 2-10-year terms and up to 85% LTC and pricing is 9% – 12%.

  • Government Stays Open, No Stimulus Deal in Sight

    Pascale’s Perspective

    September 23, 2020

    One of the October 1 “cliffs” is solved as an approved continuing resolution is on its way to being approved, keeping the Government open until mid-December’s “lame duck” session. As partisanship battles flare and with no serious negotiations underway, prospects for another round of stimulus are fading. As Fed Chair Powell and Treasury Secretary Mnuchin appeared before Congress this week, Powell reminded legislatures that he does not have “spending power” and fiscal policy is their responsibility. The usual “needs list” was discussed by lawmakers: reallocations of unused Cares Act funds, money to schools, more PPP aid to hard hit industries (travel, restaurants, etc). Mnuchin even discussed PPP funding to help landlords make mortgage payments and/or make up for lost rent payments due to the pandemic. Economic bright spots include a rebound in household spending, brisk home sales, increased home mortgage application volume and manufacturing picked up to a 20 month high.

    Loan Rates: The 10 year treasury has been trading in a very tight range for weeks (today at 0.67%), securitized loan markets are rallying and spreads are tightening. This continuing “perfect storm” is resulting in 10 year loan rates for agencies and CMBS around 3.00% with some loans pricing in the 2’s. Unless rates go negative, its hard to imagine coupons any lower. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • National Ground-Up Portfolio Construction Lending to 70% of Cost

    Hot Money

    September 23, 2020

    Despite COVID concerns, George Smith Partners is actively placing multifamily financing for acquisition, refinancing and ground-up development to mini-perm requests with a national portfolio capital provider. This lender offers local decision making and all the advantages of a small bank type financing on a national level. Loan amounts are sized from $2,000,000, up to $15,000,000 to 70% of capitalization. Their construction program automatically rolls into a five-year mini perm upon Certificate of Occupancy. With only a 90-day interest prepayment penalty if refinanced at stabilization, this offers take-out security yet provides flexibility for future capital market conditions. The prepayment penalty is waived in the event of a sale.

  • Rates Are Going Up, In 2024 At The Earliest

    Pascale’s Perspective

    September 16, 2020

    Today’s Fed meeting and subsequent statement from Fed Chair Powell spelled out a major change in Fed Policy that has been discussed this year: allowing inflation to “run” at or above their long stated 2% target without immediately raising rates. The old guidance, first announced in 2012, was that the Fed was targeting inflation rising to 2% or unemployment dropping to 5% and would increase rates if those thresholds were met. The “old normal” of pre-Great Recession economic theory was that crossing those thresholds meant that an overheating economy would spur inflation (see early 80’s Volker era). As the last decade has given way to the “new normal” whereby ultra low unemployment and interest rates has not resulted in inflation. The Fed is now saying that inflation can go to 2% and above for a while. Today’s statement “(The Fed) will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent.” And when does the Fed see inflation running consistently at 2%? According to their forecast released today, it won’t be until well into 2023 at the earliest. Allowing for “run-time”, this puts the next “lift-off” of rates into 2024. Powell indicated that “highly accommodative” policy (zero rates, bond purchases, etc) “until the economy is far along in this recovery”. It begs the question, when will inflation return and what will it look like in this era? Powell also said that a “closely trusted” vaccine is critical to the economic recovery and that the Fed is not “out of ammo” as far as tools to aid the recovery. So, stimulative monetary policy is a given in today’s world. What about the more difficult issue of stimulative fiscal policy, which requires consensus in Washington? Today was the most optimistic day for months in that regard as the Administration and Congress leaders both signaled lots of common ground complete with conciliatory rhetoric, let’s see what tomorrow brings. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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