February 24, 2021
The 10 year Treasury hit a pandemic era high of 1.41% yesterday before settling today 1.38%. Fed Chair Powell’s congresional testimony yesterday and today assured the market that highly accomadative policy will contine. Any changes will be gradual and telegraphed well in advance. He made it clear that the Fed’s main concern is unemployment and not rising prices. The current Fed policy regarding monthly asset purchases and zero rates will not be affected until full employment (defined as a 4% unemployment rate) is achieved. The Fed is willing to tolerate inflation above 2% for a whille in order to acomplish their employment goals. As of now, despite warning signs the Fed’s preferred inflation idicator, the PCE (Personal Consumption Expenditures) has yet to hit 2%. The PCE release next week will be closely watched. Stay tuned.
February 24, 2021
GlobeSt.com announced their annual listing of debt and equity rainmakers. We are thrilled that George Smith Partners was recognized.
With more than 25 years in business, George Smith Partners has established a reputation as an ethical and innovative capital brokerage firm. Since its founding, the firm has closed more than $58 billion in financing deals, serving both developers and investors to structure acquisition, construction, bridge and permanent loans. The firm also secures mezzanine loans, highly leveraged participating loans and joint venture equity on behalf of its clients. Last year, the company closed its largest transaction to date, a $460 million loan, and even through 2020, the firm has maintained strong transaction volumes, despite the recent market disruption. As a leader in the industry, George Smith Partners does more than just close deals. It publishes a weekly CRE resource called FinFacts, which is read by more than 50,000 people. The firm is also deeply invested in mentoring young talent, operating a rotating analyst program to develop future leaders. Often, these analysts become full-time employees with the firm.
February 17, 2021
The bond market is experiencing its “worst” January/February performance in years. The 10 year Treasury yield started 2021 at 0.91% and hit 1.30% this week and is now at 1.28%. The next critical level would be at about 1.50-1.60%. That was the last “normal” level before the March pandemic market disruption. Of course we are not “back to normal” yet. But lower levels of new Covid cases and hospitalizations combined with vaccine distribution is cause for optimism (nearly 20% of the US adult population has received at least one dose). Bond markets are historically “forward looking” as buyers are anticipating economic conditions down the road. The recovery is expected to unleash pent up demand for goods and services. Goldman Sachs increased their US GDP forecasts for 2021 and 2022 to 6.8% and 4.5% respectively, an increase of 0.2%. This week saw spikes in oil (hitting $60 per barrel, a pandemic high) and industrial metals led by copper and tin (now at multiyear highs).
The case against inflation: slack in the labor market stubbornly holding down wage inflation. Increasing wages is a major focus and goal of the Fed. Today’s minutes from the January Fed meeting indicate the Fed sees the economy as “far from” their goals. The minutes specifically target a “broad” labor market recovery and inflation of at least 2%. Neither of these goals will be accomplished in the near future. Until then, the zero percent interest rates and $120 billion of bond buying will continue. Goldman Sachs predicts the next rate hike by the Fed in the second half of 2024 and the Fed will start tapering asset purchases in early 2022.
Focus on Self Storage: The CMBS rally continues with originators still quoting in the 2.80-3.25% range even with the uptick in Treasuries. The composition of recent pools shows a strong appetite for loans on self storage facilities, a strong performer during Covid. This appetite has spread throughout capital markets as bridge and construction lenders join in funding well located self storage facilities at tighter spreads. It’s a sponsor driven market as the specialty nature of the product type makes operator expertise critical. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith
February 17, 2021
George Smith Partners is working with a national capital provider funding non-recourse bridge debt to 75% of total cost and 80% on apartments. The Lender has a strong appetite for multifamily, industrial, office, retail, self-storage and student housing. This capital provider offers floating rate pricing starting at L+325 with terms up to four years for transactions at $20,000,000 and up.
February 10, 2021
As Congress closes in on another large stimulus package, the economic data gives policy makers incentive and “inflation cover”. Last week’s jobless claims and unemployment reports indicate stalling job creation and persistent unemployment, justifying the need for further stimulus. A debate has arisen as some influential economists are warning against too much stimulus that may lead to inflation later in the year. This leads to concerns that the Fed may put the brakes on the nascent recovery by raising rates. Today’s CPI data indicated a 1.4% annual increase. Much of the inflation was due to rising oil prices (as the OPEC producers remain united in their resolve to keep production low, for now). However, inflation may firm up in the middle of the year as continued vaccinations, stimulus and pent up demand spur consumer spending. Also, the annual CPI averages will shed last year’s deflationary months (March, April, May).
CMBS Update: Huge demand for CMBS bonds (and corporates) are spurring a rally in fixed rate spreads. AAA 10 year bonds are trading at about Swap + 60 after hitting a high of Swap + 200 last year. Distressed loan volume seems to have peaked and is improving, even for hotels and retail. Originators are quoting tight spreads in the sub 200 range for lower leverage and/or larger well underwritten loans. 10 years of Interest Only is common at lower leverage for the right transactions. This rally and the tightening in corporate bonds is causing Life Companies to also tighten up. We are seeing rates from some life companies in the 2.50% range (but lower leverage than CMBS and limited or no interest only). Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith
February 3, 2021
Today, GSP kicked off our annual MBA meetings (via Zoom) with debt funds, banks, insurance companies, credit unions, CMBS originators, private equity funds and mortgage REITS. The message for 2021: lenders are flush with capital, 2021 real estate allocations are up, lots of capital chasing well underwritten transactions. After a year which included a near shutdown in capital markets for months and conservative underwriting, many lenders are taking an aggressive posture this year.
Vaccinations, a hope for the return to normal life, additional stimulus and continued Fed policy contribute to the optimism in the capital markets. Trends include: Life companies diversifying as they add debt fund originations to their core lending programs. Some are considering uncovered ground up construction loans in addition to the traditional construction perm combos. Senior lenders allowing/encouraging sub debt to create high LTC capital stacks, banks ramping up construction programs shut down for much of 2020, more non traditional construction lenders, retail and hotel loans being considered (at the right leverage with a good story), floating rates dropping due to increased competition which is pushing originators to be more aggressive on LIBOR floors and tighter spreads. Bridge to bridge lending is available for properties needing more time/money to stabilize as Covid slowed down reposition timelines. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith
January 27, 2021
Today’s Fed meeting was the first of eight for 2021. Fed Chair Powell set the tone for the year as he reiterated many of the 2020 issues that remain. Powell remarked, “We have not won this yet”, in reference to the economic recovery. He tamped down recent comments by Fed governors regarding a pullback in Fed bond purchases. He spoke about the $120 billion in monthly bond purchases that will continue until “substantial further progress” is made on both employment and inflation. The Fed is more concerned about job market weaknesses and less concerned about inflation. The message is that any changes in policy will be telegraphed months in advance and a reappearance of inflation would be allowed to “run” for a while before any policy changes. This should forestall any chances of a 2013 style “taper tantrum” where long term rates spiked quickly in a sell off due to confusing messaging from then Fed Chair Bernanke. This policy combined with the potential of “yield curve control” should give comfort to commercial real estate borrowers that the bedrock index for financing, the 10 year T, is benefiting from the accommodative monetary policy. The 10 year T closed today at 1.02%, after hitting a high of 1.15% earlier in January.
What about spreads? CMBS, Agency and Life Companies are pricing 10 year loans in the 2.75% – 3.75% range generally as a variety of factors are helping spreads stay:
(1) Overall economic recovery and the hoped for “return to more normal”;
(2) Investor appetite for real estate based bonds: CMBS, Fannie, Freddie, (especially in the Covid era); and
(3) Rising oil prices stabilizing the huge corporate bond market as energy companies are large issuers of debt.
This calms volatility in overall credit spreads. Floating Rate: The healthier securitization market is creating more liquidity in the bridge loan market (usually via Collateralized Loan Obligations or CLOs). Well underwritten apartment bridge loans are being funded in the 4.00% all-in range or lower. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
January 27, 2021
George Smith Partners identified a specialty lender offering bridge financing for a broad spectrum of commercial real estate special situations nationwide up to $45,000,000. Pricing is between 10% and 12% interest only for terms up to 36 months and 80% of cost and 65% of value. Special purpose properties include hospitality, gas stations, senior living, drug rehabilitation facilities, private schools, car dealerships and historic buildings. This lender is comfortable with bankruptcies, discounted payoffs, restructurings, pending foreclosures, environmental issues, and credit issues and can fund in four weeks.
January 20, 2021
Incoming Treasury Secretary Janet Yellen’s confirmation hearings this week were illuminating. She urged Congress to pass another large stimulus package. She also endorsed a market-determined dollar value . This means the US will not weaken the dollar to create competitive trade advantage for US businesses. The continuing stimulus/deficit spending combined with ultra-accommodative Fed policies is expected to lower the dollar’s value against other currencies. This way the US can “naturally” allow the dollar to devalue while maintaining a position that allows us to point the finger at other nations that are engaging in overt currency weakening. With the Fed continuing to buy $120 billion in bonds per month and expanding its balance sheet up to $10 trillion, the flood of dollars is definitely contributing to asset inflation across the board (stocks, bonds, real estate, etc). Meanwhile consumer inflation remains low, allowing for loose fiscal and monetary policy. The threat to this policy is runaway inflation, which could force rates higher, threatening asset valuations. However, commercial real estate could then return to it’s status as an inflation hedge. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
January 20, 2021
George Smith Partners identified a capital provider offering debt, mezzanine and preferred equity for all product types in the top 25 markets. Debt financing starts at $30,000,000 and Mezzanine and Preferred Equity capital starts at $10,000,000. Rates start at 475+ bps yield/coupon for stretch senior loans, Mezzanine pricing starts at 1000 + bps yield and Preferred Equity starts at 950 + bps. Terms are for a minimum of 1-year and generally do not exceed 5-years.
January 13, 2021
2020 was a year like no other and 2021 is starting out with turmoil and change. Let’s look at some trends to watch in 2021.
Covid and the return to “normal”: The U.S. is experiencing record spikes in cases, hospitalizations and deaths while the pace of vaccination has been slower than expected. In the U.S., over 10 million people have received at least one dose, about 3.3% of the population.
Optimism: New policies, wider distribution (mass vaccination centers, availability at pharmacies, etc.), and the expected approval of more vaccines should increase the pace. Estimates of normalcy range from Memorial Day to Labor Day.
Fiscal Policy/Inflation Outlook: Look for further stimulus as the recovery has been bumpy and uneven. The Fed estimates that the unemployment rate amongst the lowest paid workers is over 20%. The results of the Georgia runoff elections resulted in Democratic control of the Senate. Combined with recent economic data indicating that job growth stalled in December, this greatly increases the likelihood and expected volume of further stimulus from Washington. More stimulus = more dollars, more treasuries, and economic growth. Also, oil prices are over $50 a barrel, the highest since last February as major producers are limiting output. As normalcy returns, pent up demand for travel and other economic activities are expected to push prices up further. Could we see the return of “classic” inflation for the first time in over a decade? Will the Fed allow the economy to “run hot” in excess of its 2.00% target without raising rates? Will investors once again view commercial real estate as an “inflation hedge”, again?
Interest Rates: Due to ultra accommodative Fed policy, 2020 saw borrowers taking advantage of all time low fixed rate financings from Fannie/Freddie, CMBS, Life Companies and Banks. Rates in the 3.00% range for full leverage loans (with some IO) were available for the right properties (typically apartments, industrial, self-storage and selected office). 2021 is starting out with a jump in Treasury yields as the 10 year spiked from 0.84% to 1.15% in three weeks, before settling at 1.09%. The anticipated recovery should result in a steeper yield curve. Already, hedge funds are engaged in the “steepening trade” – buying short term treasuries and selling long term. Residential mortgage applications jumped 20% last week as borrowers rush to lock in low rates. Will commercial real estate borrowers and buyers join them? Will the Fed step in with “yield curve control” and buy longer term treasuries to keep those rates in check? Or, will the Fed turn hawkish, “declare victory” and ease up on bond purchases, allowing rates to rise?
By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
January 13, 2021
George Smith Partners identified a national capital provider providing floating rate debt starting at $50,000,000 on Class A & B assets in core locations for best in class sponsors. Non-Recourse pricing starts at 2.50%. Terms range from 10 to 20 years with the ability to advance 60-65% of value. Prepayment penalty varies based on the initial loan term.
- About Us
- Our Team
- GSP Insights
- Contact Us