July 1, 2020
As we enter the second half of this unforgettable year, both positive and negative news abounds. Today’s announcement of positive results in trials of a potential vaccine from Pfizer offers hope. Will the “warp speed” process bring the vaccine to the public by year end or in early 2021? Meanwhile, virus infection spikes in highly populated bellwether states such as California, Texas, Arizona and Florida which is very troubling. Businesses that just opened are shutting down again and many workers are being “laid off again”.
The data: June economic reports released yesterday and today (Manufacturing & ADP employment) have been positive but they are trending up from the unprecedented drops from recent months. Tomorrow’s unemployment report is expected to also show positive trending. With the recent spikes and “re-shutdowns”, the trend we have seen for July, the specter of a “W” shaped recovery is looming. The upcoming corporate earnings from a quarter unlike anything we have ever seen in history should be fascinating, “A Tale of Two Cities”.
One of the biggest questions facing the commercial real estate industry is the future of office as an asset class, during and after the pandemic. Recent years have seen a boom in supply and demand as tech, media, and financial services have all embraced the collaborative nature of the office environment. Today, entire industries are working from home and meeting virtually. What’s the future? I noticed an interesting contrast last week as Barry Sternlicht issued a dire prediction for the massive NY office market. He noted that without a vaccine, workers are reluctant to ride trains and buses to the city, not to mention the densely packed sidewalks, lobbies, elevators, etc. He predicts a “tipping point” leading 25% drop in rental income, increased expenses due to new procedures, and a 40% drop in values. Meanwhile, here in Los Angeles, a Canadian developer announced plans to build two of the tallest office towers outside of downtown in the Miracle Mile district. The spec office development will total over 2 million square feet. The combination of hope, fear and uncertainty today brings to mind the opening words of the Dickens’ classic referenced above: “It was the best of times, it was the worst of times”. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
July 1, 2020
George Smith Partners is placing non-recourse financing for debt sponsors nationwide for multifamily, self-storage and industrial properties. With transactions starting at $20,000,000 for fixed rate bridge w/sub 1.0 cash flow, pricing starts at L+375 with a LIBOR floor of 1.25% (min 5.0% coupon). With terms up to five years with flexible yield maintenance and up to 80% of cost the lender offers IO during the initial term then amortization on a 30-year schedule.
June 24, 2020
This week saw Blackstone CEO Stephen Schwarzman forecast a “big V” recovery this summer, easily the best case scenario among the possibilities. Meanwhile, the IMF downgraded its forecast to a 4.9% global contraction in GDP this year, with the U.S. at an 8% contraction. They lowered their 2021 positive global GDP estimate to 5.4%. Schwarzman is optimistic as he predicts treatments or a vaccine will emerge soon, while most predictions are for a longer wait. This week’s data points should offer some clarity. After the recent bigger than expected increase in the May jobs report: will the trend continue on Thursday (Durable Goods) and Friday (consumer spending)? Both of those reports set record lows in April, and positive increases in May could auger well for the recovery. The data will be critical as Congress and the administration contemplate a possible 4th Covid stimulus bill.
Upcoming “cliff” dates to watch:
- July 31 – end of supplemented unemployment insurance (as vast numbers are still unemployed, the end of these benefits could hinder the recovery).
- Oct 1 – The first day airlines and other major employers are allowed to lay off employees per the federal assistance guidelines and possible government shutdown.
Capital Markets: The secondary markets (CMBS and CLO) continue to function as pools with the right product type mix are being well received. Spreads are tightening in the fixed rate debt markets. CMBS will compete for strong properties with interest only and sub 4% rates. Bridge lending is coming back with 75% LTC for well underwritten multifamily loans being offered. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
June 24, 2020
GSP identified an equity provider offering rescue capital for constrained borrowers with refinancing shortfalls and pending loan maturities in primary and select secondary markets nationwide. Starting at $10,000,000, they will consider property facing significant unexpected vacancy from failed tenants for specialty assets exposed to co-working operations as well as assets in markets with significant exposure to tourism and entertainment.
June 17, 2020
Fed Chair Powell’s testimony to Congress this week was more highly anticipated than usual. The big news for financial markets was his pledge for the Fed to purchase corporate bonds for individual companies. This is part of the unprecedented massive bond purchases by the Fed in the wake of the COVID crisis. Powell’s reason was also very interesting. Many noted that the corporate bond market is very liquid today with spreads almost back down to their pre-COVID levels. Part of this was due to the Fed’s promise to purchase corporates on March 23 during the worldwide panic. Powell stated that the Fed’s duty was to follow through on that promise and make the purchases. The takeaway is that the immense influence of the Federal Reserve is based on its integrity. As corporate bond spreads tighten, look for real estate credit spreads to follow suit in the fixed rate markets.
CLO Update: Collateralized Loan Obligations in the commercial real estate market are pools of floating rate loans sold in the secondary market. It’s a major underpinning of the bridge loan sector. It has been virtually shut down since early March as no bond buyers were active. Activity has started up again in the past few weeks as some pools of selected pre-COVID originated loans are being successfully securitized. Spreads are wider, for example: pre-COVID pricing for AAAs was approximately LIBOR + 100. Those bonds are now selling at about L + 235 with oversubscribed buyer interest. Look for bridge loan programs offering 80% LTC loans at L + 275-300 pre-COVID to now offer 60-70% LTC at L + 450 – 550. And the now familiar stratification of product types will be in effect: multifamily and industrial in favor, with office needing a good story, retail very selective and no hotels. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
June 17, 2020
George Smith Partners has begun placing non-recourse bridge financing structures for multi-family, flagged hospitality and best in class retail. The lender is specifically focused on properties located in both major and secondary Western States MSA’s. Loans are up to 80% leverage with 2-3 year terms, interest only. Pricing is based on LIBOR and blends to the mid to high 5.00% range depending on asset type and last dollar.
June 12, 2020
Real Estate on the Ground Webinar Series | Short, Mid, and Long-Range Economic Prospects
Economic prospects over time, by sector. We don’t know the shape, extent, or timeframe of the recession and the recovery to follow. There’s no sense in guessing. What does make sense is understanding how you may survive, and even prosper, from change. In this first in the series, we will:
• Frame where we are now, what will move the markets, and how you can prepare yourselves and your businesses
• Discuss the economy; the national and local public policy implications; the role and availability of capital; and how all of this affects real estate
• Differentiate real estate according to all of its food groups: multifamily, office, retail, hotel, and industrial
Dr. Norm Miller | Ernest Hahn Chair and Professor of Real Estate Finance
Malcolm Davies | Principal/Managing Director, George Smith Partners
Gary London | Senior Principal, London Moeder Advisors
June 10, 2020
These emphatic words from Fed Chair Powell today along with a “dot plot” showing no rate increases until after 2022 indicate the level of commitment from the central bank to stabilize the economy. This will create an unprecedented extended era of near zero rates that span from December 2008 and continue until 2023, with the exception of Dec 2015 to March 2020. Between the zero rates, trillion dollar annual deficit spending, and the explosion in the money supply, the fact that these measures aren’t spurring inflation or higher borrowing costs is astounding and goes against all 20th century economic theory. Last week’s blockbuster positive employment report was encouraging and briefly led to a spike in Treasury yields. Powell noted it as a single data point and reminded us that we have a long way to go. The Fed predicted an economic contraction this year of 5 to 10% and unemployment at year end of 9%. Last Friday’s Treasury yield increase was a product of the bullish jobs report and some uncertainty about the Fed’s rate of treasury purchases. Note that the Fed was purchasing over $300 billion per day (!) during the panic week of March 24-27, and then slowed to as low as $2-3 billion per day. Today they announced that bond buying will continue at the rate of $80 billion per month of Treasuries and $40 billion of MBS. Ex Fed President William Dudley predicts these measures will expand the Fed’s balance sheet to over $10 Trillion (remember that the “normal” balance sheet level for the Fed, pre-2008 was considered to be just under $1 Trillion). These assurances brought the 10 year T down to 0.74%. The calls within the Fed to institute “yield curve control” are growing stronger, but for the shorter maturities. The thought is that the longer end of the curve is more difficult to control and there is some hazard in trying to control the 10 and 30 year maturities. With risk spreads tightening and lenders picking and choosing “winners” among the product types and markets (no hotel, yes multifamily, etc.), borrowers can lock in historically low rates. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
June 10, 2020
George Smith Partners identified a national capital provider funding non-recourse, LIBOR-based fixed rate financing for the acquisition and refinance of stabilized residential rental properties. The lender will consider SFR, Townhomes, 2-4 Family, Condominium units and Multifamily properties. With financing starting at $1,000,000, rates starting at 5.15% and term options at 5 or 10-years balloon, the lender can close 30-45 days from an executed term sheet.
June 10, 2020
Zachary Streit, Senior Vice President at George Smith Partners was a guest on the Real Estate Executive Thought Leadership podcast.
He shares his story of getting started in commercial real estate finance and how he and his team are continuing to close deals despite the economic trend. Zack talks about COVID’s impact on the capital markets, what asset classes and geographies are most attractive, and how to nurture relationships with sponsors and capital partners.
He also gets into professional development, managing stress, leadership, marketing strategy, and how to thrive in any market.
June 5, 2020
Identifying & Executing on Value In Today’s Environment
The discussion topics will cover multiple asset classes from student housing, to single family build to rent to performance of the public REITS and expectations. We will drill down on the housing market and the key performance drivers, the world of student housing, from financing to performance from the largest private player in the space.
Bethany Logan Ropa | UBS
Tim Sullivan | Meyers Research
Wes Rogers | Landmark Properties, Inc.
Evan Kinne, MBA | George Smith Partners
Ed Steffelin | George Smith Partners
June 4, 2020
Even before the world was turned upside down, food delivery and ghost kitchens were becoming exponentially more popular. Now, delivering restaurant-quality food to consumers’ doorsteps is a normal part of our everyday lives.
Social distancing regulations may provide an opportunity for ghost kitchens to grow and become staples in the immediate and permanent future. Sam Nazarian recently launched C3 (Creating Culinary Communities) in partnership with Accor and Simon Properties. C3 will be home to a selection of limited service restaurants– both new concepts and tried and true sbe favorites that consumers have come to love.
The conversation will discuss:
1. How can you maximize underutilized F&B in retail and hospitality developments?
2. Are Michelin-caliber chefs actually interested in ghost kitchens?
3. What strategies can you take to ensure your food halls are top notch?
4. What role do you envision ghost kitchens playing in a world post-COVID?
5. How can you partner with top brands to maximize your F&B capacity?
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