February 19, 2020
For many years, inflation has been the “boy who cried wolf”, sometimes glimpsed, but never fully materializing. Bond markets have been sensitive to inflationary data, often selling off when CPI, PPI or PCE data comes in “hotter” than expected. Today’s Producer Price Index was expected to rise 0.1% in January, instead it jumped 0.5%. Did the bond market sell off and yields jump 5-10 bps? No. The bond market brushed off the news and instead focused on Fed comments warning of uncertainty due to coronavirus. Now that China/U.S. trade tensions have eased (and China is engaging in massive stimulus), global growth was expected to soar in 2020. It seems we have traded one uncertainty for a more nebulous and unknown danger. 10 year Treasury yield rose 1 bsp to 1.56%. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
February 19, 2020
George Smith Partners is working with a national lender providing non-recourse construction financing for spec office, industrial and for-sale condo projects up to $100,000,000. Completion guarantees will still be required. With the ability to advance 95% of development value, pricing starts at 7% for terms up to three years. The lender can close quickly.
February 14, 2020
Multifamily developers and investors enjoy favored status from high-leverage financiers, according to Zachary Streit of George Smith Partners.
By Zachary Streit
(published in MHN MULTI-HOUSING NEWS February 12, 2020 https://www.multihousingnews.com/post/how-quality-sponsors-can-access-high-leverage-loans)
A healthy economy and a growing roster of capital providers looking for returns means high-leverage non-recourse financing is not only available, it’s a thriving subsector within the capital markets.
After nearly vanishing during the recession and the early years of the recovery, demand from high-leverage finance providers for multifamily projects that include either ground-up development or transitional, value-added business plans is strong.
Of late, deals we have solicited and closed have seen loan-to-cost ratios regularly hit or exceed 80 percent and have received multiple bids. These deals include both traditional multifamily and non-traditional deals, such as ground-up co-living requests and also single-family build-to-rent requests.
For example, recent closings include an 80 percent loan-to-cost, non-recourse, cash-out bridge financing on a 200-unit multifamily property, and an 80 percent loan-to-cost, non-recourse, ground-up construction loan for a 270-unit student housing development with nearly 900 beds. Notably, both closings were in secondary, non-core markets.
FAVORED CLASS STATUS
Multifamily developers and investors enjoy favored class status from high leverage financiers due to the resiliency the asset class demonstrated throughout the past economic cycle and housing shortages in many markets nationwide.
Typically, the multifamily deals attracting high leverage non-recourse financing are from entrepreneurial sponsors doing institutional-level deals. These are often mid-rise projects with equity partners that are either family offices or syndications, as opposed to institutional limited partners who will usually cap leverage at approximately 65 percent loan to cost.
While high leverage loans carry more risk, they also offer more reward. Less equity is required, and the return on equity can be substantially higher as a result.
The trade-off can also be seen through the prism of loan pricing. For full leverage requests of 80 percent or more, pricing ranges from 400 to 600 basis points over the one-month LIBOR rate, which is significantly cheaper than the cost of equity capital. For bridge loan deals at the same leverage ratio, spreads range from 250 to 350 basis points over the one-month LIBOR rate. While there is still a gap on non-recourse construction spreads vs. traditional recourse bank financing, the spreads on non-recourse bridge loans have compressed considerably and are often competitive with bank financings that could include some level of recourse.
Variables that will affect pricing include leverage level, debt yield, the location and strength of the sponsor and the associated business plan.
As with lower-leveraged loans, high-leveraged financing are secured by the property itself and the standard non-recourse guarantees (completion, carve-out and carry) generally apply. Sponsors should have an expert on their team who can verify there are no surprises in the loan terms. That expert can be a capital market advisor, who can also craft a marketing strategy that is likely to get the attention of multiple high leverage capital providers to ensure a competitive bidding process and also ensure a smooth and successful execution.
DUE DILIGENCE REQUIREMENTS
To best position a loan request, advisors will often recommend and facilitate a market study or appraisal, a clear description of the location and its demand drivers, a high-quality Excel model, a detailed representation of the sales and rent comparables and will need to provide information about the non-recourse guarantors’ track record and experience.
When hiring a capital market advisor, make sure to ask about their experience with all of these details, the depth of their contacts and about their success rate.
With the economy expected to remain strong and interest rates low for the foreseeable future, the outlook for securing high-leverage loans is good for quality sponsors. Assembling the right team to design and present the loan request is still essential, though.
Also, ensure that your team keeps an eye on market threats that could affect consumer confidence and, therefore, capital markets. Currently, those threats could include the Coronavirus as well as trade tariffs and tensions.
February 12, 2020
George Smith Partners is currently placing non-recourse stretch senior loans, subordinate debt, preferred equity, JV equity and stretch senior loans for all major property types nationwide. This Lender offers up to 95% LTC for stretch senior loans (min $60,000,000 total capitalization) and for preferred equity / JV equity (min $20,000,000) with terms ranging from two to ten years.
February 5, 2020
Last Friday the 10 year closed at 1.50% just 14 bps above its all time low, as coronavirus fears spurred a flight to safety. This week’s upbeat data turned things around as “risk-on” returned. The ADP employment report was significantly more bullish than expected. Note that the manufacturing sector has been lagging in recent months while employment and consumer metrics have been bullish. After Monday’s ISM Manufacturing Index report and yesterday’s Factory Orders report exceeded expectations, markets really took off. The 10 year T jumped to 1.65%. Various unconfirmed reports of potential treatments emerging for the coronavirus added to the rally. However, note that these reports are based on pre-virus data and Asian supply chains are critical to that sector. So there is some caution as the effects and scope of the virus is yet to be quantified. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
January 29, 2020
During today’s Fed statement and subsequent comments by Fed Chair Powell there was an expressed concern about the “uncertainties” involving the spread of the Coronavirus. Treasury yields dropped and the yield curve is nearly inverted. The 10 year T is at 1.58%, the lowest in months and just 22 bps above its all time low. With the 3 month at 1.55%, another inversion may be at hand. The Fed also indicated concern about inflation and is very concerned that the U.S. does not become another Japan (ultra low rates and growth for decades with no room to cut rates and stimulate). The statement stressed that the 2.0% “symmetrical inflation target” was not a goal to be “near” but needed to be “reached”. Powell noted that the recent PCE of 1.5% was way too low and many Fed board members have indicated a willingness to let inflation go above 2.0% without raising rates quickly, possibly letting inflation “run for a while” hopefully in conjunction with strong growth. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
January 29, 2020
GSP identified a LP Equity provider for ground up development, value-add and core properties including anchored & unanchored retail for mixed use, retail or multifamily projects. Target in top MSA’s and assume 60-65% leverage. Gross deal size is $40,000,000 – $150,000,000.
January 21, 2020
George Smith Partners is working with a national portfolio lender providing construction loan take-out permanent programs for all product types ranging up to $65,000,000 in primary and secondary markets prior to stabilization. With the ability to advance 75% of development cost, pricing starts at 3.50% for terms from five to ten years and the program offers a flexible stepdown prepayment. This lender offers true non-recourse and carve outs to an entity and not a warm body.
January 20, 2020
Frank Mottek interviews Jonathan Lee on Mottek on Money.
January 15, 2020
George Smith Partners is currently placing non-recourse small balance financing for owner occupied and investment properties. For owner occupied properties, this lender offers 80% LTV on conventional financing up to $5,000,000 and up to 90% LTV with an SBA 504 loan up to $10,000,000. For investment properties including industrial and office buildings, retail properties, warehouses and multifamily/apartment buildings, their commercial loan programs can provide up to $3,000,000 in financing with 75% LTV. The Lender waives loan fees on new deals.
January 15, 2020
After two years of uncertainty that roiled stock and bond markets, the Phase 1 trade deal has been signed. Now the details are being parsed. Market reaction is basically a “relief rally” as the week to week uncertainty and tensions between U.S. and China have lessened. However, tariffs will remain in place subject to a Phase 2 agreement after the November election. The initial agreement mostly requires China to buy U.S. goods and services (some uncertainty remains whether China can perform on those purchases). This should remove a source of market volatility in 2020 and should be favorable for credit spreads. Treasuries and equity markets rallied with the 10 year Treasury closing at 1.78%. The first CPI and PPI reports of 2020 indicate (surprise) extremely low inflation pressures. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
January 8, 2020
Today’s yield curve is striking for it’s “normality”, ie. it is uninverted and fairly steep. One year ago today, the 2, 5 and 10 year treasury yields were bunched together, all within about 10 bps (2.55%, 2.58% 2.67%). The yield curve then inverted in August as the 10 year dipped below the 2 year yield. Today’s yield curve (1.57%, 1.65%, 1.87%) indicates confidence in the economy (high 10 year yield) and in the Fed’s promise to stand pat with no rate increase this year (lower 2 year yield). So 2020 begins with lower rates and a healthier curve. With low delinquency rates, an active secondary market, large allocations from portfolio lenders, and overall solid fundamentals, 2020 looks like another big year for commercial mortgage loan volume. For example, the Mortgage Bankers Association predicts an all time high in multifamily lending in 2020. Commercial activity is also predicted to be strong, with the notable exception that lenders are cautious on retail. As the economic recovery goes into year 11, it’s noteworthy that markets basically shrugged off potential escalation of conflict in the mid-East and uncertainty about U.S. China trade resolution. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
- About Us
- Our Team
- GSP Insights
- Contact Us