May 12, 2021
Today’s CPI report was expected to indicate an annual increase of about 3.6%. The actual number at 4.2% is the highest annual increase since 2008. The monthly gain of 0.9% in core CPI was the highest since 1981. Stock markets sold off yesterday afternoon on nervous anticipation of the report and then sold off big today after the release. The Dow and S&P indices were both down around 2% today. Fed and Treasury officials referred to it as a “single data point” and labeled it as “transitory”. However, investors recall the runaway inflation of the late 70s and the consequences of the bitter pill of skyrocketing interest rates prescribed by the Fed in the early 1980s. The 10 year T sold off with the yield hitting 1.70%, 20 bps above last Friday’s opening of 1.50%. The next critical level is 1.77%, the post pandemic era high from late March. The CPI report showed some major price increases in certain sectors: 21% for used car and truck prices (10% in the last month alone), energy prices jumped 25%. Shelter (rent) was up 2.1% year over year. Many commodity prices hitting recent highs include: lumber, steel, copper, semiconductors, corn, poultry, etc. Meanwhile, there is “unbalanced employment” as shortages of workers are affecting industries that are re-hiring due to pent up demand. The Fed policy makers are touting the “base effects” of the inflation numbers that won’t play out until July/August (March-June 2020 numbers were crushed during the initial shutdowns). Issues such as inefficient supply chains, worker shortages stem from the sudden pandemic recovery for which there is no precedent. Still, every data point for the next few months will be endlessly analyzed for the answer: real or transitory? High rates or low rates? How will the cost of capital affect asset prices? Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
May 5, 2021
George Smith Partners is currently working with a nationwide balance sheet lender specializing in senior and mezzanine loans and preferred equity across all property types. Non-Recourse loans range from $5,000,000 to $25,000,000, with terms between 2-5 years, 75% LTV and 85% LTC. With rates starting at 7%, the lender targets opportunities for value-add acquisitions, refinancings/recapitalizations, conversions, and renovations and note purchases and participations.
April 28, 2021
With stimulus, vaccinations, and reopening’s spurring rapid and robust economic growth, all eyes were on Fed Chair Powell today as he discussed this month’s Fed meeting. The top level announcements were expected: no change in the Fed Funds rate (now at zero since last March) and continued quantitative easing as the Fed is purchasing $120 billion a month of treasuries and MBS. The question was, would the Fed’s resolve to continue the ultra-accommodative policies soften? Would there be a hint at when the Fed would start to ease up on these measures, such as lowering the monthly bond purchases. Powell stood firm especially when discussing potential inflation. Invoking classic Fed-speak, he expects inflationary data that will appear in the next few months as “transitory”. He indicated that “upward pressure on prices” over the next few months will be due to temporary factors. These include supply chain bottlenecks stemming from the sudden reopening and “base effects” as the next few months will be compared to the lows of Spring 2020. He again avoided a “taper tantrum” (Treasury sell off) by insisting he is not announcing any plans to slow down the purchases. The question is, when will he? Some Fed watchers believe he will be forced to at the June meeting as growth and inflation data may start to pile up by then. Or possibly, he may feel the right setting and time is the annual Jackson Hole conference in August. The next CPI, core CPI, PCE and core PCE readings will be watched by markets and could spur volatility in Treasuries. Powell spoke of being affected by the large homeless settlement near the Federal Reserve in Washington, he also said he will be meeting with homeless Americans soon. Perhaps the gauge he is really watching is wage inflation, evidence that the economic recovery is reaching to all levels of the economy. The 10 year Treasury has been sitting in a tight range lately at about 1.60%. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
April 28, 2021
Bryan Shaffer, Principal/Managing Director at George Smith Partners was featured in the Commercial Cafe blog, Expert Roundup: Brokers Discuss Industrial Real Estate.
““E-commerce sales was growing before the pandemic, but the crisis accelerated this trend, with consumers unable to obtain goods from some retailers. Further, it was harder for manufacturers and sellers to get their goods to the market therefore many small suppliers have partnered with Amazon to keep their distribution line open. Overall, year over year industrial values increased 8.1% from February 2020 to February 2021, more than any commercial real estate asset class. The E-commerce sales resulted in much stronger demand for logistics and more demand for cold storage space.”
Click here for the full article.
April 23, 2021
Click here to view the slide presentation: GSP Finance Friday Presentaion Chris Thornberg 4.23.21
April 21, 2021
George Smith Partners is working with a nationwide portfolio lender offering non-recourse, on-balance sheet, interest only bridge financing that focusses primarily on apartments, office, industrial, single tenant NNN, self-storage, manufactured housing communities and multiple property portfolios. Typical loan structures include two- or three-year initial terms with extensions up to 5 years, 60-70% as-is LTV (Higher Leverage available with Mezz), as-is debt yield of +-7%, flexible prepay structures and potentially property releases in year one with no spread maintenance penalty for up to 50% of loan. Lender will consider requests with future fundings/earnout or “good news” money and a minimum loan amount of $20,000,000. Pricing is LIBOR plus a credit spread in the L+200-250 range that depends on the asset and cash flow. The Lender holds and services the full commitment for the full term with no CLO or syndication risk.
$44,500,000 Heavy Bridge Construction Financing to Add Several Uses to an Existing Office and Warehouse; Secondary Market; San Luis Obispo, CA
April 19, 2021
George Smith Partners arranged $44,500,000 for heavy bridge financing in San Louis Obispo, CA to recapitalize and fund construction for additional uses on an existing asset. The completed Project will include five uses including multifamily, warehouse, office, self-storage, and a brewery. This is among the largest private projects actively in development in the local market.
The Sponsor has been very creative in obtaining the highest and best use for the asset in a supply constrained market. Despite challenges facing construction projects in today’s volatile commodity market, GSP was able to secure a capital provider to structure high leverage supported by the strong market and underwriting.
April 14, 2021
Fed Chair Powell’s appearance on 60 Minutes was well timed, 2 days before a highly watched CPI report. Markets continue to be hyper sensitive to signs of inflation. He struck a familiar theme during the interview as he laid out the conditions for the next rate increase. He reiterated that it will take more than a single monthly report of annual prices increasing above the Fed’s target of 2.0%. Powell gave a very specific answer: “(he would) like to see it on track to move moderately above 2% for some time. When we get that, that’s when we’ll raise rates.” He is well aware that the CPI and PCE figures for the upcoming months may skew above 2.0% due to the “base effect”. The annual increases are based on the 12 months since the depths of the pandemic shutdown last year.
Yesterday’s CPI report provided a test for markets. The annual CPI rose 2.6% aided by a 9.1% in the price of gasoline. However, the core CPI (which strips out the volatile food and energy components) rose only 1.6%. The 10 year T actually went down as inflation fears subsided and markets focused on J&J vaccine issues. The Fed’s preferred inflation gauge, PCE, will be released on April 30. The 10 year Focus on SFR Prices. The Fed’s nonstop purchases of Mortgage Backed Securities is designed to keep rates down for home buyers. But it may be contributing to runaway asset inflation in the single family home market. Home prices were up 11.2% according to the latest S&P Case Shiller index, the largest rise in 15 years (now that’s real inflation!). This is crowding out many potential buyers. In addition, these buyers have further competition. Homebuilders are increasingly renting out homes and selling to funds. DR Horton built 124 homes in suburban Houston and sold the entire subdivision to a fund. Now foreign capital is targeting homes for rent. Some of Europe’s major insurance companies and pension funds are forming multi-billion dollar ventures to purchase new homes in bulk. They are focusing on sun-belt “move to” markets as young families opt for more space and rent homes. Apartments rents: March data from the realtor.com’s survey of apartment rents rose for the first time since the beginning of the pandemic, a 1.1% increase since last month as secondary locations thrive. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
April 14, 2021
George Smith Partners is working with a national investment bank utilizing their balance sheet for both transitional and stabilized properties. While traditionally used for much larger transactions, they will consider requests from $15,000,000 for non-recourse fixed or floating rates on all property types. Pricing from L + 150-350 for light bridge with flexible prepayment structures. Terms are up to 11-years for all stabilized loans.
April 7, 2021
George Smith Partners is working with a non-recourse capital provider that is funding fixed & floating bridge loans starting at $10,000,000. With a focus in the top 150 MSA’s, the lender will fund up to 70% of value at a fixed rate of 5.0%, or up to 80% with floating rates at 6%+. Terms are 1-3 years. Program highlights include flexible prepayment and a short minimum interest period. The lender can provide capital for newly constructed multifamily properties that are still vacant.
March 31, 2021
Looking at the United States as a massive real estate asset is instructive. One could say that the American Society of Civil Engineers Report Card is our property condition report. The 2021 grade is “C-“ with special attention on public roadways, water systems, broadband capacity and the energy grid. A $2 trillion infrastructure plan is being discussed in Washington with uncertainty about how to pay for it. Bond markets are guessing that some increased deficit spending will be involved. The 10 year T bumped up to its recent high of 1.74%. The sell off in treasuries is largely based on the anticipation “inflation is coming, it has to be.” Last week’s PCE index (the Fed’s preferred inflation metric) came in at 1.3% annually. Other factors contributed such as fiscal year end selling of US Treasuries in Japan. The data: the next round of economic reports will tell the tale of the nascent recovery and may indicate signs of inflation. Last month’s reports were dragged down by the February storms that hit much of the country. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
March 31, 2021
George Smith Partners identified a capital provider offering debt and equity from $3,000,000 to $30,000,000 for industrial, commercial, retail, self-storage, and special purpose properties. Rates start at 6% and terms are 1-3 years for bridge loans and 10+ years for longer-term facilities. The capital provider is focused in California and Hawaii and can close between 45-60 days.
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