GSP Insights

George Smith Partners has identified a capital provider financing bridge loans up to 80% of cost from $2,000,000-$100,000,000. Terms are interest only, range from 1-5 years, and are non-recourse. Floating rate pricing starts at SOFR + 400 with no interest rate cap required. Fixed-rate pricing starts at 6.50% with a 12-month yield maintenance. Lending to primary and secondary markets nationwide, this lender can close in as little as 1 week for all asset types.

The Silicon Valley Bank and Signature Bank collapses set off a week of wild volatility, market fear (risk-off), massive new rescue facilities from governments and money center banks, and the dust hasn’t settled. The events have also sharpened the divide between the “Too Big To Fail” money center banks and the regional banks. The TBTF banks have more stringent capital requirements and are in better shape to withstand volatility. The latest attempt (announced today) to stabilize First Republic Bank involves 11 major banks depositing $30 billion in FRB as a sign of confidence. This is on top of Sunday’s announcement of the Bank Term Funding Program (BTFP) which allows banks to borrow against their portfolio of secure bonds (Treasuries/MBS/Fannie and Freddie Securities) at par (the original price) and not today’s mark to market value (less than the original price due to rate increases). This is a critical facility as the Fed’s rapid rate increases have left many banks in a potentially illiquid position. Banks bought Treasuries in 2019-2022 while prices were high and yields were ultra low. Depositors poured money into banks during this low rate environment. The spike in Treasury yields over the past year drained deposits out of banks and into Treasuries, Money Market Funds, etc – and left Banks in a cash poor position while holding devalued collateral. This week has also seen a $50 billion rescue facility implemented by Switzerland’s central bank for Credit Suisse, a major international bank twice the size of SVB. Today has been the calmest day in markets since the SVB collapse last Friday…

What about next week’s Fed Meeting? Next week’s Fed meeting will present a conundrum for Powell and friends. Today is the one year anniversary of the first rate increase of this cycle of hikes. The Fed has spent a year tightening financial conditions, draining liquidity from the system, etc. Their intent was to pressure Main Street (employers, consumers, retailers, etc.), but their measures are now putting pressure on the financial system. Will the “cracks in the system” possibly spur the Fed to pause the increases at next Wednesday’s meeting? Maybe the focus should be on a suspension of Quantitative Tightening. The Fed is selling/rolling off $95 billion of bonds a month. Remember that the Fed was purchasing $80 billion of bonds per month last March. The selling devalues bonds while draining liquidity out of the system. The recent data (CPI as expected, PPI deflationary) may give Powell enough breathing room to “talk tough and pause.” Another possibility: Acknowledge financial market stress (“We’re monitoring it closely”), raise rates 25 bps and stop QT completely (or even start QE again?). Stay tuned…

By David R. Pascale, Jr., Senior Vice President at George Smith Partners

George Smith Partners has identified a capital provider financing construction projects up to 90% of cost. Loans range from $25,000,000- $150,000,000 and are non-recourse for up to a 36-month term. Lending nationwide, pricing starts at SOFR+600 and can close in under 60. Fixed pricing is also available with interest only during the initial term. This lender also provides bridge financing for most asset classes including self-storage, condos, hotels, and SFR.

George Smith Partners has identified a capital provider financing bridge loans starting at SOFR + 350 for loan amounts $20,000,000 and up. With leverage up to 65%, this lender does not require interest rate caps. While this capital provider does not finance ground up construction or land, they will provide financing for properties pre-TCO. This program is suited for properties that are within the 4 major property types and located anywhere in the US west of Colorado. 

This week, the 10-year treasury yield rose above the key psychological level of 4.00%. Hawkish statements by Fed policymakers indicate a resolve to not cut rates until 2024. Recent hotter-than-expected data(CPI, PCE, etc) has changed the narrative: inflation may be “stickier” than was assumed. This week also saw high CPI data from the 3 largest economies in Europe: England (10.1%), Germany (9.3%), and France (7.2%). This is driving up international bond yields. The latest market/futures/Fed talk consensus estimates are for 25 bp increases at the next three meetings and then (hopefully) a pause. That would put the Fed Funds rate, and SOFR, at around 5.40% at mid-year, aka the “Terminal Rate.” This month’s data is especially critical. The Fed is highly focused on labor/service costs and a(seemingly and stubbornly) tight job market as the main driver of inflation. This month’s data releases are critical (when aren’t they these days?) – Job openings 3/8, Employment report 3/10, CPI 3/14, PPI 3/15. The WSJ reported yesterday on signs of a cooling labor market in private-sector job postings. This trend has not yet appeared in official Labor Department data releases: the infamous “lagging indicators” may be at work here. Also, December and January data releases are skewed by “seasonal adjustments.” Therefore the March data releases (based on February’s data) may confirm some long-awaited “slack” in the labor market. As we approach the 1 year anniversary of the first Fed increase, the path forward remains murky. Stay tuned…

By David R. Pascale, Jr., Senior Vice President at George Smith Partners

George Smith Partners has identified a capital provider financing fixed rate bridge loans for value-add multifamily acquisitions with proceeds up to 80% of purchase price and 100% of renovation costs and/or tenant improvements. Loan amounts range from $2,000,000 – $25,000,000 for a term of 3 years plus extensions. This lender provides non-recourse financing and stepdown prepayment options. Floating rate pricing is also available up to $60,000,000.

George Smith Partners has identified a capital provider financing multifamily properties with mezzanine debt and preferred equity up to 88% LTV. Loan sizes range from $5,000,000-$55,000,000 and can be structured behind senior lenders, agency, LifeCos, and bridge loans. With terms from 1-10 years, this lender will allow open prepayment without penalty. Lending nationally, loans are non-recourse and do not have a minimum debt service coverage.

George Smith Partners is currently working with a capital partner focused on Build-to-Rent (BTR) projects. They are actively seeking to issue Preferred Equity on ground-up construction projects up to 85% LTC with check sizes ranging from as little as $5,000,000 to over $40,000,000 per transaction. Geographical focus on primary and secondary US growth markets and qualifying assets include all flavors of build-to-rent, single-family for rent, townhomes, cottages, duplexes, and other residential products. Please reach out to us if you would like to find out more. 

The Federal Reserve raised the Fed Funds rate by 0.25% today as markets expected. The target range is now 4.50-4.75% as the Fed has increased rates in 8 consecutive meetings beginning in March 2021. The rate is the highest since October 2007. Recent data indicating a slowdown in inflation has raised hopes that “the pause” may be occurring soon, perhaps after the next Fed meeting in March. The accompanying statement with the increase retained the language “ongoing increases in the target range” disappointed markets by implying multiple increases are planned. Fed Chair Powell’s post statement presser was closely watched. He acknowledged the slowdown,  “And while recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path.” He also said its “premature” to declare victory. Of course, Powell’s intent is to seem hawkish until the moment he cuts in order to keep markets from “getting ahead of the Fed.” It’s also important to note that positive “Real Interest Rates” are now just being achieved. As inflation is at 4.4% (using the annual core PCE from December), the Fed just barely hit positive territory at 4.50-4.75%. The divergence between market expectations and Powell’s rhetoric is stark – markets expect a 0.25% increase in March, followed by a pause at the May meeting, and possible rate cutting by 4Q 2023. Powell has repeatedly insisted that the Fed is not cutting this year. He did throw doves a bone during the presser with 2 statements: he acknowledged that “the disinflationary process has started”  – boom! The 10 year Treasury rallied from 3.51 to 3.39% immediately upon this statement. Then he remarked that he said it is “certainly possible” that the Fed Funds rate stays below 5% – meaning one more 0.25% increase before the pause. Futures markets predict an 85% chance of a 0.25% increase in March, with 15% predicting no rate cut. May futures indicate a 63% chance of a pause or cut at that time. Stay tuned…

George Smith Partners is working with a capital provider financing value-add transactions up to $100,000,000. With rates starting at 30-Day Term SOFR +5.00%, all asset types are eligible including development sites and infill land. With leverage up to 65%, this lender offers full-term interest only and non-recourse terms. Lending nationwide, they are able to close in as quickly as 2 weeks.

George Smith Partners identified a balance sheet capital provider with no legacy assets focused on market dislocation opportunities. Providing non-recourse financing, transaction size ranges from $25,000,000 – $150,000,000 for reposition and construction requests. Favored assets include multifamily, hospitality, and industrial, but will look at all assets. leveraged to 70% of cost, rates priced from SOFR + 5.00%.

George Smith Partners is working with a capital provider financing first-lien bridge loans from $2,000,000 – $50,000,000. The program is non-recourse and covers all asset types including hospitality(Motel 6) and industrial. The lender is also active with special use assets such as marinas. With leverage up to 75%, rates start at SOFR + 5.50%. This lender can close in as quickly as 21 days and is active across 42 states.