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GSP Insights

  • Fed Notes Provide Full Clarity on Taper, Treasury Yields Drop

    Pascale’s Perspective

    October 13, 2021

    After all the months of prepping markets, “telegraphing” and promising almost unprecedented transparency on the subject, the taper announcement and structure has arrived. Interestingly, it was communicated by a release of Fed Minutes, not an official meeting date with a Powell appearance.

    Summary of the Minutes and Commentary from Fed Officials: The “next meeting” (November 2-3) is an appropriate time to announce tapering. Bond purchases are now $120 billion per month ($80B treasuries, $40B mortgage backed securities). The purchases will be cut at a rate of $15 billion per month. This will result in an 8 month tapering period, completed by July 2022. It looks like the markets were ready, the 10 year actually dropped about 7 bps to 1.54%. Hopefully the market will be able to price future rate risk without a lot of volatility. What comes after tapering? The runway will be clear for a rate increase in 4Q 2022 (the futures market indicates this is likely). Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • 10 year Spikes above 1.50% As Powell Calls Inflation “Frustrating”

    Pascale’s Perspective

    September 29, 2021

    The 10 year T has jumped from 1.17% (August 3) to 1.56% this week. Two Fed officials came out today in favor of tapering bond purchases, adding to a growing chorus. Fed Chair Powell is having a rough few days: 2 resignation of Fed officials over conflict of interest allegations, Senator Warren announcing her opposition to his re-nomination for another term, and his statements to Congress that inflation is more than “transitory” Powell indicated that supply chain bottlenecks, once thought to be “worked out” by the end of 2021, will now persist well into next year and in some cases are worsening. As the Covid era accommodative policies are being removed, a benchmark for the 10 year T comes into focus: 1.85%. That was the 10 year T rate at year end 2019, before the Covid pandemic. Meanwhile, Treasury Secretary Yellen has indicated that the “x date” is estimated to be October 18. That is when the US Treasury will exhaust cash reserves and will be unable to meet it’s obligations without an increase in the debt ceiling. That increase is now fraught with political wrangling and no clear path is in sight. The countdown is already distorting the short term treasury market, as yields are spiking as buyers are unsure if the securities will be liquid at maturity. Rates will also be dependent on upcoming data releases: PCE this Friday, Employment next Friday. Capital markets may be affected if the debt ceiling remains unresolved into mid-October. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • High Leverage Non-Recourse Financing Solutions for Single Family Construction, Bridge and Term

    Hot Money

    September 29, 2021

    George Smith Partners is working with a national capital provider funding high leverage, non-recourse Build-to-Rent developments, Single Asset/Portfolio construction, Bridge & Term loans and Multifamily Construction loans for merchant home builders on “For Sale” product. Pricing starts at 7% with leverage up to 90%. The maximum loan amount per deal is $40,000,000.

  • Talking About Tapering, In December

    Pascale’s Perspective

    September 22, 2021

    After many months of “telegraphing” the first pullback of accommodative policy instituted in the wake of the Covid financial meltdown of March/April 2020, Fed Chair Powell indicated that we should expect a formal announcement “soon” (most likely at the next meeting in early November) and tapering to begin in December. Keep in mind that if the Fed lowers purchases by $10-$15 billion per month, there will still be over $500 billion of bonds purchased during a 6-9 month process. The Fed statement today indicated that, “If progress continues broadly as expected, a moderation in the pace of asset purchases may soon be warranted”. Significantly, the consensus amongst Fed members was unanimous. Inflation continues to be the unknown factor, transitory or sticky? The Fed core inflation projections increased (3.7% this year vs 3.0% months ago, 2.3% in 2022, 2.2% in 2023). So inflation may be a little stickier than estimated early in the summer, with future years at just over the Fed’s target of 2.0%. Powell indicated that economic growth is progressing (although the Delta variant spikes have dented earlier optimism) and conditions warrant tapering. He also said that the economic growth threshold for “liftoff” (raising rates from 0%) is nowhere near being met at this time. However, 9 of the 18 members now predict a rate increase in 2022, with 3 members predicting 2 increases. Projections for 2024 show an expected “neutral rate” of 1.75% or 7 increases in the next 3 years (neutral rate is the predicted “Goldilocks” rate, neither stimulative nor slowing). Markets seem very receptive to the Fed’s plan, no “tantrum” today as the 10 year T yield actually dropped about 3 bps this afternoon, closing at 1.30%. The big question is how will treasury markets react to the expected announcement at the next meeting? Meanwhile in Washington, markets are watching the Congressional debate on the upcoming debt ceiling with trepidation. The US has never breached their obligations (treasury bonds) which are an underpinning of the entire financial system Moody’s has indicated that a default of the US treasury obligations could cost $15 trillion in stock losses and 6 million jobs would be erased. Many expect a solution “just in time”. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • 4.90% Fixed Rate Non-Recourse Bridge Financing

    Hot Money

    September 22, 2021

    George Smith Partners is working with a non-recourse capital provider funding bridge loans from $10,000,000 to $50,000,000. With a focus in California, the portfolio lender will fund up to 60% of value but will allow a recorded second Deed of Trust behind them up to 85% of value. With terms up to one year, program highlights include no prepayment and interest only. Decision making is flat and seven-business day close is their normal execution.

  • Data Indicates “Cooling” of Inflation (for now)

    Pascale’s Perspective

    September 15, 2021

    This week’s release of the August CPI report indicated lower than expected inflation. The headline numbers were the annual price increases: 5.3% actual vs 5.4% expected. Markets focused on the monthly increase in core CPI which rose just 0.1% vs 0.3% expected. Supply chain issues are proving to be “stickier” and less “transitory” than previously thought, (example: computer chip shortages which are shutting down major segments of auto production and delivery are expected to continue well into 2022). This report should give the Fed some breathing room to start pulling back on bond purchases near year end and not push tapering to start sooner. The 10 year is at 1.30%.

    The Fed meets next week. Speaking of “the data”, the traditional CPI report from the Labor Department’s methodology does not track prices of goods purchased online. Adobe Digital Insights released a report this week indicating that online prices have risen for 15 consecutive months and increased by 3.1% year over year. This is significant as online prices fell at a 3.9% annual rate from 2015 to 2019. The willingness of online sellers (Amazon) to accept lower margins for greater market share has helped keep inflation in check for much of the post Great Recession era. Also, online purchases grew from 16% of consumer spending in 2017 to 20% today. The pandemic increased this of course as people are now buying a wider variety of goods online. The inflation “sticky” vs “transitory” debate is not settled. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • High Leverage Non-Recourse Bridge and Acquisition Financing

    Hot Money

    September 15, 2021

    George Smith Partners is placing high leverage non-recourse bridge debt up to 80% + of cost through a national portfolio lender. Funding value-add transactions from $2,000,000 to $30,000,000 the Capital Provider offers flexible loan structures with terms up to 5 years. Floating rate pricing starts from SOFR + 325 – 425 (SOFR floor of .25%). The Lender has a particularly strong appetite for multifamily (including fractured condos), retail, office, industrial, self-storage, and mobile home parks located in the growth areas in the south, Texas, Florida, Georgia, Ohio, and Kentucky.

  • Higher Than Expected Job Openings Data Indicates Employment “Match Up” Imbalance

    Pascale’s Perspective

    September 8, 2021

    Today’s higher than expected job openings report (10.9 million openings, up from 10.2 million in June) and comments from Fed Governor Bullard highlight the dilemma facing policy makers. The economy is still about 5 million jobs short of pre pandemic levels. The Fed’s policy objectives are full employment and low inflation. The Fed has been willing to allow inflation to “run hot” (temporarily) while pursuing full employment. There continues to be a mismatch in demand. Example: there are 3.5 million openings in the hospitality sector but less than 1.5 million unemployed whose last job was in that sector. The pandemic’s societal effects have notably included a “Great Reassessment” by much of America’s workforce. Resignations are over 13% higher than pre-pandemic levels. Yesterday’s NY Fed Labor Market Survey indicated workers are expecting higher wages and feel they have leverage as labor shortages hit certain industries. So maybe the Fed’s continued easy money policies are limited in their effect (another “new normal”). Pouring money into the system will not solve these demand imbalances. Quantitative easing and low interest rates will not retrain workers. St Louis Fed Bank President made that point today as he advocated for tapering bond purchases “this year” and ending those purchases “by the first half of next year”. He indicated that the employment challenge is now “getting the workers matched up” and not creating demand. Meanwhile, major companies (Walmart, McDonalds, etc.) continue to increase wages hoping to attract and retain workers. This is of course inflationary and not transitory. The 10 year T is at 1.34% with a closely watched auction of new 10 year bonds scheduled for this afternoon. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • Non-Recourse Bridge Financing Rates Starting at 3%, Up to 85% LTC

    Hot Money

    September 1, 2021

    George Smith Partners is working with a national lender providing non-recourse bridge financing for multifamily, office, industrial, self-storage, limited-service hotels, retail, office, and student housing projects up to $100,000,000. With the ability to advance 85% of cost, pricing starts at 3% for terms up to three years. The lender can close quickly.

  • Fed Notes Release, Consumer Confidence, Retail Sales

    Pascale’s Perspective

    August 18, 2021

    Today’s release of the notes from the Fed’s July28-29 meeting reveals the Fed committee members’ opinions reflect the general mood amongst market participants: uncertainty about the future during this time of “uncharted territory” of the Covid recovery. Last week’s historically low Consumer Confidence report and yesterday’s drop in retail sales underline the bumpy path of the recovery. The Delta variant surge is affecting demand.

    The Fed: tapering of bond purchases “soon” looks like it’s happening. The members disagree on how soon and how fast. Some want to announce in the next few months and begin tapering this year, others want to see more data on the recovery and start next year. Interestingly, some members are calling for a quicker deceleration of purchases than the last taper in 2014. Instead of a gradual 12 month period, it could be 6 months. That would mean lowering purchases by about $20 billion a month. Will that disrupt financial markets? Besides the inflation concerns, much of the debate centers on whether the Fed’s employment goals are close to being met. The data is not determinative. Yes, there are still about 6 million fewer jobs than pre-pandemic. But unfilled job openings and labor shortages are being seen in several sectors and regions. The pandemic has possibly created a “great reset” as the labor market is shrinking, many workers are not returning to their old jobs. People are taking early retirement and moving to different sectors. So perhaps “full employment” is an illusory goal that will be difficult or impossible to achieve. The 10 year T is at 1.27% and investors will now look to Powell’s remarks in Jackson Hole next week as for potential policy announcements. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • Small JV Equity Investments for Existing Product

    Hot Money

    August 18, 2021

    George Smith Partners identified an equity provider offering LP Capital for value add to opportunistic real estate investments throughout the United States. With financing starting at $5,000,000 and going to $15,000,000 this equity provider is open to all property types across the investment life cycle with focus on multifamily, single family, and retail. The hold period is 2-5 years (longer for stable, cash flowing deals).

  • Non-Recourse Bridge Financing, Rates in the Low 3’s

    Hot Money

    August 4, 2021

    George Smith Partners is working with a nationwide direct balance sheet lender offering non-recourse, interest only bridge financing that focusses primarily on multifamily, office, industrial, retail, mixed-use, parking, self-storage, manufactured housing, hospitality and SFR portfolios. Rates start at 3% for loans up to $50,000,000. Typical loan structures include two- or three-year initial terms with extensions up to 2 years, 80% LTV for multifamily and industrial and 70% LTV for other product types. Lender will consider requests for acquisition, refinances, equity recapture, renovations and DPO’s for loans up to $40,000,000.