May 27, 2020
Today’s remarks by New York Fed President John Williams were illuminating as he discussed the possibility of “yield curve control” to aid the economy. This will involve the Fed buying and selling long-term bonds in order to “set” long term rates. This has not been implemented since WW II. Other countries have attempted this strategy recently, most notably Japan in setting long-term rates at 0%. The Fed continues to search for stimulative tools as they have already dropped rates to 0% for an extended period. Meanwhile, the Fed is rolling out four new previously approved facilities this week: $600 Billion Main Street Lending Program, Primary Market Corporate Credit Facility, Municipal Liquidity Facility, and Term Asset Backed Securities Loan Facility. This will place the Fed in the center of the corporate, municipal and MBS bond markets as buyer of last resort. The Main Street Lending Facility is highly anticipated, and will allow the Fed to lend (at approximately 300 over LIBOR) to companies with employees of 15,000 or less, hoping that this access to capital can help act as a springboard back to “normality”. Secretary Mnuchin indicated last week that the Treasury expected to “take losses” on these programs, implying they are almost like grants. The issue will be whether these capitalized businesses will be able to attract customers and thrive in the the present economic environment. Will customers (corporate or individual) still spend? The Treasury is “fully prepared to take losses in certain scenarios” on these programs implying that they are almost like grants. This gets back to solvency issues and whether more government grants are in order, ie. another stimulus package. After lots of hemming and hawing about “wait and see” it seems there is some new sense of urgency to pass another bill in early June. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
May 27, 2020
George Smith Partners identified a national joint venture equity provider seeking to invest in multifamily properties with strong current cash flows in partnership with strong sponsors. With the ability to go up to 90% of the total capital stack, the equity provider will fund equity contributions from $1,000,000 to $20,000,000 inclusive of secondary and tertiary locations. The Sponsor will receive a promote structure based on each transaction’s merits.
May 22, 2020
Non-Recourse CMBS Loans In The Time of COVID
The U.S. commercial mortgage-backed securities lending market has stopped working correctly and CMBS borrowers have been severely impacted by this crisis. GSP invites you to join our webinar for a discussion with key industry professionals.
The key discussion ponts are:
The impact the crisis has on Hotel, Retail, Office & Multifamily borrowers
The lending landscape and the importance of non-recourse financing to the debt market
How the CMBS debt market will reopen and return to pre-crisis levels
Federal Reserve and Government Policy as it relates to CMBS
Restructuring: With over $25 Billion in troubled loans, how should existing borrowers request relief from their Servicers and the likelihood of success
Mark Fluent | Deutsche Bank Corporate Bank
Tammy Goldfisher | The Henley Group, Inc.
Christopher LaBianca | UBS REAL ESTATE INVESTMENTS INC.
Matthew Lefkowitz | Crown Properties International
Bryan Shaffer | George Smith Partners
David Pascale | George Smith Partners
Jarod King | George Smith Partners
May 20, 2020
There is some level of reopening in all 50 states this week. Monday’s hopeful news about a potential vaccine rallied stock and debt markets. The rally may have been an overreaction, time will tell. But, both news items illuminate the situation. Various phases of restarting business is under way, with new guidelines that hopefully will prevent a second wave of infections. We are entering another “new normal” of “cautious commerce” until a medical solution is reached. Economists, politicians, policy makers, business leaders and all of society are grappling with the obvious questions about the speed and shape of the recovery. These issues were very starkly raised in yesterday’s fascinating appearance before the Senate of Fed Chair Powell and Treasury Secretary Mnuchin. First off, the CMBS market was mentioned multiple times. Senators asked about “empty malls” and the securitized loans that back them. Powell was asked by Senator Tim Scott, “Why aren’t you doing more for CMBS?” Senator Ben Sasse asked if the Fed was taking “Too much risk in CMBS?” Powell said he is supporting and monitoring CMBS, which is an “important market” but “not every problem can be addressed”. The Fed is only buying AAA bonds and he doesn’t anticipate any haircuts. After the highly watched 60 Minutes appearance, Powell continued to challenge Congress. He reiterated the tough road for the economy ahead and a potential slowing recovery. Powell called on Congress for further stimulus and reiterated the limits of the Feds power. It comes down (again) to monetary policy and fiscal policy. With the major shock to the economy over the past few months, many businesses (small and large) and governmental entities (states and cities) are reeling. If the Great Recession was basically a massive credit crisis, today’s issue is a solvency crisis. Powell reiterated that the credit markets are flush with liquidity and there is money to lend. But, many potential borrowers are not creditworthy and/or insolvent. Powell has clearly stated many times that the Fed cannot “make grants”. That puts the pressure back on Congress to provide fiscal aid in order to help with solvency. These policies are controversial as the terms “bailout” and “moral hazard” are likely to come up. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
May 20, 2020
George Smith Partners is currently placing non-recourse bridge financing up to $20,000,000 for all major property types nationwide. This balance sheet lender offers up to 70% LTC for loans with terms 3+1 each extension option at 0.5%. Pricing is L+450-550 on a 0.5% floor with 0% in and 1% to 1.5% exit fee. They can close in 30 days from application.
May 13, 2020
Some good news on lending as the first CMBS securitization since pre-crisis (early March) executed better than expected on Friday. The pool consisted of above average quality loans originated pre-crisis, with no hotels and very little retail. There was oversubscribed demand and spreads were tighter than expected throughout the bond classes. CMBS originators are cautiously optimistic as new loans are being quoted. Look for leverage in the 65% range, some reserves may be required at loan closing and extra scrutiny on sponsorship. Underwriting standards will be more conservative. As CMBS originates, we have seen some life companies narrow their spreads to win business on good quality real estate.
Some more “green shoots” are visible as the bridge lenders are starting originations also. The warehouse lending market (big banks lending to debt funds) has started up again, with more cautious leverage. The warehouse lenders will also monitor loan collateral more closely. Multifamily, office, industrial bridge lending is back with leverage in the 65-70% range with spreads in the L+350-450 range (as opposed to 80+% stretch bridge loans at L + 275-325 pre-COVID). As credit becomes more available, the focus will be on property specifics (location, resilience of the income, etc). Fundamentals going forward in this environment will be critical, and many of the fundamentals are dependent on the virus spread and hopes for treatments/vaccine.
Fed and Data: Fed Chair Powell’s remarks today shook markets. He called on Congress and the Administration to authorize further “fiscal support” or risk “long term damage” to the economy. He contextualized the recent unemployment reports with a stark statistic from the Fed’s recent survey, “40% of U.S. households making less than $40,000 per year lost a job in March”. Powell also (again) pushed back on suggestions that the U.S. implement negative interest rates.
Other Data: Yesterday’s CPI report contained unprecedented numbers: negative 0.8% CPI from March to April, the lowest since December 2008. However, food prices saw there biggest one month jump since April 1974 at 2.6%. The overall CPI was down due to big drops in clothing, energy and other categories. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
May 13, 2020
George Smith Partners is working with a capital provider that will provide fixed and floating rate financing with 70% of cost for multi-family, 65% for all other commercial and 75% for construction. With a focus on Southern California, Las Vegas Washington, Texas, Chicago and New York the portfolio lender offers terms up to 10 years, loan sizes go up to $50,000,000 and pricing starts at 4%. Program highlights include step down prepayment for Bridge, Permanent and Construction financing.
May 8, 2020
The Changing Landscape of Lending Today
Don Griffith, Former Chairman and CEO, Grandpoint Bank
Pat Jackson, President & CEO, Sabal Capital Partners LLC
Timothy Sloan, Former CEO, Wells Fargo & Special Advisor to Fortress Capital
Jonathan Lee | George Smith Partners
Shahin Yazdi | George Smith Partners
May 6, 2020
This morning ADP Private Sector Report was sobering to see 20.2 million people lost their jobs in April. By far the largest number since the survey began in 2002, the previous record was 835,000 in 2008. The loss represents all of the jobs created since the financial crisis. As America starts to open, there is hope that April was the bottom and we are climbing out of it. However, the daily human tragedy cannot be ignored or minimized. My heart goes out to all the families that have been affected by this virus. If the economy can be restarted safely, many analysts (including the Fed), believe that the job market can rebound over the next few quarters. However, the days of 3.0% unemployment may be at least a year away. This Friday’s unemployment figures will be closely watched. After all the major volatility in March The 10-year T is now trading in a tight range, in the .60-.75% range and is at 0.70% today. As oil rebounded from negative prices into positive territory, the Treasury yields have increased accordingly as threats of deflation have subsided for now. The CMBS market is thawing as spreads throughout the capital stack are narrowing. New originations at 60-65% LTV with all in rates in the 4% range and many loans will require a 6-month interest reserve. Expect originators to as “CMBS 3.0” begins, expect originators to be about strong collateral and strong sponsors but no hotels currently. We are seeing some bridge lenders start to quote again on well underwritten multifamily transactions. Rates are lower than “hard money” rates, but leverage has been dialed back. The 80+% of cost loans pre-COVID are now 60-65% LTC, but it’s a start. The reinstituting of bank lines to lenders and/or a restart of the CLO market will greatly help. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
May 6, 2020
Historically, GSP has funded multiple transactions with a bank CMBS originator who is now pre-loading their pipeline with balance sheet executions. Floating rate non-recourse loans are being funded today from $15,000,000 and higher for multifamily, self-storage, industrial and office projects. Sized to a 65% LTV, the two-year term will require monthly debt service from operations on an interest only basis priced at LIBOR plus 300 to 375. There will be no prepayment penalty or exit fee should the bank take themselves out with a CMBS permanent execution once the markets re-stabilize.
April 29, 2020
Today’s Fed meeting and subsequent press conference by Fed Chair Powell was like no other in history. First off, Powell said, “We are going to see economic data for the 2nd quarter that is worse than any data we have ever seen”, this after the 1 quarter GDP contracted at a 4.8% annualized rate, the worst reading since 2008. Also, Powell’s speech and Q&A was virtual, with reporter questions being asked via a webinar. He expressed some hope for a significant bounce back in the 3rd quarter as stay at home measures are gradually rolled back. Of course, so much is dependent on the virus. Markets rallied significantly today on positive news regarding a potential treatment.
Full Range of Tools: The Fed Funds rate will remain at near zero for a while (possibly for 2-3 years) and the Fed continues to purchase about $10-15 billion per day in Treasuries and $8 billion in mortgage bonds, daily injections of capital into the repo markets.
Up next: A Main Street Lending Program will provide 4 year loans to businesses too large to benefit from the PPP program and more purchases of corporate debt. But, Powell noted that the Fed is authorized to “provide loans not grants” and the most vulnerable American individuals and businesses are not in a position to pay back loans as they have been hit so hard by this crisis. “This is the time to use the great fiscal power of the United States to do what we can to support the economy and try to get through this with as little damage to the longer-run productive capacity of the economy as possible”. Powell declared in a direct message to Congress to provide this aid. He is implying that the fiscal policy so far is good but not enough and he is continuing to push monetary policy to the limit. Focus on central banks continues tomorrow with the ECB’s policy announcement. Bank of Japan opened the week on Monday pledging unlimited bond buying, as the international adoption of Modern Monetary Theory continues. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
April 29, 2020
David Pascale, Senior Vice President at George Smith Partners shares his thoughts on what is happening in the capital markets today.
Some of the discussion topics include: the new environment, forbearance and the impact on investors, how lenders are changing their underwriting, key factors and metrics such as consumer demand and how property managers are helping their tenants.
Click here to listen to the podcast.
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