August 6, 2020
Jonathan Lee, Principal/Managing Director at George Smith Partners explains the impacts that the pandemic has had on real estate lending and the changes he foresees for the wider market as we emerge out of the pandemic.
August 5, 2020
With the economy still reeling from the effects of COVID and much of the population unemployed and facing expiring benefits and eviction, there is widespread consensus that another stimulus package is essential. Congress has heard from a huge spectrum of America on both sides of the aisle: their constituents, economists, past Fed Chairs Yellen and Bernanke, Fed Chair Powell, small business associations, fortune 500 CEOs, community groups, state and local government officials, and more. This is one of the most critical fiscal legislative moments in history. Washington is trying to push through their disfunction, partisanship and heated election year politics to craft a bill. With summer recess set for next week, it seems that this Friday is the deadline for an agreement (which will then take days to document and be voted on). The stakes are high for commercial real estate of course. Enhanced unemployment benefits and/or stimulus checks are critical for the apartment and retail sectors (and for the economy in general). The CRE council and some legislators are trying to include aid to commercial real estate owners, particularly those with CMBS loans. CMBS delinquencies are climbing (over 10% overall, with hotels over 25%). Servicers are unwilling to offer continued (or any) forbearance and borrowers are looking to Washington for relief. Congress is also being swayed by the hit to the hotel industry, which is a huge employer. The proposal taking shape involves banks providing preferred equity for 12-18 months of debt service, expenses and taxes. The preferred equity will be at a rock bottom rate of 2.5%. The loans will be guaranteed by the U.S. government. The preferred equity structure will not violate CMBS borrower covenants on additional debt. The negotiations are difficult and contentious, some participants are saying it is “50/50” that a comprehensive deal will get done. The stakes are high. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
August 5, 2020
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.
How Equity Deals Will Be Capitalized in a Post-COVID World: Crowdfunding, Family Offices, Private Equity
July 31, 2020
July 29, 2020
Comments from Fed Chair Powell today reiterating the Fed’s commitment to accommodative policy for as long as it takes. The Fed policy statement held few surprises, extending commitments on swap lines (through March 2021), bond buying ($120 billion a month in Treasuries and Fannie/Freddie), corporate bond buying, emergency lending programs (extended to Dec 31). Unprecedented programs to purchase municipal and corporate bonds also will continue. Powell noted the recent “leveling off” in the economy after May/June job gains were “sooner and stronger” than expected. But subsequent surges in COVID cases around the country have partially derailed that recovery. He noted debit and credit card spending, hotel occupancy and other consumer metrics are slowing, and future trends are unknown due to the unpredictability of the virus.
Interesting comment: “The two things are not in conflict. Social distancing measures and a fast reopening of the economy actually go together. They’re not in competition.” Spoken like a true analytic banker. He sees no danger of inflation and actually seemed to warn of deflation as he indicated that the pandemic is lowering prices (except for the notable exception of food prices). Watch the data: tomorrow’s 2nd quarter GDP announcement will be unprecedented, predicted to be minus 35% (!) Remember this is annualized, so it will show about a 10% drop in the 2nd quarter, still very significant. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
July 29, 2020
George Smith Partners is currently placing recourse and non-recourse, small balance financing up to $15,000,000 and up to 100% LTC. With a focus on ground up construction, renovation and repositioning in California the lender offers rates ranging from 6% to 10% and terms from 6-12 months with extension options. The lender favors the industrial and multi-family sector, but they will also consider retail, office and small multi-residential for sale.
July 22, 2020
Headlines this week:
- Washington DC: Congress and the White House struggle to create yet another COVID stimulus package costing about $1.5 Trillion.
- European leaders agree on a nearly $900 billion stimulus package after difficult negotiations.
- U.S. Dept of HHS makes a deal to purchase 100 million doses of a promising vaccine from Pfizer with an option for 500 million more doses(to be distributed free of charge).
- Negative economic trends continue in July as virus spikes cause re-closing of many small businesses, predictive statistic trends start to trend downward after rising in May/June (airline and hotel bookings, Apple map searches, etc).
- Businesses that received PPP funds can soon layoff workers without having to pay back the loans. National Federation of Independent Businesses survey showed 653,000 businesses plan to lay off workers near end of July without further assistance (70,000 businesses said they plan on laying off 10 or more workers).
- Federal unemployment benefits expire next Friday.
- As commercial flight passenger volume decreases, speculation mounts that the major airlines will lay off huge chunks of their workforce on October 1. That’s the first day they are allowed to layoff workers and keep the billions of dollars of aid they received in an early Covid stimulus bill.
- Home loans with FHA guaranteed mortgages are in a foreclosure and eviction moratorium that was extended from June 30 to August 31. This could hurt landlords, homeowners and tenants. Eviction moratoriums put huge pressure on landlords. Note that the CRE Council is working on a $400 billion proposal to allow the Federal Reserve to take a preferred equity stake in commercial properties by advancing troubled borrowers of hotels, malls, etc one year of debt service, taxes, and operating expenses.
All of these deadlines or “cliffs” expiring during a rough patch for the economy could result in a wave of evictions, layoffs and foreclosures. Federal Government aid and/or legislation will be necessary to extend these deadlines. When will the economy be able to function without these extraordinary measures?
It seems that the calculus is as follows: the virus is proving difficult to control until an effective vaccine is widely available and the fall/winter flu season is only 2 months away. “Normal” consumer behavior (movie theaters, malls, conventions, normal business travel, hotel occupancy) is most likely completely dependent on said vaccine. The question in Washington this week and next is how much and how long? Will it be enough to carry the water until the vaccine? And even after the vaccine comes, there are long term and permanent effects that will affect commercial real estate for years to come. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
July 22, 2020
George Smith Partners identified an equity provider offering rescue capital for all asset types in major MSA’s. With a focus on recapitalization and repositioning assets, equity starting at $10,000,000 and going to approximately $30,000,000, they can provide Pref Equity with rates starting at 14%.
July 15, 2020
All eyes on Washington as positive June data cannot be considered “forward guidance” as July’s numbers will most likely be shaky. Congress reconvenes next Monday for a 3 week session before recessing until Labor Day. Elements of the “final” COVID stimulus bill are taking shape. For example, a 5-year liability shield (2019-2014) for businesses and governments relating to COVID claims, some “targeted” aid to state and local governments and an extension of $600/per week of Federal unemployment benefits that are now set to expire July 31. Note that about 33 million Americans are receiving the Federal unemployment benefits. All of these measures are controversial and contentious. If the unemployment benefit is replaced with a “return to work bonus” from the government, is that putting workers into danger? Ben Bernanke (who knows a thing or two about a financial crisis) strongly urged billions of aid to state and local governments, indicating that there should have been more stimulus to states and cities following the Great Recession.
The Fed is “all in” based on speeches from Fed officials this week. To summarize: “No” on negative interest rates in the U.S. Officials cited, “structural issues”. Possible “Yes” on Yield Curve Control (now being practiced by the Bank of Japan) whereby the Fed buys enough short term treasuries to set a ceiling on the yield. A big “YES” on further asset purchases across the board (Treasuries, Mortgage Backed Securities, and Corporates). There is room for this as the Fed’s balance sheet is actually declining due to lower utilization of its swap lines with foreign banks (a very good sign because that means markets are less stressed). And also, “Yes” to the end of LIBOR remaining on schedule for Jan 1, 2021. Fed Governor Williams issued a robust defense of the replacement index (SOFR) during a speech on Monday to regulators. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners
July 15, 2020
George Smith Partners identified an equity provider offering rescue capital for nationwide full-service hospitality and mixed-use assets. With financing starting at $5,000,000 and going to approximately $20,000,000, they can provide Pref Equity and Mezzanine capital with rates starting at 12%. Locations of interest are in strong markets with high barriers to entry and development sites with the potential to build strong hotel assets from the ground up.
July 10, 2020
ACTIVE LENDERS IN TODAY’S MARKET
This discussion covers how we have evolved in the last 100 days during the COVID environment and the future of how we move forward together.
Rachel Hunter | Apollo Global Management LLC
Jeff Burns | Walker & Dunlop, LLC
Tammy Jones | Basis Investment Group
Michael Anderson-Mitterling | George Smith Partners
Olga Brandeis | George Smith Partners
July 8, 2020
George Smith Partners is currently originating and closing fixed and floating rate loans for permanent, bridge and ground-up development with an institutional portfolio lender. With a strong appetite for multifamily, the capital provider offers rates starting at 4% for transactions from $2,000,000 to $50,000,000 for CRE loans and to $35,000,000 for ground-up construction. For stabilized and cash flowing assets, non-recourse and interest-only options are available along with aggressive underwriting down to a 1.15x DSCR.
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