GSP Insights

  • Government Stays Open, No Stimulus Deal in Sight

    Pascale’s Perspective

    September 23, 2020

    One of the October 1 “cliffs” is solved as an approved continuing resolution is on its way to being approved, keeping the Government open until mid-December’s “lame duck” session. As partisanship battles flare and with no serious negotiations underway, prospects for another round of stimulus are fading. As Fed Chair Powell and Treasury Secretary Mnuchin appeared before Congress this week, Powell reminded legislatures that he does not have “spending power” and fiscal policy is their responsibility. The usual “needs list” was discussed by lawmakers: reallocations of unused Cares Act funds, money to schools, more PPP aid to hard hit industries (travel, restaurants, etc). Mnuchin even discussed PPP funding to help landlords make mortgage payments and/or make up for lost rent payments due to the pandemic. Economic bright spots include a rebound in household spending, brisk home sales, increased home mortgage application volume and manufacturing picked up to a 20 month high.

    Loan Rates: The 10 year treasury has been trading in a very tight range for weeks (today at 0.67%), securitized loan markets are rallying and spreads are tightening. This continuing “perfect storm” is resulting in 10 year loan rates for agencies and CMBS around 3.00% with some loans pricing in the 2’s. Unless rates go negative, its hard to imagine coupons any lower. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • National Ground-Up Portfolio Construction Lending to 70% of Cost

    Hot Money

    September 23, 2020

    Despite COVID concerns, George Smith Partners is actively placing multifamily financing for acquisition, refinancing and ground-up development to mini-perm requests with a national portfolio capital provider. This lender offers local decision making and all the advantages of a small bank type financing on a national level. Loan amounts are sized from $2,000,000, up to $15,000,000 to 70% of capitalization. Their construction program automatically rolls into a five-year mini perm upon Certificate of Occupancy. With only a 90-day interest prepayment penalty if refinanced at stabilization, this offers take-out security yet provides flexibility for future capital market conditions. The prepayment penalty is waived in the event of a sale.

  • Rates Are Going Up, In 2024 At The Earliest

    Pascale’s Perspective

    September 16, 2020

    Today’s Fed meeting and subsequent statement from Fed Chair Powell spelled out a major change in Fed Policy that has been discussed this year: allowing inflation to “run” at or above their long stated 2% target without immediately raising rates. The old guidance, first announced in 2012, was that the Fed was targeting inflation rising to 2% or unemployment dropping to 5% and would increase rates if those thresholds were met. The “old normal” of pre-Great Recession economic theory was that crossing those thresholds meant that an overheating economy would spur inflation (see early 80’s Volker era). As the last decade has given way to the “new normal” whereby ultra low unemployment and interest rates has not resulted in inflation. The Fed is now saying that inflation can go to 2% and above for a while. Today’s statement “(The Fed) will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent.” And when does the Fed see inflation running consistently at 2%? According to their forecast released today, it won’t be until well into 2023 at the earliest. Allowing for “run-time”, this puts the next “lift-off” of rates into 2024. Powell indicated that “highly accommodative” policy (zero rates, bond purchases, etc) “until the economy is far along in this recovery”. It begs the question, when will inflation return and what will it look like in this era? Powell also said that a “closely trusted” vaccine is critical to the economic recovery and that the Fed is not “out of ammo” as far as tools to aid the recovery. So, stimulative monetary policy is a given in today’s world. What about the more difficult issue of stimulative fiscal policy, which requires consensus in Washington? Today was the most optimistic day for months in that regard as the Administration and Congress leaders both signaled lots of common ground complete with conciliatory rhetoric, let’s see what tomorrow brings. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • Non-Recourse Bridge Financing for All Asset Types

    Hot Money

    September 16, 2020

    George Smith Partners is currently placing non-recourse financing for multifamily (including MHC and student), office, self-storage, mixed-use and industrial properties nationwide. This lender currently offers up to 75% of total costs and 70% of stabilized value. They focus on middle market transactions offering loan amounts from $10,000,000 to $50,000,000 (will selectively lend on larger transactions) with terms up to five years. The Lender offers competitive LIBOR-based pricing with flexibility on lockout/yield maintenance period. They are a balance sheet lender that does not leverage their positions with CLO’s, warehouse lines, or REPO facilities which ensures certainty of execution and aligned asset management. The lender is capitalized by institutional investors.

  • Congress May Fail on Stimulus But Avoid Shutdown, CMBS Update

    Pascale’s Perspective

    September 9, 2020

    It looks like Congress will keep the government open with a “clean” continuing resolution punting any shutdown risk until the December “lame duck” session after the election. The bill may be so clean that it won’t include any updated stimulus funding. A vastly stripped down bill in the Senate has little chance of becoming law and serious negotiations have yet to start. Last week’s employment report was positive on the surface with the headline jobless rate falling to 8.4% from 10.2% in July. But the jobs survey is conducted during the week that includes the 12th of the month. During late August some warning signs emerged as job openings plunged on major job recruiter sites. Major employers are set to implement job cuts in September/October (such as airlines and other travel industry employers if the aforementioned stimulus is not approved). Fed Chair Powell spoke in an interview soon after the report was released and reiterated that low interest rates will be in place for “an extended period of time, measured in years”. CMBS spreads continue to tighten as the bond buyers bid aggressively on loans originated in the “2020 normal.” Well underwritten office, industrial, multifamily and self storage loans are pricing in the 3.50% range with some interest only as the 10 year T remains at about 0.70%. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • Non-Recourse Construction, Bridge and Land Financing

    Hot Money

    September 2, 2020

    George Smith Partners is currently placing non-recourse, high-leverage construction bridge and land loans in the Western U.S. This Lender offers rates from 7% -12%, high leverage, terms up to three years and can close in under two weeks for loans up to $35,000,000. They focus on entitlement land plays, adaptive re-use, covered land plays, recaps; Build-to-suits and pre-leased properties. They will also consider property types such as condominiums, flex buildings, mixed-use, R&D/Bioscience, resorts, retail single tenant, NNN and self-storage.

  • Fed to Unveil New Inflation Policy, Washington Inaction Creating “Multiple Cliff” Deadline

    Pascale’s Perspective

    August 26, 2020

    Look for a preview of a major shift in Fed policy regarding inflation at tomorrow’s virtual Jackson Hole symposium. Fed Chair Powell is expected to unveil a policy of an “average inflation” target. Instead of using a 2% inflation figure as a “trigger” to increase rates, the new policy will allow inflation to hover above and below 2%. This means that the Fed is  pushing out the eventual rate increase even farther. The reasoning is to avoid a “trap” of sluggish growth along with producers unable to raise prices effectively. This will allow inflation to “run” a little while, and is another recognition that the old rules don’t apply in the “new normal” of ultra low rates and low growth/inflation. Meanwhile, on the fiscal policy front, nothing is happening with stimulus negotiations between the House, Senate and Administration. The major airlines are announcing massive layoffs for October 1, when their stimulus ends (unless the stimulus is extended). Airlines are a critical part of the USA’s economic infrastructure. With a full government shutdown looming in 35 days (October 1), this creates the “final” deadline for Congress to come to some sort of agreement in a hyper partisan environment close to the election. Critical unemployment benefits, SBA funds for small businesses still suffering from pandemic issues, school aid, and funds for treatment/vaccines are all on hold until then. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • High Leverage Construction Loans

    Hot Money

    August 26, 2020

    George Smith Partners is working with a nationwide capital provider funding 100% LTC for NNN build-to-suit projects. This lender is also funding high leveraged construction loans for pre-leased medical properties and self-storage properties up to $20,000,000. Rates are between 8% – 12% and terms vary by product type. In addition, they provide small balance JV equity for development and value-add properties.

  • Fed Notes Indicate Aggressive Monetary Policy May Be Needed Longer

    Pascale’s Perspective

    August 19, 2020

    The market reaction to today’s release of notes from the Fed’s July meeting was “on one hand, but on the other hand”.    The policymakers noted that the rapid rebound in employment in May and June may not last as COVID spikes continue to affect the economic activity in July and August.  They noted future path of the recovery is highly dependent on the path of the virus, the timing of treatments and vaccines.  Future labor market growth is dependent on “broad and sustained” re-openings of businesses and normalized consumer behavior.  Therefore, the Fed indicated that aggressive stimulus may be needed longer than previously assumed.  Usually the market reacts positively to this type of news. Any indications from central banks that the “punch bowl is being removed” often results in a sell off in equity markets.  Today the initial reaction indicated a nervous market digesting the Fed’s downbeat look at the economic picture.  Last week’s spike in CPI had not yet occurred at the time of the meeting but it seems that the Fed continues to believe that inflation is not an issue. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • Floating Rate Non-Recourse SFR/Condo/Multifamily Portfolio Financing Starting at 4.25%

    Hot Money

    August 19, 2020

    George Smith Partners identified a national capital provider of non-recourse term, bridge and construction financing for 1-4 family rental portfolios and Build-to-Rent projects. Rental portfolio term loans start at $1,000,000 with rates starting at 4.25% for 5 and 10-year term options. Bridge loans (lines of credit) facilitate acquisition, rehab and aggregation strategies with financing options at 80% LTC and rates between 6.5% and 9.0% (depending on strategy). The lender will also go up to 75% LTC on Build-to-Rent projects and can close within 30-45 days from an executed term sheet.

  • Stimulus Talks Collapse, Is Inflation Back or Just Visiting?

    Pascale’s Perspective

    August 12, 2020

    The stimulus negotiations ended with no deal and partisan bickering, resulting in limited executive orders that may be challenged in court. With Congress going on recess, the next deadline is a big one! New annual appropriations bills need to be passed by October 1 to avoid a government shutdown. Congress will convene again in September with August economic data possibly providing more context on the urgency or lack thereof. The hyper partisan atmosphere of the election should also make it “interesting”. Meanwhile, today’s surprising jump in CPI indicated inflation is still around. The 0.6% core rate increase (excluding food and energy) was the highest since 1991. This is partially a result of pent up demand for items whose prices were depressed during the March – June pandemic shut down and gradual reopening. One month is not a trend, but the 10 year T jumped to 0.68% (note that it hit a low of 0.50% last Tuesday). That’s a 36% increase in a week. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • CMBS Financing Sub 3% Rates

    Hot Money

    August 12, 2020

    National fixed rate lender funding all asset types (except hotels) starting at $5,000,000 on a non-recourse basis. Retail appetite is currently limited to grocery anchored centers. Debt yield expectations like pre-COVID levels. Full term interest only is available up to 65% LTV for quality properties. The lender offers sub 3.00% coupon available for low leverage loans (10.5% debt yield or higher).

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