Don't Miss a Fact,
Sign Up for FINfacts!

FINfacts is a weekly newsletter highlighting recent financings and economic insights.

Subscribe Here

GSP Insights

  • Hawkish Fed Rallies Markets. What?

    Yes, that is correct. Today’s release of Fed committee notes from the May 4th meeting indicated a resolve to “do what it takes” to tame inflation. Usually a Fed announcement like “we judged that 50 basis point increases would likely be necessary at the next couple of meetings” would trigger major volatility in stock and bond markets. Today, however, stock markets rallied and bond markets held firm. Why? Recent quarterly earnings reports by Fortune 100 corporations and plummeting stock markets have shown inflation is hitting the bottom line hard. Remember, 2021 featured trillions of dollars in stimulus, the lowest interest rates in modern history, and some “transitory” inflation. The punch bowls have all been pulled from the table and the lights are on, reality is setting in. A return to normalcy is predicated on inflation being brought down to the Fed target of 2.0% (most recent reading: 6.6%). The Fed notes indicated unanimity on the rate hiking plan. Markets are cheering the determination and resolve (although some believe it should have been shown earlier).

    Bottom Line: The “next couple of meetings” means 50 basis point increases are guaranteed for the next two meetings: June 15 and July 27. Futures markets are at 90% on both of those moves – that puts the Fed Funds target rate at 1.75% after the July meeting. What next? The traditional August break with the next meeting on September 21. So, the Fed will have almost 2 months to gather data and gauge the effects. The September increase may be 25 basis points (futures markets are at 67% for the smaller increase). Again, the Fed invoked their willingness to go “above the neutral rate” (2.4%) into restrictive territory, if necessary to battle inflation. The next few inflation readings will be very closely watched, starting with this Friday’s release of the April 2022 PCE (the Fed’s Preferred Inflation Gauge). Over the next few months, that along with CPI/PPI will be critical as markets watch for signs that inflation is peaking or retreating. Interesting “coincidence” – a Fed Funds rate above the neutral rate would put it at 2.75%, exactly where today’s 10-Year Treasury is at (down from 3.20% on May 6); with 30-Day SOFR at 0.98% and 30-Day LIBOR at 1.01%. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • Senior Bridge Loan Financing up to $100,000,000

    Hot Money

    May 25, 2022

    George Smith Partners has identified a senior mortgage capital provider that is funding multifamily bridge loans for transactions ranging from $10,000,000 to $100,000,000 in all markets nationwide. The Lender underwrites to 65% of stabilized value and an exit debt yield of 7.0% or less. There is no DCR test on the stabilized cash flow, which allows the lender to provide higher proceeds despite the current interest rate environment. The bridge loans are non-recourse and have an initial 3-year term.

  • Markets Crash Hard After Powell’s “Softish Landing” Prediction

    Today’s stock market tumble was the worst trading day since June 2020. Yesterday, Fed Chair Powell’s comments were straightforward, including “there could be some pain” as the Fed moves to tame inflation with rate hikes. The proverbial “soft landing” in times of fiscal tightening is very elusive. So Powell indicated that he is now hoping for a “softish landing” that will be “a little bumpy, but it’s still a good landing.”

    Today’s stock drop stemmed from a capitulation by investors that inflation may seriously affect financial conditions. Earnings reports from Target and Walmart indicated that inflation is affecting corporate America’s “bottom line”. This realization after Powell’s comments yesterday contributed to the sell off.

    More from Powell: “Financial conditions have tightened quickly”, he seemed pleased as it will slow down inflation. Stocks are being “marked to market” based on rising interest rates and inflation. The same process is happening in the CRE capital markets as debt costs, leverage levels, risk spreads and equity expectations are in flux. There’s plenty of capital but lenders are in the process of “pricing discovery” as conditions change rapidly. Many lenders indicate that today’s volatility will hopefully lead to conditions settling in a few months. Most certainly some adjusting of asset prices and cap rates will have to occur for transaction volume to increase to last year’s levels. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

     

  • JV Equity Financing

    Hot Money

    May 18, 2022

    George Smith Partners identified a JV equity provider for existing income-producing assets and transitional institutional quality projects for industrial, multifamily, and specialty sectors such as data centers and cold storage. They will write equity checks starting at $25,000,000 per asset with 50% – 65% senior leverage for acquisitions, repositionings, workouts, recapitalizations, lease-ups, partnership by-outs and restructures. Investment terms are 3 to 5 years.

  • Inflation: Today’s CPI Report indicates the peak, a plateau, or?

    After last week’s fifty basis point Fed increase on Wednesday and 10 year Treasury spiking to nearly 3.20% on Friday, markets were closely watching today’s release of the April CPI report for signs of relief. The Fed’s hawkish stance on inflation has magnified the significance of any indications of moderating price increases. The good: annual CPI dipped from 8.5% (last month, the highest since 1981) to 8.3% (still very high). Markets were hoping for 8.1%. The Not So Good: Core CPI rose 6.2% (estimates were 6.0%), monthly gains were higher than expectations: 0.3% headline (estimate 0.2%) and 0.6% core (estimate 0.4%). The market’s reaction was schizophrenic. Treasury yields initially jumped from about 3.00% to 3.08% before closing at 2.89%. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • Bank Priced Financing for Non-Recourse Multifamily Bridge with Zero Cash Flow – 5% Nationwide

    Hot Money

    May 11, 2022

    George Smith Partners is working with a capital provider funding non-recourse bridge multifamily projects with zero cash flow floating from 5% in all markets nationwide from $3,000,000 – $25,000,000. This program does not require interest rate caps for the 2-year term for high vacancy, heavy rehab story deals. Exit fees range from .25% – 1.0% depending on deal size and can be waived with property refinance.

  • Treasury Yield Volatility – Peak Inflation? Risk Spreads Widen, SOFR/LIBOR Indices Spike on Hawkish Fed Expectations

    Pascale’s Perspective

    April 27, 2022

    The last few weeks have seen major volatility in financial markets with stock market selloffs, climbing VIX index, oil price swings, and whipsawing bond yields. The 10 year yield marched up to 2.95% last Monday before dropping to 2.73% yesterday morning. Global slowdown fears tied to the Ukraine war, Chinese demand ebbing due to Covid breakouts/shutdowns in key Chinese cities, interest rate spikes, consumer confidence drops due to inflation are all contributing to uncertainty. The yield curve has been inverting, steepening and partially inverting over the past few months. Today the 10 year is at 2.83%.

    This week, all eyes will be on the release of the March PCE report on Friday. Markets will be looking for indications that inflation has peaked – hoping that the monthly increases in PCE and core PCE are below the February numbers. The prospect of “stagflation” is a major “fear factor” (stubborn inflation, high interest rates, stagnant economic growth). The Fed meeting and commentary next week seemingly has been telegraphed and received by markets – a 50 basis point increase is expected (futures markets show 97% probability).

    Note that markets now expect three consecutive 50 basis point increases (May, June, July). Signs that inflation is peaking and possibly decreasing in the coming months may temper these hawkish expectations. Term SOFR rates (floating rate lenders’ preferred loan index) have increased from about 0.21% (March 1) to 0.70 (today). New fixed rate CMBS loans are pricing at about 4.80-5.25%. Banks winning loans as they are able to compete with lower rates and simple rate locks. Bank loan proceeds may be slightly less and involve some level of recourse. Fannie and Freddie are locking rates anywhere from the mid to upper 4’s depending on leverage and affordability metrics. Life companies are able to lock rate early and price in the 4.50-4.75% range for higher quality properties, especially apartments and industrial. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • Fixed Rate Bridge Financing

    Hot Money

    April 27, 2022

    George Smith Partners is working with a capital provider funding brand new built apartments for Sponsors who are either buying at Certificate of Occupancy with some pre-leasing or taking out construction loans up to $25,000,000. With terms two years or less, this lender can offer fixed rate pricing at 5.25% for year one and 5.50% for year two and up to 75% LTC. A SOFR Cap is not needed.

  • Multifamily Permanent Financing 3.90% Fixed for Five Years

    Hot Money

    April 20, 2022

    George Smith Partners is working with a capital provider funding non-recourse permanent debt to 75% of value on stabilized assets. With a strong appetite for Multifamily, Industrial, Self-Storage and Mixed-Use properties the Lender offers fixed rates starting at 3.90% for 5 and 7-year loans in ten states including California, Arizona, Colorado, Idaho for loans to $25,000,000. Ten-year fixed rate funds are available at a slightly higher coupon. Interest-only options are available along with aggressive underwriting down to a 1.15x DSCR on actual mortgage constants.

  • Key Yield Curve Metric “Uninverts” As 10 year T Hits 3 year High at 2.79%

    Pascale’s Perspective

    April 11, 2022

    The 2 year/10 year Treasury yields are “back to normal”, but rates continue to rise.  Some technical aspects are pushing yields up: new auctions in 10 and 30 year Treasuries are set for this week and a huge debt sale by Amazon.

    Treasuries:  Markets were prepared and had priced in a hawkish, tightening Federal Reserve.  Tightening was assumed to be a series of interest rate hikes up to the “Neutral Rate” of about 2.50%; while keeping the balance sheet steady with the intent of rolling off maturing securities in the coming year.  Recent Fed speeches and meeting minutes have significantly raised the bar on the level of tightening being planned.  A half point increase at the May 3-4 Fed meeting is now the default scenario (futures are at 79% probability).  Treasury yields are spiking as the market prices in hawkish new revelations from the Fed:

    1. Possible “overshooting” the neutral rate, ie. raising rates about 2.50% to about 3.50% putting the Fed Funds rate into “constraining” territory for the first time in decades
    2. “Quantitative Tightening”  (QT, the opposite of QE) – QT will involve shrinking the Fed’s balance sheet at a rate of $95 billion per month ($60 billion in Treasuries, $35 billion in MBS).

    The last period balance sheet reduction (2017-2019) averaged about $30 billion/per month and was mostly “runoff” of maturing treasuries.  This round is expected to include outright sales of longer term treasuries starting this summer.  Why so sudden?  Maybe it’s “buyer’s remorse” or an attempt to “turn back the clock” as the Fed is being highly criticized for continuing to purchase bonds throughout 2021 and into March 2022.

    Tomorrow’s CPI report is expected to indicate very high price increases as the effects of the Ukraine conflict are in the report’s scope.   Interesting news regarding the Amazon debt sale:  Amazon is pricing a 40 year fixed rate bond at 130 over Treasuries.  Will other corporations rush to sell bonds before yields spike further? Tomorrow’s March CPI report is expected to be very high as the effects of the Ukraine conflict exacerbated already escalating prices.  Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

     

     

  • Non-Recourse Build For Rent Construction Financing

    Hot Money

    April 11, 2022

    George Smith Partners is working with a national lender offering non-recourse financing solutions for experienced developers building new rental properties. With transactions from $3,000,000 – $50,000,000+, this lender will offer floating rate pricing and up to 75% LTC for construction loans and fixed rate pricing and 75% LTV for term loans.

  • Bond Yields In “Multiple Inversions” But What Does It Mean?

    Pascale’s Perspective

    March 30, 2022

    Many of the pandemic era economic metrics are unprecedented and the recovery is no exception. Huge demand combined with supply shocks not seen in generations stoking inflation. The Fed’s aggressive rate hike stance is pushing short term Treasury yields up (1 month to 3 year terms), while investors are buying 5 – 30 year bonds, betting on slowing growth. The 3 year bond is at 2.49%, higher than the 5, 7, and 10 year bonds. The highly watched 2 and 10 year bond spreads inverted yesterday for the first time since September 2019 (and the 2 year and 30 year very briefly inverted).

    Floating rate expectations are climbing: 30 day term SOFR sits at 0.31%, the forward curve indicates expectations of it hitting 2.37% by year end (8 x 0.25% Fed increases). The German 10 year Bund which was in negative territory at the beginning of this month is now at 0.66%, further eroding the “relative value” trade in the US Treasury. The inverted yield curve is often a predictor of a recession (average time from inversion to recession: about 18 months). Or,is this just a bet that the Fed increases will slow growth but not push us into recession? Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners