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GSP Insights

  • 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

  • Forward Rate Lock Protection

    Hot Money

    March 30, 2022

    George Smith Partners is working with a balance sheet lender offering low-cost, flexible financing solutions for acquisition, refinance or construction take-out. This lender offers the ability to lock up to 12 months at the application and a refundable deposit (subject to hedge loss) due upon rate lock for stabilized assets. The small balance program ($2M – $10M) and large balance program ($10M-$50M+) offers 3-10 years with balloon note structure and fixed, rate reset, hybrid and variable rates with no origination fee.

  • 10 Year at 2.38%, Yield Curve Flattening After Powell Goes “Full Hawk” in Remarks

    Pascale’s Perspective

    March 22, 2022

    Powell’s Monday remarks shook up markets as he continued to channel his “inner Volcker” (80’s reference). He referenced the Fed’s dual mandate as he remarked that inflation is “much too high” and the labor market is “strong.” Translation: It’s our mandate to raise rates aggressively. He followed that up by indicating that raising rates more than 25 basis points at a “meeting or meetings, we will do so” Market Assumption: Look for 50 basis point increases in May and June. A full 1% increase in a 2 month period hasn’t been seen in about 30 years. He admitted that the Fed “widely underestimated” upward price pressures (remember “we believe that base effects from the pandemic shutdown are distorting inflation statistics and it will smooth out within 6 months”?). It’s also noteworthy that he did not rule out raising rates above the so called “neutral rate” for a period in order to cool off inflation. The neutral rate is considered to be the rate that would be neither stimulative nor restrictive, is now about 2.5% (note that it was 4.2% in 2012). The Fed funds rate was 2.50% during much of 2019 before plummeting to 0% in March 2020. The yield curve is flattening as the 3, 5, 7, and 10 year treasuries are bunched within 4 bps of each other. This may be signaling a prediction of slowing growth as the “soft landing” unicorn may be elusive. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • 1st Rate Increase Since 2018, 10 year T spikes to 2.25%

    Pascale’s Perspective

    March 16, 2022

    Today’s Federal Reserve meeting and accompanying announcement was expected – the first increase in 4 years of the Fed Funds rate. The quarter point increase today will be followed by six more increases throughout 2022 according to the accompanying statement and “dot plots”. That would bring the overnight rate and the index for floating rate loans up to 1.75 – 2.00% by year end. Stocks rallied on the news as markets welcome some action on inflation. The Fed is searching for the (elusive) “soft landing” whereby rate increases cool inflation without choking growth. It is looking like a tough challenge with little historical precedent: a supply shock, high commodity prices, wage inflation, pent up demand following massive stimulus. The prospect of recession or “stagflation” (low growth, rising prices) is feared as a possible outcome. The Fed committee also predicted three rate increases in 2023 to end up at the so-called “neutral rate” (or “terminal rate”) now pegged at around 2.50%. The 10 year T hit 2.25% today, a high last reached in May 2019. Look for SOFR (the leading floating rate index) to increase, today the 30 day SOFR is at 0.33% and is expected to increase in nearly lock step with the Fed Funds rate. The Ukraine invasion and global uncertainty continue to contribute to volatility in credit spreads. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

  • Non-Recourse Small Balance Bridge Financing up to $30,000,000 – 75% LTV/90% LTC

    Hot Money

    March 9, 2022

    George Smith Partners is placing high leverage non-recourse bridge debt up to 75% of value and 90% of cost. Funding transactions up to $30,000,000, the capital provider offers flexible loan structures with terms up to 5 years. Floating rate pricing starts at L+200+. The Lender has a particularly strong appetite for multifamily (75+ units), industrial (20’+ clear heights, office build out <=30%, concrete wall construct), suburban office (multi-story in an established office park), self-storage and anchored retail in the top 50 MSAs.