GSP Insights

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    National Portfolio Financing for Stabilized Assets w/Bank Charges Waived

    Hot Money

    April 3, 2019

    George Smith Partners has placed several hundred million dollars of performing real estate loans with a national portfolio capital provider structured with no pre-payment penalty. Transactions in primary and secondary markets from $1,000,000 to $10,000,000 fixed for five or seven year terms. This recourse lender will advance to 75% of appraised value assuming a 1.25 DSCR on in-place cash flow. Most loans close within 60 days. Application fees and bank closing costs (excludes 3rd party charges) are waived on new opportunities for the next three months.

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    ECB Joins Fed, Not Quite Ready to Remove Accomodation

    Pascale’s Perspective

    March 27, 2019

    The 10 year Treasury hit 2.34% today, representing its lowest level since December 2017, as “capitulation” seems to be contagious amongst the major central banks. Last week our Fed and this week the ECB. Draghi comments sound familiar: not worried about inflation, sees growth risks and”substantial accommodation” was still needed to get inflation to their target levels (if ever?). Worldwide sovereign debt yields have plummeted. We are likely in a period of relative inaction by the central banks as they monitor the data. Interestingly, the 10 year Treasury (2.35%) is lower than 30 day LIBOR (2.49%) Regional bank stocks are being hammered due to the inversion of the yield curve, they can’t borrow short and lend long at a profit. But credit spreads are narrowing (corporates, CMBS, etc.), with lots of equity (funds, etc.) sitting on the sidelines. Even with debt costs at such a low level, deals need to pencil, income needs to increase in a low inflation environment. The news/data cycle suggests there is reason to believe in both safety (Negative news in Europe, fears of the slowing global economy) or risk (optimism about trade talks with China, full employment, wage increases) Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Non-Recourse Permanent Loan Program

    Hot Money

    March 27, 2019

    George Smith Partners is currently placing non-recourse permanent financing from $1,000,000 to $25,000,000+ for industrial, office, retail or mixed-use stabilized properties located in top MSAs. Lender has the ability to advance up to 50 – 55% of purchase price. The pricing is based on Treasury rates + 200 points and terms are 3, 5, 7 and 10 years with step down prepayment that is waived after 2nd year if refinanced again with Lender. There is no cost to the borrower for appraisal, legal, title, escrow or recording. An additional $500 credit at escrow if Borrower provides all due diligence within 7 days from signing LOI.

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    The Fed Tries to “Nail the Landing” (For Once), Yield Curve

    Pascale’s Perspective

    March 20, 2019

    Today’s Fed announcement and subsequent news conference by Chairman Powell made the recent “about face” official.   Not only did the Fed not raise rates today, it indicated (via the infamous “dot plot”) that there are NO increases planned for 2019.    In fact, futures markets now predict a rate cut before any future rate hikes.  The Fed is not afraid of inflation, between steady commodity and energy prices and consumer prices remaining flat, the old relationship between full employment and inflation appears to be officially broken (RIP Phillips curve).  Powell also spoke of slowing growth in the US, China and Europe.  As the effects of the tax cut wane, he noted “slower growth of household spending and business fixed investment”.  Today’s comments had the feeling of an economy in “balance” with Powell again indicating the present Fed rate is, “in broad estimates of neutral”, advocating for patience and (importantly) that the data does not justify a move in either direction.  Past Fed actions (rate increases during expansions) have been blamed for causing recessions and cutting economic rallies short.   Maybe things are different this time?  Maybe the lack of inflationary pressures are allowing this Fed to “stop and smell the roses” while the economy enjoys a plateau instead of a peak? Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

     

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    Unentitled Land Financing 85% LTC

    Hot Money

    March 20, 2019

    George Smith Partners is working with capital provider funding non-recourse senior bridge transactions from $1,500,000 to $50,000,000 with a focus on core infill locations within top growth markets across the United States. Leverage at 85% for unentitled or entitled land and existing asset repositioning projects. Rates for bridge loans start at 7.9% for fixed terms up to two years and flexible prepay.

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    The New Normal Goes On and On, Forever?

    Pascale’s Perspective

    March 13, 2019

    The “new normal” of low interest rates and central bank accommodations (quantitative easing, etc.) was supposed to end when the US and world economies got back on their feet. The “training wheels” could then come off. Recent developments continue to suggest that the training wheels may be on for a while. The Fed has been quite dovish lately with rate hikes on hold and announcements that the balance sheet reduction will end this year. Recent inflation data is very interesting: last weeks jobs report indicated the highest wage inflation in recent years. Today’s PPI report showed a 0.1% rise in producer’s prices and, very significantly, little or no inflation in the “pipeline” which predicts inflation over the next few months. The Fed watches wage inflation closely but will base their rate decisions on overall inflation, therefore, today’s report is dovish. Brexit and China trade agreement uncertainty is also weighing on markets, keeping yields low. The 10 year T hit a recent multi-month low at 2.59% yesterday and today is at 2.62%. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Mezzanine Financing for Affordable Housing

    Hot Money

    March 13, 2019

    George Smith Partners identified a private commercial real estate finance company that provides non-recourse mezzanine financing for the acquisition, renovation and development of multifamily properties (with at least 20% of the units classified as affordable) located in the Western U.S. The financing is structured as a tax-exempt private activity housing bonds or 501(c)(3) bond. They can be used on mixed use 80/20 projects, for non-profit corporations, can be subordinate to HUD and Rural Development Loans and can be repaid from the sale of tax credits. With the ability to advance 90% of mezzanine loan programs range from $5,000,000 to $15,000,00. Interest-Only pricing for Acquisition / Rehab ranges from 8% – 10%, compounded monthly and Development ranges from 10% – 12%, compounded monthly.

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    The “Old Normal” Remains Elusive – ”Not so Fast Taking That Punchbowl”

    Pascale’s Perspective

    March 6, 2019

    The plan was simple: central banks injecting massive liquidity into the system to bring the world out of the post crash doldrums.  The Fed’s dual mandate of low inflation and high employment would eventually force its hand as low unemployment would lead to increased wages and inflation (aka: a hallmark of the “Old Normal” called the Phillips Curve which posits a “stable and inverse” relationship between inflation and unemployment). During the past few years, it seemed like this scenario was taking hold as the Fed was telegraphing multiple rate increases, the ECB was winding down their stimulus, wage inflation was finally stirring, etc. But, recent developments indicate a slowdown in growth (recent forecasts for China, the US and Europe all trending lower), low inflation (the Fed’s inflation gauge, PCE, remains below the 2.0% target and oil prices unable to sustain recent gains) and very low unemployment still not moving wages significantly, especially for the low wage earners. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Homebuilding & Residential Development Equity

    Hot Money

    March 6, 2019

    GSP is working with an established equity source with a nationwide platform offering joint venture equity, preferred equity and mezzanine financing. Product types include for-sale homebuilding (single family, townhouses, condos), land development, build-to-rent and other residential related investments. The capital group is currently seeking opportunities with experienced builders and developers. Target investments range from $8M per deal and $25M programmatic joint ventures.

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    Interesting Testimony Today (Not “That” Testimony)

    Pascale’s Perspective

    February 27, 2019

    Was anyone watching the congressional hearing testimony from Fed Chair Powell or US Trade Representative Lighthizer? Powell highlights: Policy is “in the range of neutral”. Wow, the turnaround is complete on “where we are”. Remember early October when he spooked markets by saying we are “a long way from neutral”? Note that the Fed Funds rate was 2.25% at that time, speculation was the target neutral rate was somewhere between 3.25-3.50%, so the expectation was for at least 4 more hikes in the next year or two. Now, we are “there” which indicates the Fed feels no urgency to hike and is watching the data (unemployment and inflation). But today also showed a subtle shift in Fed concerns: financial market volatility, not usually a part of the stated Fed mandate. As Bloomberg pointed out, this concern for market stability is reminiscent of the “Greenspan put”. These developments are contributing to overall bullishness in Treasuries, the 10 year T is at 2.67%.  Meanwhile, across the hall, Trade Representative Lighthizer tamped down some of the recent anticipation of an imminent trade deal with China, which was heightened in recent weeks with the extension of the March 1 tarriff deadline and talk of a signing ceremony in the US soon. He indicated hurdles remain, so it may be a while. This “bad news” of course helps the contrarian bond market. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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    Fixed Rate Capital for Land Loans

    Hot Money

    February 27, 2019

    GSP is working with a capital provider that will provide recourse fixed rate financing to 75% of cost (90% + on build to suits) including, acquisition, improvements, development, pre-development, discounted payoffs, bankruptcy exit, purchase of notes and cash-out. Fixed rate pricing starts at 9% for terms up to 1 year with extension options up to 3 years for Multifamily, Office, Industrial, Retail, Special-Use, Entitled Land and Construction. Loan sizes range from $1,000,000 to $10,000,000 for transactions located in California, Arizona, Nevada, New Mexico and Washington.

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    Markets Usually Don’t Like Uncertainty, But Today They Do

    Pascale’s Perspective

    February 20, 2019

    The old maxim about financial market aversion to uncertainty is well known. However, today’s unusually newsworthy release of Fed minutes from January saw markets cheering uncertainty. It seems that the Fed’s “dot plot” indicating two planned rate hikes in 2019 is by no means set in stone (note that previous dot plots indicated three rate hikes in 2019). As I discussed last month, the futures market has been skeptical of the dot plots. That predictive market has been indicating a probability of zero hikes in 2019. Today’s Fed minutes release put the matter to rest (for now) as a majority of the participants are uncertain about any future rate hikes this year. The statement cited an uncertain atmosphere of risks to economic growth and very little concern about inflation. Of course there is a contrarian aspect to all of this: stocks and bonds rallied based on a more pessimistic outlook on the economy. Very significantly, the Fed addressed the “elephant in the room”, their huge balance sheet and its ongoing program to reduce holdings by selling bonds as they mature. Today’s minutes also showed participants broadly agreeing to announce a plan to stop balance sheet reduction later this year. This is a paradigm shift. It seems the Fed is planning on retaining a very large balance sheet on a near permanent basis. All of this helped drive the 10 year T yield down to 2.64%. With fixed rate loan spreads for agency, CMBS, LifeCo, etc ranging from about 130-200 depending on property metrics and leverage, all in rates range from 4.00% to 4.60% approximately. Again, its not too late to lock in historically low fixed rate financing. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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