GSP Insights

George Smith Partners has identified a capital provider financing construction projects up to 90% of cost. Loans range from $25,000,000- $150,000,000 and are non-recourse for up to a 36-month term. Lending nationwide, pricing starts at SOFR+600 and can close in under 60. Fixed pricing is also available with interest only during the initial term. This lender also provides bridge financing for most asset classes including self-storage, condos, hotels, and SFR.

George Smith Partners has identified a capital provider financing bridge loans starting at SOFR + 350 for loan amounts $20,000,000 and up. With leverage up to 65%, this lender does not require interest rate caps. While this capital provider does not finance ground up construction or land, they will provide financing for properties pre-TCO. This program is suited for properties that are within the 4 major property types and located anywhere in the US west of Colorado. 

This week, the 10-year treasury yield rose above the key psychological level of 4.00%. Hawkish statements by Fed policymakers indicate a resolve to not cut rates until 2024. Recent hotter-than-expected data(CPI, PCE, etc) has changed the narrative: inflation may be “stickier” than was assumed. This week also saw high CPI data from the 3 largest economies in Europe: England (10.1%), Germany (9.3%), and France (7.2%). This is driving up international bond yields. The latest market/futures/Fed talk consensus estimates are for 25 bp increases at the next three meetings and then (hopefully) a pause. That would put the Fed Funds rate, and SOFR, at around 5.40% at mid-year, aka the “Terminal Rate.” This month’s data is especially critical. The Fed is highly focused on labor/service costs and a(seemingly and stubbornly) tight job market as the main driver of inflation. This month’s data releases are critical (when aren’t they these days?) – Job openings 3/8, Employment report 3/10, CPI 3/14, PPI 3/15. The WSJ reported yesterday on signs of a cooling labor market in private-sector job postings. This trend has not yet appeared in official Labor Department data releases: the infamous “lagging indicators” may be at work here. Also, December and January data releases are skewed by “seasonal adjustments.” Therefore the March data releases (based on February’s data) may confirm some long-awaited “slack” in the labor market. As we approach the 1 year anniversary of the first Fed increase, the path forward remains murky. Stay tuned…

By David R. Pascale, Jr., Senior Vice President at George Smith Partners

George Smith Partners has identified a capital provider financing fixed rate bridge loans for value-add multifamily acquisitions with proceeds up to 80% of purchase price and 100% of renovation costs and/or tenant improvements. Loan amounts range from $2,000,000 – $25,000,000 for a term of 3 years plus extensions. This lender provides non-recourse financing and stepdown prepayment options. Floating rate pricing is also available up to $60,000,000.

George Smith Partners has identified a capital provider financing multifamily properties with mezzanine debt and preferred equity up to 88% LTV. Loan sizes range from $5,000,000-$55,000,000 and can be structured behind senior lenders, agency, LifeCos, and bridge loans. With terms from 1-10 years, this lender will allow open prepayment without penalty. Lending nationally, loans are non-recourse and do not have a minimum debt service coverage.

George Smith Partners is currently working with a capital partner focused on Build-to-Rent (BTR) projects. They are actively seeking to issue Preferred Equity on ground-up construction projects up to 85% LTC with check sizes ranging from as little as $5,000,000 to over $40,000,000 per transaction. Geographical focus on primary and secondary US growth markets and qualifying assets include all flavors of build-to-rent, single-family for rent, townhomes, cottages, duplexes, and other residential products. Please reach out to us if you would like to find out more. 

The Federal Reserve raised the Fed Funds rate by 0.25% today as markets expected. The target range is now 4.50-4.75% as the Fed has increased rates in 8 consecutive meetings beginning in March 2021. The rate is the highest since October 2007. Recent data indicating a slowdown in inflation has raised hopes that “the pause” may be occurring soon, perhaps after the next Fed meeting in March. The accompanying statement with the increase retained the language “ongoing increases in the target range” disappointed markets by implying multiple increases are planned. Fed Chair Powell’s post statement presser was closely watched. He acknowledged the slowdown,  “And while recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path.” He also said its “premature” to declare victory. Of course, Powell’s intent is to seem hawkish until the moment he cuts in order to keep markets from “getting ahead of the Fed.” It’s also important to note that positive “Real Interest Rates” are now just being achieved. As inflation is at 4.4% (using the annual core PCE from December), the Fed just barely hit positive territory at 4.50-4.75%. The divergence between market expectations and Powell’s rhetoric is stark – markets expect a 0.25% increase in March, followed by a pause at the May meeting, and possible rate cutting by 4Q 2023. Powell has repeatedly insisted that the Fed is not cutting this year. He did throw doves a bone during the presser with 2 statements: he acknowledged that “the disinflationary process has started”  – boom! The 10 year Treasury rallied from 3.51 to 3.39% immediately upon this statement. Then he remarked that he said it is “certainly possible” that the Fed Funds rate stays below 5% – meaning one more 0.25% increase before the pause. Futures markets predict an 85% chance of a 0.25% increase in March, with 15% predicting no rate cut. May futures indicate a 63% chance of a pause or cut at that time. Stay tuned…

George Smith Partners is working with a capital provider financing value-add transactions up to $100,000,000. With rates starting at 30-Day Term SOFR +5.00%, all asset types are eligible including development sites and infill land. With leverage up to 65%, this lender offers full-term interest only and non-recourse terms. Lending nationwide, they are able to close in as quickly as 2 weeks.

George Smith Partners identified a balance sheet capital provider with no legacy assets focused on market dislocation opportunities. Providing non-recourse financing, transaction size ranges from $25,000,000 – $150,000,000 for reposition and construction requests. Favored assets include multifamily, hospitality, and industrial, but will look at all assets. leveraged to 70% of cost, rates priced from SOFR + 5.00%.

George Smith Partners is working with a capital provider financing first-lien bridge loans from $2,000,000 – $50,000,000. The program is non-recourse and covers all asset types including hospitality(Motel 6) and industrial. The lender is also active with special use assets such as marinas. With leverage up to 75%, rates start at SOFR + 5.50%. This lender can close in as quickly as 21 days and is active across 42 states.

2022 began with the 30-day floating index at 0.10% (now 4.32%) and the 10-year T at 1.51% (now 3.69%). Federal Reserve policy has dominated the capital markets. Speculation on future moves by the Fed is a huge factor in decision-making by all players in commercial real estate. Transaction volume started strong as the momentum from 2021’s huge year carried into Q1 2022. Volatility kicked in on January 26 with the Fed’s unexpected announcement that balance sheet reduction (aka Quantitative Tightening) would be a major part of Fed policy in 2022 (along with rate increases). Many borrowers rushed to lock in rates as the Treasury hovered around 2.00% in January-March. Then the Fed put the hammer down with 25 and 50 basis point increases in March and May – followed by 4 consecutive 75 basis point increases. Sales and loan volume plummeted as buyers, sellers, lenders, and equity providers were unable to price assets with any certainty. Lenders and investors are hoping for more clarity coming into the new year. Securitized lending volumes and investor appetite for the paper has waned. CMBS volume declined over 35% from 2021 levels. As one major originator said, “Only borrowers that have to transact are in the market.” Many originators are pushing 5 year loans as borrowers are reluctant to lock in long-term. The floating rate CLO market is in limbo. Many originators have not been able to securitize and are holding unsold pools on warehouse lines. Life companies had large origination volume in the first half of 2021 during the rush to lock in rates, with a considerable drop-off in the 2^nd half of the year. Credit unions and banks are increasingly cautious. Optimism for 2023 revolves around the possibility of the Fed engineering a “soft landing” and the anticipation of the “pivot” to lower rates which will unleash capital on the sidelines and rally securitized markets. Lenders and buyers of secondary market paper will come into the new year with fresh allocations. The US economy is showing incredible resiliency in these challenging times (GDP, unemployment, consumer sentiment) although there are also indicators of a slowdown going into 2023. In the contrarian world of Fed watching, that may be welcome news. Stay tuned… Happy Holidays to All!

By David R. Pascale, Jr., Senior Vice President at George Smith Partners

Today’s announcement of a 50 bp rate increase topped off a year of rate moves unseen in recent history. The Fed increased rates 7 times this year including 4 consecutive 75 bp increases. The increase to 4.25% – 4.50% puts it at the highest level since December 2007, when Fed Chair Bernanke cut rates during the financial crisis.

What’s next? Today’s dot plot of predictions from Fed officials shows a “terminal rate” of 5.1% (up from September’s estimate of 4.6%). So, that’s “how high?…what about “how long?” – the dot plot indicates no rate cuts for all of 2023, with 1.0% in cuts during 2024. Note that would put the rate in December 2024 right back to today’s rate. Futures market assumptions are more optimistic. They indicate a likely 25 bp increase in February and March 2023 with the longed for “Fed pivot” starting in the summer. It seems that the end of the tightening is within sight. However, the Fed will keep up the hawkish rhetoric until “the job is done” in Powell’s words. He keeps reiterating that “the historical record cautions strongly against prematurely loosening policy”; referencing Fed Chair Volker’s premature rate cuts in the early 1980s, only to have to hike rates again even higher than before. The 10 year Treasury is right at 3.50% with 30 Day Term SOFR at 4.32%. Regarding yesterday’s cooler than expected CPI report, it is significant to note that services costs remain high with job openings exceeding available workers. That issue still isn’t “solved.” Stay tuned…

By David R. Pascale, Jr., Senior Vice President at George Smith Partners