CrowdStreet’s Ian Formigle is joined by Malcolm Davies, Principal & Managing Director at George Smith Partners, to talk about which lenders are still closing loans, how unlevered debt funds are performing, and what the true unemployment rate might be this week.
CrowdStreet
Ian is a real estate professional and serial entrepreneur with 24+ years of experience in real estate private equity, startups, and equity and options trading. At CrowdStreet, Ian serves as the key decision-maker for all investments on its Marketplace, totaling over 400 offerings and some $13.7 billion of commercial real estate. Ian is the author of “The Comprehensive Guide to Commercial Real Estate Investing” and he is a contributing author at Forbes.com.
Prior to joining CrowdStreet, Ian was VP of Business Development for ScanlanKemperBard Companies, where he managed the firm’s alternative investment platform and served as a senior acquisitions officer on a team that acquired some $500 million of commercial real estate assets during his tenure. Previously, Ian co-founded and served as CEO of Clarus Property Ventures, a regional real estate private equity firm that focused on multifamily acquisitions. Ian began his career as an equity options market maker and member of the Pacific Exchange. Ian holds a BA in Economics and a BA in Political Science from the University of California at Berkeley and has held numerous securities licenses including Series 7 and 63.
Way Capital
Malcolm has over 25 years of experience as an award-winning capital advisor and developer, having advised and been involved with over $15B worth of total capitalizations, both in the equity and debt markets. Davies has utilized his expertise to lead developers and investors to structure and capitalize billions of dollars-worth of commercial real estate ventures. He has extensive experience in structuring transactions across the capital stack, including non-recourse senior and stretch-senior debt, mezzanine and preferred equity financings, and Co-GP and LP equity financing solutions for development, value add and stabilized projects.
Malcolm has vast experience in structuring various scenarios within the capital stack including non-recourse senior debt, mezzanine debt, and preferred & JV equity financings in the construction, value add, and permanent finance marketplace. Malcolm’s expertise as a developer has been instrumental in advising his clients through his real-world experiences in various stages of the real estate cycle, including the Great Recession.
00:00:21 Thanks for having me, Ian.
00:00:23 Absolutely. We're, we're, we're definitely eager to dig in and understand what happened in the capital markets last week and what you're seeing this week. Uh, so you know the drill. Let's just get right into it. So for starters, you know, tell us about what happened last week and, you know, and, and how, how it went.
00:00:39 Yeah, I mean, look, these are historic times, so not gonna sugarcoat some of the things that came out last week. Obviously, we all saw, uh, unemployment claims soar to over 6.6, uh, million. I think the biggest one that that came out was the paycheck protection, uh, program. Um, that claims were finally being, uh, or excuse me, loans were being submitted. Um, two lenders being backed by the S B A. Um, it is being overwhelmed. Uh, you know, they're not, nor they don't normally, uh, get involved with things of this magnitude. You know, 350 billion worth of loans that are gonna be issued to small businesses across the us. So that's gonna take a little while to work through. But those were some fake things that came up last week that, um, you know, we, we we're paying attention to.
00:01:27 Okay, so let's talk about the week over week change now. So last week we talked about how the market had dropped down to about 20% of participation amongst lenders. What are you seeing this week?
00:01:38 Sure. You know, not, not great news to report. You know, we've, uh, we, we've started, I, I went around to the company and, you know, look Georges Smith partners, we we're a national Liebing, uh, mortgage finance, uh, advisory firm and 50 of us. And I asked, you know, I did a survey and we kind of all agreed we're probably 10% of normalcy right now. Um, you know, there are some green shoots coming out of that. However, you know, we are receiving calls from lenders saying, uh, well, they're not quoting deals today. They plan on quoting deals 30 to 45 days from now. So where, where I think the first couple weeks into this process, we started realizing that, um, you know, this was not, you know, people were trying to look at their portfolios and not looking at new lending opportunities. And so I think we're starting to potentially see that as we started hitting the bottom
00:02:24 Here. Yeah. You know, I, I think one of the things that we saw as well is, and first I would concur that the 10% feels about right from our side of the, the equation. You know, we're definitely seeing some groups Sure. Who are had, had a live deal going, and then the lenders are just saying, Hey, look, we are, you know, we're, we're buried right now. And then what they're really buried in is they're buried in SBA loan applications.
00:02:47 That's right. That's right.
00:02:48 You know, and so they're kind saying like, look, you know, the feedback has been for good deals. They're like, look, we're still there. Ultimately, we're still there, but you can't talk to us right now because we had two or three people in our SBA department and we got about a thousand applications. So we're all hands on in, in that realm. And I guess we all have to be realistic to say that, Hey, look, that's the most important thing that we can be focusing on right now, is getting that money flowing to the right people.
00:03:13 Good question.
00:03:14 So, you know, the, so the feedback we're hearing on the street is, you know, Hey, look, closing this month's gonna be pretty hard. We're gonna hope that we can maybe close with you next month, but, you know, circle back to us in a few weeks. So hopefully I would, I would concur that maybe there's a couple of green shoots out
00:03:29 There. Yeah, there look, and there are, and there are lenders still closing loans. So let's talk about some good news, right? So the agencies are out there still fi financing, multi-family acquisitions and refinances. Um, one thing I would tell you, you know, who's in and who's out, I think we've talked about that in the past right now, who's in, um, look, unlevered debt funds, right? Fund funds that did not have, um, lines that they had borrowed on to to make new loans. Um, those lenders have capital, but again, they're just in the wait and see, see where the world goes, who's out? But, you know, c l o lenders, CM b s lenders, the lever debt funds, the mortgage rates, um, all of those lenders are going to be out without some, some opportunities for change, which I'll get into. I think, you know, shortly, what else is in, look on the equity side, there's just a tremendous amount of capital looking for opportunity. So, you know, note purchases potentially could be an opportunity for them. Uh, and then obviously recapitalizations on existing assets that that might need capital. Um, obviously we know in hotels and, and retail, um, you know, there's going to be plenty of capital solve some of the ch the current challenges we have. Um, but it remains to be seen again here we are in April where we'll be in May and June.
00:04:43 So, yeah, no, totally agree. So let's talk about this week. What are you looking at in the week ahead to give you some indications as to where we're going?
00:04:51 Sure. So if any of the, uh, veterans in the real estate industry, remember calf, uh, term to asset lending facilities, um, you know, this's, this is, this is coming here again. And um, what was good about that, if you remember, is back in 2010, that's what really restarted and kicked off the Cmmb s market, um, to come back. So you see that to come and some announcements as it relates to that. Some things we're gonna pay attention to. Again, we talked about it last week, but you know, what is the true unemployment rate? Um, you know, uh, 10%, right? God, I don't, I don't wanna see 15 to 20% cuz we know what that means to pay attention to. And the other part is look, um, uh, mark to market. This is a big issue, uh, particularly for certain types of lenders, um, whereby, you know, when we mark to market, it just completely freezes up the credit systems.
00:05:42 So, um, you know, I think that's something to pay attention to. Hopefully the government may release some of the, or or lessen the burden of mark to market. Um, we, we might see that this next week's let's, let's pay attention to that. Um, but I think in general, look, we're all in a a, a period of time that we're just working through together. What we're doing is maintaining all of our connections and clients and capital working through and making sure that we're very open about what is happening in the market. And, um, we will start to see where the world comes. But it's not currently this week of, of April 6th, but on April 13th we'll probably have some better indications.
00:06:19 Yeah, you gotta think so. I mean, that's gonna cover it for today. So Malcolm, thanks again for joining us again. It's always great to hear what's going on from the capital markets perspective. Let's do it again next week. Let's get, uh, let's give investors and some sponsors some clarity on what's going on out there and so appreciate it. So everyone, thanks for tuning in for today's installment. We are gonna come back later this week, uh, with some more updates from the sponsor and investor perspectives. So stay tuned and in the meanwhile, stay safe. We'll be back to you soon.
00:06:48 Thanks Ian. See you all.