CrowdStreet’s Ian Formigle is joined by Malcolm Davies, Principal & Managing Director at George Smith Partners, to talk about what’s happening in the capital markets this week: various state’s reopening plans, May rent collections, and the potential bid on AMC Theaters from Amazon.
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.
00:00:05 Hi everyone. I'm Ian Formigle, Chief Investment Officer here at CrowdStreet. Welcome to StreetBeats from May 12th. This is CrowdStreet's ongoing series of short videos that's intended to keep the CrowdStreet community informed with go what's going on out there in the commercial real estate world. So today, every week, I'm glad to have Malcolm Davies back with us to give us insights into what's going on in the debt and capital markets out there. So Malcolm, thanks for joining us again for, for this week's installment.
00:00:34 Thanks for having me. And I, I try to bring a new office to me this time. So, uh, client, client gave me a new virtual background, so I brought it to this one.
00:00:42 You're, you're somewhere different every other week virtually. It's awesome. We'll look forward to
00:00:46 My sanity.
00:00:47 We're gonna be next week. Bring us a beach photo or something like,
00:00:50 Yeah, no, I'll do something different.
00:00:52 All right. Okay. So, uh, viewers of this series understand that we are gonna talk about what happened last week in the capital markets world. What is happening this week, uh, that Malcolm and his team is paying attention to, and what we can look forward to in the week ahead. So, digging right into it, Malcolm, let's talk about what you looked back on last week. What were some of the important things, uh, and, and what events transpired that a viewers should know about?
00:01:18 Look, I think the one thing that I think transpired for us as we had a, a big call with, uh, the Barclay c m Bs, uh, team in New York, and, and it really kind of was a good, uh, insight into where we think and see the liquidity growing. You know, in the capital markets there was a pool C M B S pool that was taken out for securitization from city and Goldman did price. Um, can't recall exactly what the pricing was, but it came out and did well. So, you know, in that sense, we think there's some liquidity opening up in the CMBS market. Um, but I think one anecdotal thing for us to review is that across the board, uh, leverage five to 10% less in general, uh, is a good guidance that we've seen. Not only from people that are bidding on some of the deals we're in the market on, but I think across the board from construction to bridge to permanent, uh, that was shown from that perspective.
00:02:08 The, the c o market we talked about a little bit that market. Um, you know, we talked about taf, which is the termed asset lending facility, but that, that facility did not affect the CLO market. So we're still a little weak on the bridge financing market. Look, I think some things that we're also paying attention to, uh, look, we're reopening, uh, you know, there's, uh, you know, states are, are, you know, definitely aren't doing great. So, uh, we talked about how the government's gonna come up with a kind of a, um, a 2 trillion package a lot. I think it'll be the last stimulus, but it's gonna go to, you know, how, uh, we protect businesses and liability, um, for opening in this new world. And then also states will get some form of a bailout or some type of government backed federal response to their budget. So those are some of the things from last week that we saw.
00:02:56 Well, great. Well, let's move on to this week. Uh, what's some of the, you're tracking for this week as you, as you navigate?
00:03:01 Yeah, look, I think again, it's the collections. I think one thing that I think, you know, we, we've seen collections on multifamily, they've been strong. I think we're above 80%, uh, for May, which is above what we were in April. Um, I guess that what we're gonna try to pay attention to is to see how, you know, we end up the, uh, the make collections, which will come out sometime ne you know, next week. Um, look, I, I am, I've, I've paid attention to this before, but you know, we as a firm would like to open and we think we're gonna get to a point where we're gonna be able to open up an office, but, you know, liabilities and like for employers. So how are we gonna manage that? It's something for us to totally pay attention to.
00:03:39 I, I think your point on the, on the may rent collections is really interesting and, you know, so again, better than April, uh, just slightly below even year over year, right? So this 80.2% or so that N H M C is, is tracking, uh, an m HC is tracking is, you know, just, uh, about a point and a half below where we were in May of 2019. So I think that was interesting. I thought it was also very interesting that, you know, coming into the month of May, you had the CEO of Walker, Dunlap, Willie Walker. Yeah. Take a strong stance to say May is gonna be better than April Bank on it. And so far he's being proven. Absolutely correct. Uh, so, and the other thing that I thought was super interesting in terms of, if we take a little bit more of a broader, you know, macro look at the real estate industry is, you know, this potential Amazon bid for a M c theaters.
00:04:32 Yeah, no question.
00:04:34 So interesting right now, right? I mean, you, if you're at a, a theater owner, you're a landlord, right? You, you were, it is, it is bleak and what could possibly be the best, the best thing that could happen to your deal than to swap your a m C credit for Amazon credit? Interesting phenomenon that I think that to me, this could be the tip of a very interesting iceberg to say, if we start to see this kind of transaction activity occur, uh, you know, we, we really see the beginnings of some very interesting opportunities out there in a shifting real estate landscape as 20 ensues. So let's also talk a little bit about that participation rate. Something that we always kind of check in on week by week. You know, we were you, the last time we chatted, we talked about the 15 to 20% range. Yeah. Uh, do you think it's still roughly in that range? Are you starting to see movement?
00:05:18 I think we're starting to see a little movement. I think, you know, what was amazing is, I was on the phone yesterday with one of our lenders who quoted a deal. I think I mentioned last week. We took a 62 million refinance of a class, a multi-family deal in Colorado. Got a, got a term sheet this morning at l I b o r plus four 50. Um, now again, go, you know, leverage might have been a little less than we expected and pricing was a little wider, but frankly that was really cool to see. So I noticed though, that everyone's like looking around going, wow, I can't believe it's Memorial Weekend the week after next. And that's just shocking cuz you don't think of it right now. But we are getting to a further place where I think people are, people are starting to get visibility and I think there's some confidence coming back. It's obviously starting in the first place, which is multi-family, and I think it will grow in some of the other asset classes, but we're, we're, we're thrilled to see what we're seeing. I think probably I would say if I gave you a percentage, I'd say we're probably at 25% at this point.
00:06:14 Got it. Okay. And I would say that, you know, when we're talking to our own operators and developers out there, and particularly if we get outside of the multi-family spectrum, which is to your point, obviously though it's the most active segment right now. I think what was interesting to note is the feedback from the street has that we've seen has been that there are banks and other forms of lenders that are coming in and quoting. Uh, but right now it's the pricing. It seems to be a little bit of the barrier. You know, the example that we got was, hey, we were looking at a deal, we were, we would've gotten l plus two 50 on that deal all day long back in January or February. We've got multiple quotes, but to your point, one leverages five to 10% lower than what we would've historically expected.
00:06:57 And two, that quote right now is looking more like l plus 600 to 700. Yeah. And so, and without, and without a big retrade of that deal, obviously the debt is somewhat, you know, it's there, but it's also an impediment to getting the deal done from a returns perspective. So to me that's a really interesting, so it's a, it's a, to us, we kind of look at that as, okay, it's a sign that players are back at the table, but everyone is still kind of like holding their cards pretty tight to their vest and no one's really wanting to go, you know, push their cards, you know, pushing their chips yet. So let's see how that starts to happen, you know, look like in the weeks ahead, but at least you're seeing deals get quoted, which just wasn't happening three or four weeks
00:07:37 Ago. Yeah, n no doubt, I think we're in a, um, the timing of the market where it's an equity level risk, right? It's not necessarily the lender's risk and they're pricing that, um, you know, you know, either appropriately or not appropriately for what we're trying to accomplish. But we do have to be realistic sometime.
00:07:52 All right, great, Malcolm, so let's turn our attention to the week ahead. What are you looking at? You
00:07:56 Know, we're, we're paying attention to two things. One, um, you know, the state of California just issued something about doing a 25 billion offering where folks can prepay state income taxes for years to help shore up the balance sheet, which Liebs me to believe that our state, our state governments are in a lot of trouble right now. So you're gonna, we're gonna expect to see some news about how the federal government will help come in and shore up, I think some state government balance sheets. Uh, but in exchange of that, I think we're also gonna see some liability reform for businesses, uh, as it relates to, um, covid related matters. I think we're gonna see that. Um, look, I think we're also seeing more liquidity come to the market. I mentioned to you before, 15 to 20%, now maybe to 25%. And, uh, you know, for us personally, uh, you know, we're taking an office deal in the market and that deal that we're taking in the market, uh, is on behalf of a large institutional group. Um, and it's here in Los Angeles and we think, um, it will price effectively. We might need to get some on that, on that deal to make it, you know, pencil from a pricing perspective like we talked about previously. Um, but I think those are the things we're looking forward to. And what I'm not looking forward to is that we will not be in Las Vegas for I C S C this year.
00:09:10 Yeah. Uh, I C S C is, uh, it's a love hate three or four days. Um,
00:09:15 <laugh> first day, the first day is great. The rest is really hard. <laugh>,
00:09:19 It's very hard. Uh, I think it took our, our team, uh, over a week to recover from last year
00:09:25 <laugh>. There's a reason why they do it right before our memorial weekend. So you can have a little more time <laugh>.
00:09:30 This is true. All right. Well, I think that's gonna be a wrap for today. Uh, Malcolm, thanks again as always for joining us. Look forward to doing it again next week.
00:09:39 Thanks Ian.
00:09:41 And thanks to everyone out there for tuning in. Uh, we will be back to you next week with another update in terms of what's going on. And in the meantime, everyone stay safe.