CrowdStreet’s Ian Formigle is joined by Malcolm Davies to talk about what’s happening in the capital markets: the uptick in hospitality occupancy rates, how retail landlords are working with tenants to defer rent, and what deals are still closing.
Ian Formigle, Chief Investment Officer
CrowdStreet
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.
Malcolm Davies, Founder & Sr. Managing Partner, Way Capital
Way Capital
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.
00:00:06 Hi everyone. I'm Ian Formigle, Chief Investment Officer here at CrowdStreet. Welcome back to StreetBeats for May 27th. This is our ongoing short video series intended to keep our community informed with what's going on out there in commercial real estate. So, as always, I'm back for my weekly segment with Malcolm Davies, principal and managing director at George Smith Partners based in Century City, California. So welcome back Malcolm for, uh, this, I don't even know how many weeks we've been doing this now. A lot of weeks.
00:00:34 Yeah, I think, uh, I think we've been doing it for so long. I feel like, uh, it's longer than a year, right? But maybe only two months.
00:00:41 <laugh>. Yeah. These days, uh, three or four weeks. Definitely feels like a week. A a year. Um, but interesting week. So let's, you know, for the format that we typically do, we're gonna look back on last week, talk about a couple of key events, talk about what's going on this week, and then look forward to the weeks ahead. And, you know, I think Malcolm, what you and I were already discussing a few minutes ago was that, you know, right now, when we look back on last week, it seems like things are shifting and to the better. So what were you seeing going on last week?
00:01:10 I mean, states reopened. I mean, there were, there was definite activity, maybe not in, in Oregon or California where you and I are, but you know, I sent it, uh, um, uh, I was on a call with a client yesterday. They own a, a boutique hotel in Scottdale, Arizona, a hundred percent occupied last weekend. Um, and, you know, I put a little note on, uh, on my LinkedIn posting and said, you know, a hundred percent occupied, keep the faith. And, uh, after that, I think I got like 15,000 views and people writing comments saying stuff was, you know, it was full in Santa Barbara. So I think in, in essence, you know, it's gonna be great to see, um, let's hope that, you know, the cases ca you know, we don't have any spikes, but if we don't, I think we've got some real momentum here.
00:01:53 Yeah, I mean, this last week, and, you know, given that we're just coming off off a holiday weekend, you know, we, we are in the period of, of an experiment to see, well, what is going to happen when we know that there were people all over the country that were coming back together and doing things mostly outdoors. Um, but to your point, Malcolm, we're, we're seeing, you know, drive to hospitality destinations start to spike in occupancy. Uh, you know, s t r put out some data last week that you're seeing southeast markets, some in Florida, some in in Carolinas hitting 80%. Uh, you know, which three or four weeks ago would've been just completely unfathomable, right? So we're seeing real activity. Um, you know, obviously coming into the time of the year when people are gonna wanna go hit the beach, um, particularly around a Memorial Day weekend, you know, overall, the other interesting data point, just in terms of the overall US occupancy rates for hospitality, you know, now 32.4%, so still low, uh, but the highest that they've been in nine weeks. So we're seeing this successive week over week, uh, jumps in occupancy. And so it definitely gives some credence to the, that, you know, hospitality could start to snap back, you know, later this year if we can continue this
00:03:04 Momentum. And it's all about the ability to service debt, right? So it's not about, you know, these, these hotel owners, you know, generating massive profits. It's about for them the ability to service their debt obligations. Um, you know, depending on what someone's leverage is, you know, if they can get to 50, 60%, um, they're gonna be able to service debt. And I think that's a really important, um, piece of evidence there that we're hopeful
00:03:28 For. Yeah, definitely. So right in, in the hospitality sector, it's really all about just kind of where the occupancy snap back to. Um, another interesting data point was to look at what's going on in the retail sector, right? We're starting to see, again, we talked about this last week, I thought there was an interesting quote from Brett White, who's the CEO of Cushman Wakefield, noted this last week that he was in a meeting with some major retail owners. And those, those landlords are committed to working it out with their tenants offering as much as a a year's worth of deferral on rent just because of the pure of the pandemic, right? They said, Hey, if this was a normal downturn, you know, just deep recession, they were gonna let those tenants go, let the space go vacant and then, you know, work to re-tenant them in the years ahead with more viable formats. But because of this just outlier nature, you know, the, the overall retail landscape out there saying, look, we're gonna embrace the tenants, we're gonna help 'em and we're gonna help 'em, you know, get back into business over the next year.
00:04:24 I mean, look, I I, I think the retail, you know, the good news is that you've seen, you're seeing things open, right? I've, I actually went bike shopping the other day and bought a bike and I wore a mask in the store and the everyone working there was wearing a mask. So anything that's not restaurant related seems like you should be able to be reopening. I know Apple announced that they're gonna open up all their stores across the country, um, and frankly, it's the right thing to do with the tenants. Um, you know, I think in general, you know, a lot of them have been really impacted here. And, and I think hopefully everybody can work together. Um, again, positive momentum, this reopening, I think people will get used to wearing masks outside into environment to have some level of normalcy. And the evidence seems to be showing that that's really, um, really reducing transmission rates. So let's, let's continue that progress.
00:05:12 Yeah. Well, we always talked week over week about participation rate in out there in the debt markets. So last week when we talked, you know, you co kind of thought we were hovering around 25% or so. What do you see in this week? Where do you think participation rate is at?
00:05:25 I mean, look, I think the big, if the big part of this is that deals are closing, um, you know, we took a deal out in the market. We talked about this, it was, I think it was hired on a deal on March 22nd, closed this morning, um, you know, 30 million ish, uh, financing, um, multi-family of course, but heck, you know, that was, we called that the pandemic deal Yeah. On after the pandemic started and, uh, we closed it. So capital is definitely flowing. Mentioned to you about a big recap we're doing, um, received a full ask proceed, um, term sheet yesterday that we think is, uh, a feasible deal to execute on. So I'm feeling confident. I think 30%, the 35%, I think you're seeing this participation rate grow. Um, but I think some things that are interesting that I wanted to share with folks that are watching today, hotel and retail, obviously, you know, they've been our most difficult asset class.
00:06:17 We've talked a lot about them. Um, they've been, liquidity has been light for them and how to recapitalize and preferred equity and mezzanine and the like. One thing we're starting to see and do is to take groups that have large portfolios who have retail hospitality multi, and rather than inject money into the hotel and retail deals, we're injecting money into the multi-family deals, much more stable and they're getting a lot cheaper of a coupon in the multi-family, uh, port assets. And they're utilizing those funds to help them on some of their more distressed assets. And we can go historical on this and to how we got through the great recession where, you know, the good banks that had liquidity bought the bad banks that didn't have liquidity. So you're seeing a little bit of that happening on the market today.
00:07:00 Uh, that's an interesting, it's creative solution. I look forward to seeing more of that, you know, start to happen in the market. And also congratulations on getting a deal done, you know, soup to nuts in pandemic. Um, that that's pretty remarkable. So not
00:07:11 Gonna lie, we took it on. Um, I'm a confident person, but, uh, you know, that was a little <laugh>. You know, we were all, you know, we were all, we were all a little nervous, but we did a good job on it and we got it done.
00:07:22 Awesome. Well, we'll wait to persevere and get that done. And, you know, on that note of, you know, things that are getting done out there, I also heard about Walker and Dunlap just awarding, you know, two more multifamily deals, you know, this past week or so. So, you know, again, I I agree with your point that we're seeing, you know, some more activity starting to occur. You know, there are some transactions that are getting done out there. Uh, you know, it just kind of feels like it's the next ratchet up in overall activity.
00:07:47 I mean, no question. Investment sale activity is one of those things that have really been impacted, let's speak candid. So seeing that the, the wording of two sales, um, while never normally just a massive, um, you know, uh, PR or anything that happens is huge. So we're happy to see
00:08:04 That. That's great. Well, let's think about the next week or two. What, what are you looking forward to as we head into June?
00:08:09 Look, I think the big thing is what's gonna happen in all these states that have reopened, including the big ones, right? So California just announced that retail will open Scottsdale was reopen, was, was fully open last week. Arizona was, we saw the, the Lake party and the Ozarks, which we all watched on cnn. Uh, you know, there was Charleston I know was fully open. If we don't have spiking cases, I think it's incredible momentum for everybody. So that's a big thing we're gonna be paying attention to over the next month. And frankly, I think the reopenings for retail, uh, hotel were, you know, look, it's, those two things are can, can save hotel and retail. If we can get travel going, um, multi recaps. We are doing an office deal right now. Um, we're interested to see if recourse that we're offering help us get one deal that we're trying to get done. So we'll see about that. I'll report on that next week, but, um, I don't know, it's gonna be June next week. I feel good.
00:09:03 Yeah, it, it does, it feels great to come into the June months and, you know, to your point, seeing that the southeast was essentially the first markets to, you know, start to reopen over this next month, I mean, that's gonna start to really translate out west, right? I mean, to your point, same, same thing Oregon where I live, you know, they're starting to talk about phase one, it's coming. Uh, and if we can start to see a nation that's behaving somewhat similarly, you know, out there, that will be a big step into kind of getting up to the next phase.
00:09:32 No, no question. And, um, you know, one thing I am looking forward to is taking my family on an RV trip. So that's something that everyone should do. They can't,
00:09:40 Yeah, we're gonna do a rafting trip this summer. Uh, that's, that's gonna be the big thing that we're looking forward to all that outdoors. All right, well, I think that's gonna be a wrap for this week. Uh, Malcolm, thanks for coming back again. Always great to talk and get some insights. Uh, we'll look forward to doing again, uh, this again next week as we, as we dig in, it'll be June next week. So, uh, hopefully we'll have some, some more positive data points to share. And so for everyone out there in the meantime, uh, thanks for joining in. Uh, thanks for tuning in, and we'll be back to you soon. And in the meantime, stay safe.
00:00:34 Yeah, I think, uh, I think we've been doing it for so long. I feel like, uh, it's longer than a year, right? But maybe only two months.
00:00:41 <laugh>. Yeah. These days, uh, three or four weeks. Definitely feels like a week. A a year. Um, but interesting week. So let's, you know, for the format that we typically do, we're gonna look back on last week, talk about a couple of key events, talk about what's going on this week, and then look forward to the weeks ahead. And, you know, I think Malcolm, what you and I were already discussing a few minutes ago was that, you know, right now, when we look back on last week, it seems like things are shifting and to the better. So what were you seeing going on last week?
00:01:10 I mean, states reopened. I mean, there were, there was definite activity, maybe not in, in Oregon or California where you and I are, but you know, I sent it, uh, um, uh, I was on a call with a client yesterday. They own a, a boutique hotel in Scottdale, Arizona, a hundred percent occupied last weekend. Um, and, you know, I put a little note on, uh, on my LinkedIn posting and said, you know, a hundred percent occupied, keep the faith. And, uh, after that, I think I got like 15,000 views and people writing comments saying stuff was, you know, it was full in Santa Barbara. So I think in, in essence, you know, it's gonna be great to see, um, let's hope that, you know, the cases ca you know, we don't have any spikes, but if we don't, I think we've got some real momentum here.
00:01:53 Yeah, I mean, this last week, and, you know, given that we're just coming off off a holiday weekend, you know, we, we are in the period of, of an experiment to see, well, what is going to happen when we know that there were people all over the country that were coming back together and doing things mostly outdoors. Um, but to your point, Malcolm, we're, we're seeing, you know, drive to hospitality destinations start to spike in occupancy. Uh, you know, s t r put out some data last week that you're seeing southeast markets, some in Florida, some in in Carolinas hitting 80%. Uh, you know, which three or four weeks ago would've been just completely unfathomable, right? So we're seeing real activity. Um, you know, obviously coming into the time of the year when people are gonna wanna go hit the beach, um, particularly around a Memorial Day weekend, you know, overall, the other interesting data point, just in terms of the overall US occupancy rates for hospitality, you know, now 32.4%, so still low, uh, but the highest that they've been in nine weeks. So we're seeing this successive week over week, uh, jumps in occupancy. And so it definitely gives some credence to the, that, you know, hospitality could start to snap back, you know, later this year if we can continue this
00:03:04 Momentum. And it's all about the ability to service debt, right? So it's not about, you know, these, these hotel owners, you know, generating massive profits. It's about for them the ability to service their debt obligations. Um, you know, depending on what someone's leverage is, you know, if they can get to 50, 60%, um, they're gonna be able to service debt. And I think that's a really important, um, piece of evidence there that we're hopeful
00:03:28 For. Yeah, definitely. So right in, in the hospitality sector, it's really all about just kind of where the occupancy snap back to. Um, another interesting data point was to look at what's going on in the retail sector, right? We're starting to see, again, we talked about this last week, I thought there was an interesting quote from Brett White, who's the CEO of Cushman Wakefield, noted this last week that he was in a meeting with some major retail owners. And those, those landlords are committed to working it out with their tenants offering as much as a a year's worth of deferral on rent just because of the pure of the pandemic, right? They said, Hey, if this was a normal downturn, you know, just deep recession, they were gonna let those tenants go, let the space go vacant and then, you know, work to re-tenant them in the years ahead with more viable formats. But because of this just outlier nature, you know, the, the overall retail landscape out there saying, look, we're gonna embrace the tenants, we're gonna help 'em and we're gonna help 'em, you know, get back into business over the next year.
00:04:24 I mean, look, I I, I think the retail, you know, the good news is that you've seen, you're seeing things open, right? I've, I actually went bike shopping the other day and bought a bike and I wore a mask in the store and the everyone working there was wearing a mask. So anything that's not restaurant related seems like you should be able to be reopening. I know Apple announced that they're gonna open up all their stores across the country, um, and frankly, it's the right thing to do with the tenants. Um, you know, I think in general, you know, a lot of them have been really impacted here. And, and I think hopefully everybody can work together. Um, again, positive momentum, this reopening, I think people will get used to wearing masks outside into environment to have some level of normalcy. And the evidence seems to be showing that that's really, um, really reducing transmission rates. So let's, let's continue that progress.
00:05:12 Yeah. Well, we always talked week over week about participation rate in out there in the debt markets. So last week when we talked, you know, you co kind of thought we were hovering around 25% or so. What do you see in this week? Where do you think participation rate is at?
00:05:25 I mean, look, I think the big, if the big part of this is that deals are closing, um, you know, we took a deal out in the market. We talked about this, it was, I think it was hired on a deal on March 22nd, closed this morning, um, you know, 30 million ish, uh, financing, um, multi-family of course, but heck, you know, that was, we called that the pandemic deal Yeah. On after the pandemic started and, uh, we closed it. So capital is definitely flowing. Mentioned to you about a big recap we're doing, um, received a full ask proceed, um, term sheet yesterday that we think is, uh, a feasible deal to execute on. So I'm feeling confident. I think 30%, the 35%, I think you're seeing this participation rate grow. Um, but I think some things that are interesting that I wanted to share with folks that are watching today, hotel and retail, obviously, you know, they've been our most difficult asset class.
00:06:17 We've talked a lot about them. Um, they've been, liquidity has been light for them and how to recapitalize and preferred equity and mezzanine and the like. One thing we're starting to see and do is to take groups that have large portfolios who have retail hospitality multi, and rather than inject money into the hotel and retail deals, we're injecting money into the multi-family deals, much more stable and they're getting a lot cheaper of a coupon in the multi-family, uh, port assets. And they're utilizing those funds to help them on some of their more distressed assets. And we can go historical on this and to how we got through the great recession where, you know, the good banks that had liquidity bought the bad banks that didn't have liquidity. So you're seeing a little bit of that happening on the market today.
00:07:00 Uh, that's an interesting, it's creative solution. I look forward to seeing more of that, you know, start to happen in the market. And also congratulations on getting a deal done, you know, soup to nuts in pandemic. Um, that that's pretty remarkable. So not
00:07:11 Gonna lie, we took it on. Um, I'm a confident person, but, uh, you know, that was a little <laugh>. You know, we were all, you know, we were all, we were all a little nervous, but we did a good job on it and we got it done.
00:07:22 Awesome. Well, we'll wait to persevere and get that done. And, you know, on that note of, you know, things that are getting done out there, I also heard about Walker and Dunlap just awarding, you know, two more multifamily deals, you know, this past week or so. So, you know, again, I I agree with your point that we're seeing, you know, some more activity starting to occur. You know, there are some transactions that are getting done out there. Uh, you know, it just kind of feels like it's the next ratchet up in overall activity.
00:07:47 I mean, no question. Investment sale activity is one of those things that have really been impacted, let's speak candid. So seeing that the, the wording of two sales, um, while never normally just a massive, um, you know, uh, PR or anything that happens is huge. So we're happy to see
00:08:04 That. That's great. Well, let's think about the next week or two. What, what are you looking forward to as we head into June?
00:08:09 Look, I think the big thing is what's gonna happen in all these states that have reopened, including the big ones, right? So California just announced that retail will open Scottsdale was reopen, was, was fully open last week. Arizona was, we saw the, the Lake party and the Ozarks, which we all watched on cnn. Uh, you know, there was Charleston I know was fully open. If we don't have spiking cases, I think it's incredible momentum for everybody. So that's a big thing we're gonna be paying attention to over the next month. And frankly, I think the reopenings for retail, uh, hotel were, you know, look, it's, those two things are can, can save hotel and retail. If we can get travel going, um, multi recaps. We are doing an office deal right now. Um, we're interested to see if recourse that we're offering help us get one deal that we're trying to get done. So we'll see about that. I'll report on that next week, but, um, I don't know, it's gonna be June next week. I feel good.
00:09:03 Yeah, it, it does, it feels great to come into the June months and, you know, to your point, seeing that the southeast was essentially the first markets to, you know, start to reopen over this next month, I mean, that's gonna start to really translate out west, right? I mean, to your point, same, same thing Oregon where I live, you know, they're starting to talk about phase one, it's coming. Uh, and if we can start to see a nation that's behaving somewhat similarly, you know, out there, that will be a big step into kind of getting up to the next phase.
00:09:32 No, no question. And, um, you know, one thing I am looking forward to is taking my family on an RV trip. So that's something that everyone should do. They can't,
00:09:40 Yeah, we're gonna do a rafting trip this summer. Uh, that's, that's gonna be the big thing that we're looking forward to all that outdoors. All right, well, I think that's gonna be a wrap for this week. Uh, Malcolm, thanks for coming back again. Always great to talk and get some insights. Uh, we'll look forward to doing again, uh, this again next week as we, as we dig in, it'll be June next week. So, uh, hopefully we'll have some, some more positive data points to share. And so for everyone out there in the meantime, uh, thanks for joining in. Uh, thanks for tuning in, and we'll be back to you soon. And in the meantime, stay safe.