CrowdStreet’s Ian Formigle is joined by Malcolm Davies to talk about what’s happening in the capital markets: the number of jobs gained last week and the market’s response, changes to the Main Street Lending Program, and what school reopenings might look like.
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.
00:00:05 Hi everyone. I'm Ian Formigle, Chief Investment Officer here at CrowdStreet. Welcome back to StreetBeats our weekly ongoing series of short videos intended to keep you informed about what's going on out there in the commercial real estate world. Uh, for my weekly segment, I'm back as always with Malcolm Davies, principal and managing director at George Smith Partners. So welcome Malcolm back for our weekly segment.
00:00:29 Thanks for having me again, Ian.
00:00:31 Yeah, always a pleasure, Malcolm. We're gonna do what we always do each week. Uh, we're gonna recap, uh, some of the biggest data points from the last week. We're gonna talk about what we're seeing happening, uh, this week, and also what we're looking forward to in the weeks ahead. So Malcolm, let's dig right in. Uh, tell me what, what's the biggest stuff that you're seeing last week?
00:00:53 I mean, look, the, one of the biggest things I wanna pay attention to is since you and I I looked at, I think the first time we ever did this was on March 23rd and the stock market, Dow Jones Index was at 18,591, and I think I just looked at it right now, two 27,404. So it's too bad. You and I are perfect, you know, pure public market guys because we would've done really well over this time period of our, uh, our StreetBeats. But, you know, look, the biggest thing that happened last week, right? Unemployment, uh, 2.5 million jobs gained. Um, there is obviously some discussion about what is the actual unemployment rate or not, but I think it, you can't deny that the jobs were gained and, you know, where is that actually coming from? Is it from the P P p? Is it from, you know, hotels reopening? Is it from restaurants reopening? Is it furloughed workers coming back? So I think, look, that was a positive announcement. R one way or the other and the market really responded to it. Um, I don't know about you, but this was the first week I took my family to a restaurant and, uh, you know, hopefully that restaurant just reopened. Now it's paying able to pay rent. So, um, you know, seeing that in our, in my own little micro world sometimes. So that's a positive element.
00:02:06 Yeah, there's no doubt that the stock market has, has just had a meteoric rise these past few weeks. Uh, it is, you know, it, it's possibly short-term overbought. We'll, we'll time will. Um, but there are some, you know, really good green shoots occurring out there that we're seeing across the spectrum all over the economy. I do think that 2.5 million is the number of the week because that is the actual number of jobs, jobs added. Um, I agree with you that there is potentially some noise in the 13.3% unemployment rate mm-hmm. <affirmative> that's, you know, kind of on the street. Uh, I think Peterson Institute called out that possibly that the realistic unemployment rate is about 17.1% has to do with how people are actually classifying themselves right now. Are they really employed? If they're furloughed or not? Some of that is, you know, time will tell.
00:02:56 Um, but what we do know is that 2.5 million jobs did come back and they were these furloughed workers that were being called back because we're seeing some resurgence and demand in the hospitality sector, in the food and beverage sector. To your point, we actually have some restaurants that we can go to. Um, personally, uh, PortAlAllander hasn't yet opened for sit downs coming. Uh, we have some outer underlying areas in outer counties that have actually reopened for sit down. So let's turn our attention to this week. You know, what are you seeing in terms of, you know, we always talk about the week over week participation in the markets. Are you seeing that grow this week or, or how old relative?
00:03:30 No question. I think, you know, what's interesting is that we, I think we talked about this previously. I was always saying, where's the puck going versus where the puck has been. Now, what is the asset class, uh, that is most favored? Of course, it's multi-family. Um, both, you know, everything from construction to bridge to permanent. But what I find interesting, to your point is that the customers coming back for food and beverage and hospitality, I think the, the, the resiliency of the, the American consumer is gonna be what's proven here. And I think, you know, financing is always based on that dynamic. Is there revenue that can help pay debt service? You know, let's talk about a couple things that I think are important to financing though, because you know, the, the kind of roll into each other. So what are we looking forward in the future here?
00:04:16 And there is one thing I think you've asked me about what, what percentage of the lenders are out there. We're getting there. I mean, we're 35, 40% at this point. I think we're getting closer to 50 once we hit q3. But the reality is, what is backstopping some of this? So, uh, we saw some announcements on the P P p, we've talked about that a lot. You're now allowed to use more p p p be forgiven on office rent, uh, or business rent or retail rent, right? So that'll be interesting to see how that plays out. Does that mean we're pushing, you know, the proverb of can down the street? Yes, we are. Uh, we're, we're doing it because we're trying to get ourselves reopened and allow revenue to get generated from these assets. The other part is the main street lending program. Look, you saw some announcements, you know about this.
00:05:02 You know, this is about, I've told you before, PPP saved people in the hospital, you know, this is what gets 'em outta the hospital. Um, it has not rolled out like we've all hoped it to be. Um, we've been talking to all of the banks we do business with and not everyone's there. They're exploring it. It's about risk retention. So the fed re reduced it from 15 to five, which means the banks can on only have to own, you know, hold 5% of the risk paper. They've lowered the amount of the loan from 500 to two 50 on a minimum to help more small and medium sized businesses. So that's an important one that we should pay attention to. The final one is school reopenings. I think this one's important because look, there's so many of us that are trying to juggle everything and juggling schooling for your children in, in addition to having a career and a job, uh, and be productive, is challenged for all of us.
00:05:53 And so, um, we're recognizing, at least in California that there seems to be some level of a plan. The state actually released it yesterday. Um, it incorporates a bit of distance learning and a bit of in-person staggering the schedule from a, you know, students going Monday, Wednesday, and then other students going Tuesday, Thursday and then leaving Friday for the teachers to do distance learning. Least there's a plan, right? It allows us to start seeing how we can come back. So I think that's, those are the things we're paying attention to, um, kinda in the weeks coming up.
00:06:25 Yeah, no, likewise. I mean, I think we've, we've been tracking, um, particularly the higher ed, you know, and higher ed has a little bit of a different game plan depending upon which university in which state. Um, but it's, it's hopeful to see that certain universities are really coming out with some thoughtful approaches. You know, balancing, you know, distance within class at the same time, you know, alternating the days talking about the possibility of, you know, cutting off the semester maybe at the end of, you know, after Thanksgiving so that you're not bringing people back right at the peak time when we think we might be going back into, you know, a second wave or, or we're at risk of, you know, seeing a spike. You know, and I think going forward to me, you know, based upon what we saw last week with this, you know, surprise news on the jobs, I think that the, watching the jobs number now week over week, I think it's gonna be huge, right?
00:07:13 Because, you know, again, Peterson Institute pointed out that while they think that, you know, unemployment might really be sitting at, at about 17%, that if we could actually bring back the fur furloughed workers, we're gonna see that unemployment drop down to 7.1%, right? And so really the ballgame right now for the next few months is what percentage of furloughed workers can we really bring back how quickly and how sustainably. And so to me, I almost feel like this is the number that we're really gonna be paying attention to, you know, week over week and month over month to, to determine, you know, what do we really feel in terms of, of this, of this recovery? And could it actually, you know, recover a little bit faster than we previously thought, I think is really right now it's just, it's gonna boil down to how quickly can we get our nation's people back to work?
00:08:04 No, no question. You know, part of the, the unemployment rate we've always thought of is, is it was very high, but these are industries that were almost forced to shut down. Um, you know, so we're seeing restaurants come back, hotels hopefully can come back with a drive to, but how about like airlines, for example, right? So there's a lot of jobs that are out there that we hopefully can bring back,
00:08:24 You know, and I think last note is that you make a great point on, you know, air travel. Uh, you know, another data point out there was that we did see TSA checkpoints exceed 2 million, uh, for the weekend. That was the ending May 30th again for the first time exceeding 2 million since the pandemic began. And so again, another data point to suggest that people are starting to get out there and move around the country a little bit, I mean, that's still a long distance away from 2 million is actually a normal daily rate for this, right? So, but it's an important note to say that, hey, now we're back to roughly one seventh to one sixth of where we would be when we were recently down, you know, 99%. So it's just, and again, we're seeing these this week over week, you know, in terms of resurgence of numbers coming back, gaining momentum, uh, we just gotta hope that it continues to gain momentum and sustains it, uh, as we go forward.
00:09:21 Cool. I completely agree. So let's continue with this great momentum in this regard for the economic recovery of our country.
00:09:28 Yeah, likewise. All right, well Malcolm, thanks again. I think that's gonna be a wrap for today. Uh, so thanks to everyone for tuning in. Uh, Malcolm, thanks again for joining. Really appreciate you coming every week and talking to us.
00:09:39 You got it. Thanks Ian. See
00:09:40 You next week, and we'll be back to you next week with another update from the capital markets front. And until then, everyone stay.
00:00:29 Thanks for having me again, Ian.
00:00:31 Yeah, always a pleasure, Malcolm. We're gonna do what we always do each week. Uh, we're gonna recap, uh, some of the biggest data points from the last week. We're gonna talk about what we're seeing happening, uh, this week, and also what we're looking forward to in the weeks ahead. So Malcolm, let's dig right in. Uh, tell me what, what's the biggest stuff that you're seeing last week?
00:00:53 I mean, look, the, one of the biggest things I wanna pay attention to is since you and I I looked at, I think the first time we ever did this was on March 23rd and the stock market, Dow Jones Index was at 18,591, and I think I just looked at it right now, two 27,404. So it's too bad. You and I are perfect, you know, pure public market guys because we would've done really well over this time period of our, uh, our StreetBeats. But, you know, look, the biggest thing that happened last week, right? Unemployment, uh, 2.5 million jobs gained. Um, there is obviously some discussion about what is the actual unemployment rate or not, but I think it, you can't deny that the jobs were gained and, you know, where is that actually coming from? Is it from the P P p? Is it from, you know, hotels reopening? Is it from restaurants reopening? Is it furloughed workers coming back? So I think, look, that was a positive announcement. R one way or the other and the market really responded to it. Um, I don't know about you, but this was the first week I took my family to a restaurant and, uh, you know, hopefully that restaurant just reopened. Now it's paying able to pay rent. So, um, you know, seeing that in our, in my own little micro world sometimes. So that's a positive element.
00:02:06 Yeah, there's no doubt that the stock market has, has just had a meteoric rise these past few weeks. Uh, it is, you know, it, it's possibly short-term overbought. We'll, we'll time will. Um, but there are some, you know, really good green shoots occurring out there that we're seeing across the spectrum all over the economy. I do think that 2.5 million is the number of the week because that is the actual number of jobs, jobs added. Um, I agree with you that there is potentially some noise in the 13.3% unemployment rate mm-hmm. <affirmative> that's, you know, kind of on the street. Uh, I think Peterson Institute called out that possibly that the realistic unemployment rate is about 17.1% has to do with how people are actually classifying themselves right now. Are they really employed? If they're furloughed or not? Some of that is, you know, time will tell.
00:02:56 Um, but what we do know is that 2.5 million jobs did come back and they were these furloughed workers that were being called back because we're seeing some resurgence and demand in the hospitality sector, in the food and beverage sector. To your point, we actually have some restaurants that we can go to. Um, personally, uh, PortAlAllander hasn't yet opened for sit downs coming. Uh, we have some outer underlying areas in outer counties that have actually reopened for sit down. So let's turn our attention to this week. You know, what are you seeing in terms of, you know, we always talk about the week over week participation in the markets. Are you seeing that grow this week or, or how old relative?
00:03:30 No question. I think, you know, what's interesting is that we, I think we talked about this previously. I was always saying, where's the puck going versus where the puck has been. Now, what is the asset class, uh, that is most favored? Of course, it's multi-family. Um, both, you know, everything from construction to bridge to permanent. But what I find interesting, to your point is that the customers coming back for food and beverage and hospitality, I think the, the, the resiliency of the, the American consumer is gonna be what's proven here. And I think, you know, financing is always based on that dynamic. Is there revenue that can help pay debt service? You know, let's talk about a couple things that I think are important to financing though, because you know, the, the kind of roll into each other. So what are we looking forward in the future here?
00:04:16 And there is one thing I think you've asked me about what, what percentage of the lenders are out there. We're getting there. I mean, we're 35, 40% at this point. I think we're getting closer to 50 once we hit q3. But the reality is, what is backstopping some of this? So, uh, we saw some announcements on the P P p, we've talked about that a lot. You're now allowed to use more p p p be forgiven on office rent, uh, or business rent or retail rent, right? So that'll be interesting to see how that plays out. Does that mean we're pushing, you know, the proverb of can down the street? Yes, we are. Uh, we're, we're doing it because we're trying to get ourselves reopened and allow revenue to get generated from these assets. The other part is the main street lending program. Look, you saw some announcements, you know about this.
00:05:02 You know, this is about, I've told you before, PPP saved people in the hospital, you know, this is what gets 'em outta the hospital. Um, it has not rolled out like we've all hoped it to be. Um, we've been talking to all of the banks we do business with and not everyone's there. They're exploring it. It's about risk retention. So the fed re reduced it from 15 to five, which means the banks can on only have to own, you know, hold 5% of the risk paper. They've lowered the amount of the loan from 500 to two 50 on a minimum to help more small and medium sized businesses. So that's an important one that we should pay attention to. The final one is school reopenings. I think this one's important because look, there's so many of us that are trying to juggle everything and juggling schooling for your children in, in addition to having a career and a job, uh, and be productive, is challenged for all of us.
00:05:53 And so, um, we're recognizing, at least in California that there seems to be some level of a plan. The state actually released it yesterday. Um, it incorporates a bit of distance learning and a bit of in-person staggering the schedule from a, you know, students going Monday, Wednesday, and then other students going Tuesday, Thursday and then leaving Friday for the teachers to do distance learning. Least there's a plan, right? It allows us to start seeing how we can come back. So I think that's, those are the things we're paying attention to, um, kinda in the weeks coming up.
00:06:25 Yeah, no, likewise. I mean, I think we've, we've been tracking, um, particularly the higher ed, you know, and higher ed has a little bit of a different game plan depending upon which university in which state. Um, but it's, it's hopeful to see that certain universities are really coming out with some thoughtful approaches. You know, balancing, you know, distance within class at the same time, you know, alternating the days talking about the possibility of, you know, cutting off the semester maybe at the end of, you know, after Thanksgiving so that you're not bringing people back right at the peak time when we think we might be going back into, you know, a second wave or, or we're at risk of, you know, seeing a spike. You know, and I think going forward to me, you know, based upon what we saw last week with this, you know, surprise news on the jobs, I think that the, watching the jobs number now week over week, I think it's gonna be huge, right?
00:07:13 Because, you know, again, Peterson Institute pointed out that while they think that, you know, unemployment might really be sitting at, at about 17%, that if we could actually bring back the fur furloughed workers, we're gonna see that unemployment drop down to 7.1%, right? And so really the ballgame right now for the next few months is what percentage of furloughed workers can we really bring back how quickly and how sustainably. And so to me, I almost feel like this is the number that we're really gonna be paying attention to, you know, week over week and month over month to, to determine, you know, what do we really feel in terms of, of this, of this recovery? And could it actually, you know, recover a little bit faster than we previously thought, I think is really right now it's just, it's gonna boil down to how quickly can we get our nation's people back to work?
00:08:04 No, no question. You know, part of the, the unemployment rate we've always thought of is, is it was very high, but these are industries that were almost forced to shut down. Um, you know, so we're seeing restaurants come back, hotels hopefully can come back with a drive to, but how about like airlines, for example, right? So there's a lot of jobs that are out there that we hopefully can bring back,
00:08:24 You know, and I think last note is that you make a great point on, you know, air travel. Uh, you know, another data point out there was that we did see TSA checkpoints exceed 2 million, uh, for the weekend. That was the ending May 30th again for the first time exceeding 2 million since the pandemic began. And so again, another data point to suggest that people are starting to get out there and move around the country a little bit, I mean, that's still a long distance away from 2 million is actually a normal daily rate for this, right? So, but it's an important note to say that, hey, now we're back to roughly one seventh to one sixth of where we would be when we were recently down, you know, 99%. So it's just, and again, we're seeing these this week over week, you know, in terms of resurgence of numbers coming back, gaining momentum, uh, we just gotta hope that it continues to gain momentum and sustains it, uh, as we go forward.
00:09:21 Cool. I completely agree. So let's continue with this great momentum in this regard for the economic recovery of our country.
00:09:28 Yeah, likewise. All right, well Malcolm, thanks again. I think that's gonna be a wrap for today. Uh, so thanks to everyone for tuning in. Uh, Malcolm, thanks again for joining. Really appreciate you coming every week and talking to us.
00:09:39 You got it. Thanks Ian. See
00:09:40 You next week, and we'll be back to you next week with another update from the capital markets front. And until then, everyone stay.