CrowdStreet’s Anna-Marie Allander Lieb is joined by Malcolm Davies, Principal and Managing Director at George Smith Partners, to discuss what a K-shaped recovery means for the economy, how COVID has impacted construction costs, and what asset class is doing surprisingly well.
Anna-Marie Allander Lieb, Director of Investments
CrowdStreet
CrowdStreet
Anna-Marie Allander Lieb is our Director of Investments, sitting on CrowdStreet's Investment Committee while also managing the team responsible for identifying and reviewing potential offerings for the Marketplace. Prior to joining CrowdStreet, Anna-Marie worked for the Tax Credit Investment Group at PNC where she specialized in underwriting innovative tax credit equity and debt financing solutions for Historic Tax Credit, and Low-Income Housing Tax Credit investments. Anna-Marie started her real estate career in Boston where she was a member of the CBRE New England Capital Markets Team. Anna-Marie holds a B.Sc. in Economics with a concentration in Real Estate from the Wharton School of Business.
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.
00:00:04 Welcome back to this week's edition of StreetBeats, covering all things capital markets, uh, where we discuss the what's going on, the debt markets, um, financing and ongoing TRE trends within commercial real estate. Um, I'm Anna-Marie, Allander Lieb, the Director of Investments here at CrowdStreet. Um, and this week, as always, we're joined by Malcolm Davies, the principal and managing director at George Smith Partners, Malcolm, Malcolm back this week.
00:00:28 Um, thanks for having me. I'm, uh, I'm on location, uh, supporting my, my hospitality clients <laugh> in Kinsa, California, uh, with our whole team out here. So, you know, like I say, I, like I told you earlier, you know, it's, uh, it's the new world. You take covid tests and you make sure that you can go do things, but rapid testing is helping.
00:00:45 There you go. Great to hear. Well, Malcolm, what, what are you seeing going on kind of on the capital market side of things this week?
00:00:52 Well, I mean, the good news, I think I've spoken with the Uni and Ian about this, but you know, the question was, you know, when does the market start to get to some normalcy? And the reality is the market isn't really gonna be normal, I think, for a bit, right? But the reality is also deals that we were working on that had been shelved and were had, you know, lenders had told us, like, come back to us or wait, um, you know, we weren't able to execute on those deals. It's amazing how many of those deals now are closing. Um, all of those lenders have come back really to say, Hey, we're ready to go get this deal done now. Uh, and frankly, a lot of those deals we didn't even like call the lender. Uh, you know, we weren't, we weren't harassing them per se, but they'd call us back and say, Hey, we're ready to close at this point.
00:01:30 We'll dust off the, you know, where we're at in the loan documents and, um, we'll get the, the deal closed in the next month. Right? And so we're starting to see a lot of that that's positive. Mm-hmm. <affirmative>. Um, but look, there's some things out there that are positive or negative. It's a bumpy ride right now. I mean, you're seeing layoffs on the airline industry. You have obviously, um, layoffs with Disney. Yeah. But the one little one place, and we've talked about this, you and I and Ian, um, this next stimulus we've been trying to say like, this is the most important one. We can get this one done. I think we can get ourselves all the way through to the other side. So the Heroes Act I saw has, um, been re-implemented. It will we'll issue stimulus and, and unemployment checks, um, back to folks again. And I think if we can do that, um, it'll get us through this kind of bumpy ride at the, you know, before we get to hopefully a vaccine announcement here shortly.
00:02:17 Sure. Definitely. I mean, yeah, I think there, you know, there are a few bright spots out there. I mean, we saw consumer confidence, um mm-hmm. <affirmative> is, you know, rose in September to the highest level since kind of Covid hit. Um, you know, so, you know, things are looking a little brighter there. Um, again, private sector, job lists, uh, claims employment mm-hmm. <affirmative>, um, has increased there to, you know, uh, rose by 750,000. Um, so, you know, there, there are some bright spots coming through. Um, you know, and it's kind of pointing to that kind of slow recovery that we're still in that recovery mode, but it's gonna take time. And again, as you mentioned, I think it's gonna hinge on, on when that vaccine comes through, um, before we're really gonna have a clear picture. And even after that, I mean, it's gonna be be a long road. It's not like it's a switch that's gonna gonna turn and things are gonna go back to normal. But, um,
00:03:04 There's no question, no question, what was it that we talked about? What kind of recovery is this? And everybody always says, is it a V U A W? In reality, we all determine it's a K. Yeah. Uh, there's no question. I mean, there are, there are the have and have-nots in this is in this, we had some friends over, over the weekend, and he was in the, you know, trivia game business for, for, uh, kind of pubs, right? And the reality is his business is decimated. It might take a long time to come back, whereas other industries like tech industry has been booming during this, this this time
00:03:33 Period. Yeah. Yeah. Um, kind of of the things that, that we saw on our end, um, as I mentioned to you was, you know, we had an interesting con discussion around construction costs and, and kind of how those have been affected by the, the spike from Covid, um, specifically on the lumber prices, just, you know, due to, um, you know, the workforce not being there and, and the capacity not being there to, to process, um, timber, um, which we saw ended up having an increase in cost of $5,000 per unit, um, on one of the deals we were looking at. Um, I think fortunately, you know, these things are starting to, to get cured and, you know, the, the future curve on on lumber is, is looking to come back down to, to more normal levels. But yeah, there's just so many, you know, things that are coming out of Covid that, that are affecting commercial real estate. Um, and as you, as you said, it's, it's gonna be a bumpy road. Um,
00:04:26 Did you, does that, did the, did that, um, upswing in the cost, um, turn the deal into being infeasible from your perspective? Or did it, did it just make it more difficult? What was the kind of revenue?
00:04:37 I think, so it was raised when we were looking at it, it was raised by the lender. Um, luckily we're still pretty early on in the deal. Um, so I think looking at the futures we were able to get comfortable with it again, I think, you know, yeah, timber hit, it's all time high. I think it was September 1st or a bit past that. Yeah. Um, things are starting to come down and normalize, but, um, you know, it's, the lender was, you know, a little, uh, I think it was one of the things that was holding them back at first, but I think they, they were able to, to get on board and, and move ahead with, with funding, but it, it was just an issue that, that has come up along with the many others that, that
00:05:11 We've seen. Yeah. Well look, I mean, we've talked about this before, but appraisals are hard. Yes. Right now, appraisals are very difficult and, and I think, you know, appraisals are, are, you know, they all ba you know, we're all forward looking. They all should be forward looking, but the ma amazing how much an appraisals are about the evidence, right. And the exact evidence they can see. And, um, you know, we talked about this earlier, but the reality is I've, I have dealt with probably on 50% of my deals during covid. I've had to deal with kind of appraisals and challenges with appraisal. We always get through them, but it's amazing how much more effort and time work it takes once you hear of, uh, you know, the appraisal situation. We, we have this thing on our, on our team, we always go, okay, are we good with the appraisal of gods right now? You know, <laugh>, we have no idea on each to each spiel and, and, um, but, you know, reality is I don't blame 'em. It's a difficult market. It's not simple to appraise things, and so you just have to work through it and throw the evidence and show the evidence in different circumstances, um, in different markets.
00:06:08 Yeah, definitely. Um, and you know, I think it's, it's also just kind of goes to show too the, the uncertainty on Ron pricing out there right now. I mean, it's, it's still there. Um, and you know, I think we're, we're getting some, some data points are coming in, um, on the CM BS side, as we were discussing earlier, right. The, the appraisals that are coming on there are kind of on the loans that are sitting in default, you know, especially in, in retail and office, it was down, you know, 30%, um, in, in the valuations.
00:06:35 Yeah. No, it's, it's a, it's a blood bath on those appraisals. But look, there's positive stuff too, though. I mean, look, we, we, we, we do business with a co-living operator named Common. And, um, we've done a lot of co-living deals, and I, we were wondering how co-living was gonna be thought through on, on Yeah. You know, in Covid they just, they just did their series D raise 50 million, so that, we thought that was pretty interesting. You know, kind of the idea that co-living is certainly not co-working and, and, you know, don't, doesn't have the same challenges. Um, we also saw some trades. I mean, look, colony sold its, uh, 200 hotel portfolio to Highgate basically for the assumption of the debt. But things are going to start trading. So the part, the part that we not paying attention to is things are gonna trade, and I think things are gonna unwind.
00:07:19 Um, but again, it's, it's anybody's thought or process, it's a definitely interesting time. And, uh, I think all of us just want, just want to get through an election, get to the election, and come to their side because, you know, it'll give us more visibility. And frankly, I think, you know, hopefully we get an announcement on a vaccine in the next 30, 60 days. I don't think it's gonna be distributed that quickly, of course, but if we get some announcement, that'll be huge positive, positive momentum for anyone's business decisions, particularly in commercial real estate, which is so impacted.
00:07:47 Definitely. Um, I agree with that. Well, Malcolm, um, as always, it was great, uh, speaking today. Um, hope you enjoy your time down there and looking to with, with the team, um, and to our, you're out there. Thanks for, for tuning in. Um, and we'll be, he'll be joined next week by, by Ian Formigle. He'll be back. Um, and Malcolm will be here as well. But, uh, thanks for tuning.
00:08:09 Good to see you back in the office, by the way. That's, yeah,
00:08:13 <laugh>, definitely. It's, it's nice to be back. Um, good to get away from the, the barking dogs and the kids and mm-hmm. <affirmative>, get some quiet. It's, it's not as full as usual, but, uh, no, it's, it's good to be back and hopefully we'll, we'll see more people coming in.
00:00:28 Um, thanks for having me. I'm, uh, I'm on location, uh, supporting my, my hospitality clients <laugh> in Kinsa, California, uh, with our whole team out here. So, you know, like I say, I, like I told you earlier, you know, it's, uh, it's the new world. You take covid tests and you make sure that you can go do things, but rapid testing is helping.
00:00:45 There you go. Great to hear. Well, Malcolm, what, what are you seeing going on kind of on the capital market side of things this week?
00:00:52 Well, I mean, the good news, I think I've spoken with the Uni and Ian about this, but you know, the question was, you know, when does the market start to get to some normalcy? And the reality is the market isn't really gonna be normal, I think, for a bit, right? But the reality is also deals that we were working on that had been shelved and were had, you know, lenders had told us, like, come back to us or wait, um, you know, we weren't able to execute on those deals. It's amazing how many of those deals now are closing. Um, all of those lenders have come back really to say, Hey, we're ready to go get this deal done now. Uh, and frankly, a lot of those deals we didn't even like call the lender. Uh, you know, we weren't, we weren't harassing them per se, but they'd call us back and say, Hey, we're ready to close at this point.
00:01:30 We'll dust off the, you know, where we're at in the loan documents and, um, we'll get the, the deal closed in the next month. Right? And so we're starting to see a lot of that that's positive. Mm-hmm. <affirmative>. Um, but look, there's some things out there that are positive or negative. It's a bumpy ride right now. I mean, you're seeing layoffs on the airline industry. You have obviously, um, layoffs with Disney. Yeah. But the one little one place, and we've talked about this, you and I and Ian, um, this next stimulus we've been trying to say like, this is the most important one. We can get this one done. I think we can get ourselves all the way through to the other side. So the Heroes Act I saw has, um, been re-implemented. It will we'll issue stimulus and, and unemployment checks, um, back to folks again. And I think if we can do that, um, it'll get us through this kind of bumpy ride at the, you know, before we get to hopefully a vaccine announcement here shortly.
00:02:17 Sure. Definitely. I mean, yeah, I think there, you know, there are a few bright spots out there. I mean, we saw consumer confidence, um mm-hmm. <affirmative> is, you know, rose in September to the highest level since kind of Covid hit. Um, you know, so, you know, things are looking a little brighter there. Um, again, private sector, job lists, uh, claims employment mm-hmm. <affirmative>, um, has increased there to, you know, uh, rose by 750,000. Um, so, you know, there, there are some bright spots coming through. Um, you know, and it's kind of pointing to that kind of slow recovery that we're still in that recovery mode, but it's gonna take time. And again, as you mentioned, I think it's gonna hinge on, on when that vaccine comes through, um, before we're really gonna have a clear picture. And even after that, I mean, it's gonna be be a long road. It's not like it's a switch that's gonna gonna turn and things are gonna go back to normal. But, um,
00:03:04 There's no question, no question, what was it that we talked about? What kind of recovery is this? And everybody always says, is it a V U A W? In reality, we all determine it's a K. Yeah. Uh, there's no question. I mean, there are, there are the have and have-nots in this is in this, we had some friends over, over the weekend, and he was in the, you know, trivia game business for, for, uh, kind of pubs, right? And the reality is his business is decimated. It might take a long time to come back, whereas other industries like tech industry has been booming during this, this this time
00:03:33 Period. Yeah. Yeah. Um, kind of of the things that, that we saw on our end, um, as I mentioned to you was, you know, we had an interesting con discussion around construction costs and, and kind of how those have been affected by the, the spike from Covid, um, specifically on the lumber prices, just, you know, due to, um, you know, the workforce not being there and, and the capacity not being there to, to process, um, timber, um, which we saw ended up having an increase in cost of $5,000 per unit, um, on one of the deals we were looking at. Um, I think fortunately, you know, these things are starting to, to get cured and, you know, the, the future curve on on lumber is, is looking to come back down to, to more normal levels. But yeah, there's just so many, you know, things that are coming out of Covid that, that are affecting commercial real estate. Um, and as you, as you said, it's, it's gonna be a bumpy road. Um,
00:04:26 Did you, does that, did the, did that, um, upswing in the cost, um, turn the deal into being infeasible from your perspective? Or did it, did it just make it more difficult? What was the kind of revenue?
00:04:37 I think, so it was raised when we were looking at it, it was raised by the lender. Um, luckily we're still pretty early on in the deal. Um, so I think looking at the futures we were able to get comfortable with it again, I think, you know, yeah, timber hit, it's all time high. I think it was September 1st or a bit past that. Yeah. Um, things are starting to come down and normalize, but, um, you know, it's, the lender was, you know, a little, uh, I think it was one of the things that was holding them back at first, but I think they, they were able to, to get on board and, and move ahead with, with funding, but it, it was just an issue that, that has come up along with the many others that, that
00:05:11 We've seen. Yeah. Well look, I mean, we've talked about this before, but appraisals are hard. Yes. Right now, appraisals are very difficult and, and I think, you know, appraisals are, are, you know, they all ba you know, we're all forward looking. They all should be forward looking, but the ma amazing how much an appraisals are about the evidence, right. And the exact evidence they can see. And, um, you know, we talked about this earlier, but the reality is I've, I have dealt with probably on 50% of my deals during covid. I've had to deal with kind of appraisals and challenges with appraisal. We always get through them, but it's amazing how much more effort and time work it takes once you hear of, uh, you know, the appraisal situation. We, we have this thing on our, on our team, we always go, okay, are we good with the appraisal of gods right now? You know, <laugh>, we have no idea on each to each spiel and, and, um, but, you know, reality is I don't blame 'em. It's a difficult market. It's not simple to appraise things, and so you just have to work through it and throw the evidence and show the evidence in different circumstances, um, in different markets.
00:06:08 Yeah, definitely. Um, and you know, I think it's, it's also just kind of goes to show too the, the uncertainty on Ron pricing out there right now. I mean, it's, it's still there. Um, and you know, I think we're, we're getting some, some data points are coming in, um, on the CM BS side, as we were discussing earlier, right. The, the appraisals that are coming on there are kind of on the loans that are sitting in default, you know, especially in, in retail and office, it was down, you know, 30%, um, in, in the valuations.
00:06:35 Yeah. No, it's, it's a, it's a blood bath on those appraisals. But look, there's positive stuff too, though. I mean, look, we, we, we, we do business with a co-living operator named Common. And, um, we've done a lot of co-living deals, and I, we were wondering how co-living was gonna be thought through on, on Yeah. You know, in Covid they just, they just did their series D raise 50 million, so that, we thought that was pretty interesting. You know, kind of the idea that co-living is certainly not co-working and, and, you know, don't, doesn't have the same challenges. Um, we also saw some trades. I mean, look, colony sold its, uh, 200 hotel portfolio to Highgate basically for the assumption of the debt. But things are going to start trading. So the part, the part that we not paying attention to is things are gonna trade, and I think things are gonna unwind.
00:07:19 Um, but again, it's, it's anybody's thought or process, it's a definitely interesting time. And, uh, I think all of us just want, just want to get through an election, get to the election, and come to their side because, you know, it'll give us more visibility. And frankly, I think, you know, hopefully we get an announcement on a vaccine in the next 30, 60 days. I don't think it's gonna be distributed that quickly, of course, but if we get some announcement, that'll be huge positive, positive momentum for anyone's business decisions, particularly in commercial real estate, which is so impacted.
00:07:47 Definitely. Um, I agree with that. Well, Malcolm, um, as always, it was great, uh, speaking today. Um, hope you enjoy your time down there and looking to with, with the team, um, and to our, you're out there. Thanks for, for tuning in. Um, and we'll be, he'll be joined next week by, by Ian Formigle. He'll be back. Um, and Malcolm will be here as well. But, uh, thanks for tuning.
00:08:09 Good to see you back in the office, by the way. That's, yeah,
00:08:13 <laugh>, definitely. It's, it's nice to be back. Um, good to get away from the, the barking dogs and the kids and mm-hmm. <affirmative>, get some quiet. It's, it's not as full as usual, but, uh, no, it's, it's good to be back and hopefully we'll, we'll see more people coming in.