CrowdStreet’s Ian Formigle is joined by Malcolm Davies, Principal & Managing Director at George Smith Partners, to talk about what’s happening in the debt markets.
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.
00:00:38 Sure. Thanks for having us. Ian. Uh, George Partners, we are a preeminent, uh, mortgage financing, uh, advisory firm based in Los Angeles. Uh, really known for representing entrepreneurial sponsors and owners of commercial real estate in their financing pursuits, um, on anything that they're looking to do. Uh, I've been in business since 19 79, 1 way the other with a predecessor firm. So, uh, we've been through this before. Personally, uh, I've seen three market shifts in my career in the last 22 years, so, uh, excited to provide some information today.
00:01:11 Great. Alright, so we're gonna dive right into this. So for starters, uh, Malcolm, tell everybody what you saw last week happening in the capital markets. What were the key takeaways?
00:01:21 I mean, look, the biggest thing that happened last week was the stimulus was approved. Um, you know, all sorts of liquidity is starting to be pumped into the market. Um, you know, reality is lenders spend last week trying to assess their portfolios and figuring out what exposure levels they might have, but I think the biggest thing was the stimulus was approved. Um, the pathway to have that, the issuance of that liquidity in the market, um, is being worked through. And so what, that's a big thing that we're kind of seeing in the next couple days is how that liquidity will be, you know, utilized in the market. So I can get into that in a bit, but, you know, first things that we'll see, um, we'll be, we'll be figuring out what those next steps are with that capital, um, ha sba, um, directly into financial institutions or whatever it may be.
00:02:06 Got it. And, you know, week over week we talk a lot about kind of like what percentage of the market is out there. So right now, if you look at all the spectrum, what percentage of lenders do you think or you see out there quoting new deals right now?
00:02:19 Yeah, I think right now we're probably running at a fifth of what we normally were running, you know, let's just say that first week of March. So that's 20% of the market, you know, who are that all leverage has been pulled back, you know, who are still, who's still in the market, you know, AlAllander companies underwriting is trying to figure out exactly what assets are worth. I, I wasup I would suppose we're probably gonna wait and see for another couple weeks. Um, you know, but look, we are still receiving term sheets for projects and, and financings that may not be closing in the next month or two, but are be, we'll be closing sometime in Q3 or q4, even construction deals. So we received last week, um, financing proposals as well as candidly hotel construction proposals. Just people's perspective that they think this will be like a V-shape recovery rather than a you or unfortunately anelle. We don't wanna see that.
00:03:10 Yeah, I mean that's pretty cont consistent with what we're seeing as well. I mean, a lot of deals right now are in this 30 to 90 day kind of extension period while everybody figures it out, sellers understand the situation. Buyers are obviously trying to navigate the situation. So I would say that's very consistent with what we're seeing on the marketplace side. Uh, so now looking forward to the next week, you know, what are you looking for in terms of kind of key things coming up to tell you, you know, where we're going from here?
00:03:37 All right, this is a huge week. Uh, it's April 1st on Wednesday. So the first thing we're gonna be paying attention to is the, a bit of the hotel and retail distress and figuring out, you know, who's making the, you know, ultimately the tenants and the retail centers making their rent payments. Um, you know, ultimately hotels that are making the mortgage payments. Um, and then that liquidity I spoke about earlier. Um, one of the things we are seeing, uh, and we've noticed it, that some landlords are, are expressing to their rent, their, their, their tenants. Hey, um, you know, we need to see you apply for, you know, the SBA program, uh, to be able to, it gives you the two months that you can pay, um, things of called your rent. So that, that might be interesting to see how fast that liquidity gets put into the market. Um, we are seeing some things that, you know, where some, uh, lenders are saying, we'll, we'll push the, the rent or the mortgage payment to the end, uh, or, you know, tack it onto the end of the mortgage. But I think the big things also to pay attention to look for earnings reports and frankly, that unemployment report, I think it's going to be something that, um, we've never all teamed before. So those are the big things to look out for this week.
00:04:45 Great. Okay, I think that's gonna wrap it up for this week. Uh, thanks everyone for checking in. We're gonna come back to you in the near term with more perspectives from the streets, including, uh, investors and sponsors, sote. Stay tuned and we'll be back to you soon. And in the meanwhile, stay safe.