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, TALF 2.0, and what’s going on with the paycheck protection program.
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.
00:00:29 Thanks, Ian. It's great to be back. I came a little dressed up today, you know, I made sure I went to the office.
00:00:34 You're making me look, uh, you're making me look bad, Malcolm. It's all right. But it's, uh, we're, we're excited to have you back on and, and hear what's going on out there For viewers of this installment, you know, the drill. We're gonna talk with Malcolm about what's been going on in the last week, what's going on this week, what do we look forward to in the weeks ahead? So Malcolm, for starters, uh, talk to us about last week, what did you see going on in the debt markets that viewers should know about?
00:00:59 Sure. I think last week we said, what were we gonna be looking forward to, which would be TAF 2.0? Um, and it happened, uh, it was announced Thursday morning. Uh, it was great to see it also included, uh, capital to, uh, inject liquidity into, um, the C L O market, the Cmmb S market. Um, so that happened and, and you're starting to see, I think, some green shoots coming out of that, and you'll start to, you know, I'll get into that in the future part, but that was great. Uh, some things we saw last week were first data on rent collections. Um, so N M H C sent out a, I think a, a a guesstimate, I think of, of rent collections that, uh, occurred in, in April, something about 70% rents were collected in the us, which was 15% below, um, their expectations. So that was something that, um, was not a positive sign, but was an expected sign. And frankly, we, we kind of, we saw this happening, but unemployment did go up to about 10%. So definitely something, um, of historical nature. But again, we're working through this as, uh, in real time, all of us together.
00:02:05 So for people who aren't capital markets experts, talk to us a little bit more about taf, cuz that is a fairly big deal. And in terms of when do you think that some of the stimulus that that could bring, or some of the backstopping that that really will bring to the debt markets will start showing up? And when do you really see that hitting the street and making a difference?
00:02:25 So we're gonna find out pretty quickly. Um, a lot of the, the commercial mortgage backed securities, um, uh, providers are taking pools of security. So industrial assets, office assets, multifamily. Um, there is a AAA rated pool that's getting priced out in the market, um, currently, um, very low leverage stuff. Um, very pristine, what we call paper in the, in the financial markets. Um, and it'll be interesting to see, um, how that price is and how that, um, um, is, is looked at as it's taken into the market. I think that we'll find that out over the next week. But I think that TF 2.0 coming out will absolutely make that liquidity available for the securitization. And if so, we are gonna see that coming down the line, um, to us, to the street level, you know, which is what we're talking about.
00:03:15 Yeah. Great. Okay. So let's talk about this week a little bit. I mean, we always talk about week over week, what percentage of the debt providers out there are participating. So, you know, we hit a pretty, almost what we would hope is a, is a trough level last week at 10%. So what do you see in this week? Have we gotten worse? Are we starting to see a little bit of a bounce off the bottom?
00:03:34 I think look, ba basically, folks are having their eyes on two places right now. One is, you know, what's going on in the world and then what, what's going on in, in the healthcare world? And so last week didn't feel great, um, and most folks were trying to get their applications in through the sba, into financial providers, you know, for the, the paycheck protection program. Uh, that P p P is really bogging down the capital market system. But on a, on a good and positive note is all the lenders we spoke to in the last week have started to see potentially a future reopening of society. Uh, you saw yesterday that the governors of Oregon, Washington, and California are working together, the Northeast Governors, um, about how we can reopen society, whatever that looks like. Um, and I think people are looking at that and saying, okay, when do I start to look at some financings again? And so in our calls, a lot of folks are looking forward to having discussions. They've talked to their investment committees, um, looking at opportunities at the end of April, um, which would mean that we start to unwind and build the system to close deals in June July.
00:04:38 So thinking about the week ahead, you know, what's coming up on, on your radar? What are you looking for for the next indications that we are moving in a positive direction?
00:04:48 Sure. Definitely that securitization pool. I met, I referenced before I, I wrote some notes down, but look, the house and, and, and the treasury secretary are working on another 250 billion stimulus that's attack on the one that we just had. The one that's coming up that I think will be interesting will be the stimulus that's about almost an F D R type, um, you know, stimulus that will talk about infrastructure spendings or roads and infrastructure across the US bridges and the like. Um, it'll be interesting to see how that, um, gets implemented. Again, we're looking back in our history to figure out ways that we can create opportunities for us as a society to get through this. So I'm looking forward to that. Unemployment claims, again, I suspect we're gonna keep going up. Um, and again, I think one thing I just keep looking at is how folks are gonna be reopening their societies, um, you know, in both the East and West coast and different places. I think folks are gonna pay attention to that. I believe there's an announcement today, um, about Oregon, Washington, California, how they're gonna do it. So let's see how that happens, but I think we're all gonna be paying attention to that, um, how that looks. We have no idea, but we're excited about that.
00:05:54 Yeah, e equally so, and, and again, I I think if we all are taking a rational outlook on it, it is gonna be a phase back in. Um, it won't be a rush back to, life is normal, but at least we'll start to see some of the semblance of our former society show back up. So that's what we all all have to kind of pace
00:06:11 Who's looking forward to who the, who's gonna brand their masks, you know, and when we, we all start wearing him and they're, they're gonna have, they have CrowdStreet and GSP on them. Uh, you know, you
00:06:20 Know, I'll wear a GSP mask if
00:06:22 You may. I'll do, I'll wear a CrowdStreet mask. How's that? There
00:06:24 We go. <laugh>. All right, well, hey Malcolm, thanks again. I think that's gonna wrap it up for today's installment of StreetBeats. Uh, so thanks everyone for tuning in. Uh, we're gonna come back and do this every week until we feel that things are getting more back to normal. We're also switching it up a little bit here at CrowdStreet. Uh, our co-founder, Darren Powderly, is gonna get in the mix. He's already out there interviewing people. There's a lot of people to talk to out there. So we're gonna get more people from our CrowdStreet team, uh, to get involved. So look forward to those installments. And until then, stay
00:06:58 Safe.