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Lenders Are Focused on Sponsor Quality with Malcolm Davies | Ep. 10

Ian Formigle is joined by Malcolm Davies to talk about a recent loan his firm closed and how lenders are focusing on sponsor quality.

by Shawna Wright-Smith
April 23, 2020 ·

CrowdStreet’s Ian Formigle is joined by Malcolm Davies, Principal & Managing Director at George Smith Partners, to talk about a recent loan his firm closed and how lenders are focusing on sponsor quality.

Ian Formigle, Chief Investment Officer
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

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    Hey everyone. I'm Ian Formigle, Chief Investment Officer here at CrowdStreet. Welcome back for StreetBeats. This is April 21st. This is our ongoing video series intended to keep the entire community of CrowdStreet informed about what's going on in the commercial real estate industry. Uh, today I'm back with Malcolm Davies, principal and managing director at George Smith Partners based in Century City, California. Malcolm, welcome back.  

00:00:29    Thanks for having me again, Ian.  

00:00:31    All right. So we've been doing this for a lot of weeks now, and so our typical format is we like to talk about what happened last week. What are we thinking about that's for this week, and what are we thinking about for the weeks ahead? So, Malcolm, let's go ahead and dig right into it. Uh, we talked last week and we talked about some TAF and other things going on. So what did we see this last week that viewers should know about?  

00:00:54    Sure. I think the, one of the things we've talked about is about the P P P, and you know, it's the, one of the, the numbers that I saw that was just really interesting is that the sba, uh, did more loans in 14 days than they've done in the previous 14 years. So to say that banks were backed up is an understatement. Um, so that was a big thing that's occurred. Um, look mark to market, um, through taf. I think that's a big thing that we've started to, uh, recognize it's unlocking liquidity in the financial market. So that's a big thing that's, we've seen progress over the last week. Uh, and, and frankly, I'd like to announce that we closed a great deal yesterday. Uh, we did a 21 million acquisition loan on a, um, on an office building in, in Southern California, uh, 65% leverage Li b r plus 200. Uh, and so I just, you know, I think to all the viewers out there, the financial markets start to starting to look a little bit better than they've done over the last couple weeks.  

00:01:50    Hey, congratulations on closing the loan. Just putting any points on the board is pretty big right now. So just give us a little bit of context on that deal. You know, what was the lender who, you know, what was the type of lender, we don't have to name names, but yeah. Type of lending on that. How long did it take to get that deal done? Where was that deal a few weeks ago?  

00:02:08    Sure. You know, look, I'll, let me give some plugs to folks because they deserve it. Uh, we did that loan with California Bank and Trust, um, and, uh, you know, that's a regional bank, uh, the parent Bank of Zions, uh, based at Utah. Um, you know, our client was STAs commercial, so I'll give them plug as well. Uh, and, uh, they were acquiring a, a property in a, in a full disclosure, the tenant, um, was a tenant that's highly involved today, uh, in the medical, um, world that's basically providing tests that are important to the future of what we're dealing with as a society today. Um, so that was a benefit, but I think, um, they stuck through it, which, which is the most important thing. Uh, we did app it before covid, um, but they kept their, their proposal and the terms and closed it as we applied. Um, and in today's world where lenders mainly were blowing out, um, we, we commend all of them for, for sticking to what we, what we apply to. I think the key on that is that we've talked a lot about balance sheet, balance sheet, balance sheet. Well capitalized banks are absolutely out there. Uh, and I think that's a place that you'll see us spending, um, the next few months, uh, focused on, on financing for our clients.  

00:03:21    Great. Well, it's great to see that there's a little bit of light out there at the end of the tunnel, and we're gonna hope that one deal closed turns into two or three, you know, per week and the weeks ahead. So, uh, let's talk about this week, uh, and then moving forward, what are you, what are you looking forward right now and what are the next signs out there?  

00:03:37    Look, I think big, big focus right now is how TAF is affecting the market. So, um, CM b s we'd like to see cmmb s start to focus a little bit more on secondary markets. Um, you know, the, our primary gateway markets are fine, but I think that's a big thing we're l paying attention to this week. Look, I've always said there's a percentage, right? What's, what is the percentage? Well, I'm starting to feel a little bit better, so I'll, I'll, I'll move up from 10 to 15%. Okay. Um, but who's in, you know, look, the banks, the life company, some CM b s, we talked about unlevered debt funds, and of course, our agency and HUD financing that we as a society back ourselves with our taxes. So, um, I would say the big focus for folks is that lenders are definitely focusing on really high quality sponsorship groups, um, that is about as apparent and as important as it as we, as we've ever seen. So, um, you know, folks that are looking to do projects and do deals, um, you know, one area to to think about is if there's a project you're working on, you know, if it's something that you're, you're a, a younger sponsor or maybe maybe team up with, uh, you know, more established firm, um, to get that project outta the ground. So that's maybe a recommendation or a thought.  

00:04:49    Yeah, great recommendation, particularly if you know, you're somewhere midstream on a deal or maybe you have an opportunity for a recap, uh, but you're gonna need some balance sheet strength to get it done. Uh, you know, I think in times like this, we all gotta get creative, and I think that's a great call. Um,  

00:05:05    Look for, we have a theory, we have a theory that we're, we're working on here is that, you know, 50% of something is better than a hundred percent of nothing. And so I think, you know, we're all working together, uh, e even in our firm, we're working more closely together on lots of things so that they'll, everyone's sharing much more because it's reality is we've all gotta help each other.  

00:05:25    Okay. Malcolm, looking forward, let's talk about a few things that we can look out for in the weeks ahead, look,  

00:05:30    Looking forward. Look, guys, there's one thing I wanna pay attention to. The p p p, there's more money coming and I, it was approved this morning from the house, so, uh, pay attention to that. And then also last part is, um, we're paying attention to the main street lending program that's about 600 billion that will hit the main street small businesses. Um, to me that's one where P P P was like, you, you help the guy coming in who was on cardiac arrest and you save his life. Uh, main Street Lending program is about, okay, his life has been saved. How does he walk out of that hospital? And I think that's what we're gonna pay attention to as well. So hopefully I added a little bit there at the end.  

00:06:07    We'll definitely look forward to seeing that in the weeks ahead. I think for that, that's going to be a wrap for today. Uh, thanks everyone for tuning in. Malcolm, thanks for coming back. It's always a pleasure to have you on this segment.  

00:06:18    Thanks for having me in.  

00:06:19    Absolutely. In the meanwhile, uh, we'll look forward to seeing everyone back here next week, uh, with an update. And in the meanwhile, everyone stay safe.