CrowdStreet’s Ian Formigle is joined by Malcolm Davies, Principal & Managing Director at George Smith Partners, to talk about how important May and June rent collections will be and how lenders are moving even under the shadow of COVID-19.
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.
00:00:30 Thanks for having me, Ian. Appreciate it.
00:00:33 Absolutely. We really look forward to talking to you every week, Malcolm, to understand what's going on in the debt markets. Uh, so for viewers of this in, in past weeks, you know, our format, we're gonna talk about what happened last week in capital markets, what's going on this week, and what we can look forward to in the weeks ahead. Uh, so Malcolm, let's, let's dig right in. What happened last week? What's, what are you looking at and how do you think that's affecting markets?
00:00:54 Uh, sure. I mean, the first thing that that happened last week is that I was brave enough to use clippers to cut my hair on the sides in the back. So, you know, at least I, uh, I tried something, uh, that was really important. Um, no, it's all seriousness. Look, couple things are happening that we're seeing, you know, one, you know, the PPP, the second one, uh, we were talking about, I think it happened, but while we were on the last weeks, so 310 million is, is eking out again, more to small businesses again. Uh, we had some really strange stuff happen. I mean, I think last Tuesday, oil went to negative $37 a barrel that we'd never seen that before. But I think the most important one is people are looking at May as a <inaudible> our, our society one way or the other. Um, so that's a big, um, a big thing that, that I think occurred last week.
00:01:41 Yeah, I, I totally agree. May collections, uh, across every asset class are gonna be very important. I mean, perhaps not quite as important in terms of, you know, the hardest hit asset classes because they, you know, we already know what's going on there. Uh, but multifamily, I'd say in particular, right? We saw, you know, we saw mid April collections start off at 84% trend up into the right, the low nineties, which really on a month over ma month basis was really great because it was just a couple point percentage points down. Um, we're another month into this, and so obviously what happens in May and in June are gonna be really indicative, I think, of what we can expect later this year. So yeah, huge data coming up in terms of what may collections look like. Uh, so Malcolm, let's move on to this week. You know, what are you working on this week? What are you paying attention to this week?
00:02:27 Yeah, look, I think one of the big things that we're paying attention to is, we spoke about this since we started this, how lenders were generally taking a bit of a pause going throughout April. We maintain dialogue with all of them, uh, and everybody kind of, our business end was set up, started to ramp our business and going out into the capital markets on behalf of our clients by the end of April. Um, you know, and that's been proven to be somewhat correct. Um, you know, I went out to the market yesterday on a 62 and a half million dollar, uh, refinance of a class a, uh, multi-family asset, um, in Longmont, Colorado, and have been, uh, pleasantly surprised with the response to date. So I think in that sense, folks are saying, well, I'm not ready to maybe close the loan tomorrow, but by the time we get to a point to close in June or July, you know, they'll be ready for us.
00:03:17 Um, another thing I can, I can talk about is, uh, we went into application on a, a 28 and a half million dollar pre-development land financing here in Los Angeles. Um, and that was for, um, a significant amount of multi-family units that will ultimately be entitled. So frankly, going into application meant we were, we were marketing the project about a week after, uh, we shut down with Covid and have now gone into application, and we received four proposals on that project. So remember what I call the toughest period, we were able to get some stuff done. So we're really optimistic. I think, look, we're going into May, I, you know, we had a company meeting today and I said, Hey, how do you all feel compared to March 28th from, you know, here we are at April 28th, how are we gonna feel on May 28th and June 28th? And I think most of, uh, the US is thinking that way. Um, and I think capital markets, which is built on confidence, um, ultimately is, is thinking that way as well.
00:04:16 And, you know, with some of the activities going on this week, Malcolm, in terms of starting to see the first states begin to relax, you know, restrictions, uh, are, are you seeing that ripple through any of the debt markets yet? Or are the markets still in a wait and see mode?
00:04:30 Well, one of the things that, for example, for our project in Colorado is that's one of the earlier states that's going to be, um, I think it's May 1st if I'm not correct, which means that on our project, which is in lease up, um, they'll have the ability to do regular tours of the asset. So just little commerce rather than doing virtual tours, you know, just the ability to have something semblance, uh, commerce, uh, I think some folks will look at them say as a better, uh, opportunity to leasing earlier than May, you know, for us where I think we're gonna be a little more delayed in California.
00:05:06 Got it. Got it. Okay. And let's look ahead, what do you think's coming up in the next week or two that's important?
00:05:13 Look, I think you mentioned it earlier, the may rent collections. I think primarily, look, we know, look, we we're, we're, we're talking about hotels and working through distress there, retail, working through some distress there. But, you know, multi-family is the one sector that's always been relatively strong. And so last month the rent collections were down, but they weren't nearly as down as people had thought. So, you know, it is May 1st on Friday, um, there'll be a little bit of a lag time to see what the collections will have ultimately been, but I think as we've seen this unprecedented layoffs, what effect that will mean on the multi-family sector, um, we we're hopeful. But, you know, that's certainly gonna be an element of review. The question in my mind is what is the bottom and how long, long does that bottom last for? Um, you know, I, the thought is that may would be hitting the bottom, but what is that duration, uh, for all of us to get out? You know, I think a lot of us have figured out that it probably isn't a pure V recovery, um, more likely a u um, and I, you know, God's speed to all of our, uh, medical professionals that are out there solving all the problems, uh, and, and all of the scientists and doctors and everybody coming up with all the medical advancements to, to move us through. So we're a little bit held back on that, but I'm hopeful.
00:06:29 Yeah, yeah, I agree. At this point, it'd a, it's a race to a vaccine and we should increasingly expect levels of disruption that are going to continue to kind of permeate different pockets of the country until we get there. Um, seems to be more and more e evidently clear.
00:06:46 What I'm optimistic about is that we as humans like to do things and um, you know, I wonder what it's gonna be like when, when there's an announcement because, you know, um, even I, I saw, you know, something that said, Hey, they've, uh, a firm is going for a vaccine. They're in trial, they're manufacturing 40 million, you know, doses of it right now with the anticipation that it works. And I thought that was quite cool to see. So I wonder how we're gonna react, you know, some might say, you know, we're all gonna travel and take that trip we've never taken before. I think it was gonna be a little bit of stuff that we're, we're not gonna sit back. We're gonna hopefully enjoy life a little bit and and appreciate what we have, uh, when we get back to it.
00:07:25 Totally agree. I'm looking forward to traveling next year. I mean, I know that it's kind of off the books for most of this year, but absolutely. Coming into 2021, I mean, we're already starting to talk with friends about where, what we might be able to do and where we might be able to go. So we're all hopeful and looking forward to getting back out there and exploring the world. It's what we like to do.
00:07:46 No
00:07:46 Questions. So, great. Well, thanks Malcolm. On that note, I think that's gonna be a wrap for StreetBeats for today. Uh, thanks everyone to tuning in. Malcolm, thanks again for coming back. I know you're busy.
00:07:57 Thanks for having me, Ian, and uh, appreciate it. Stay safe, everybody.
00:08:01 Absolutely. Thanks Malcolm. And, and all you out there, totally agree. Stay safe, stay healthy. We'll see you back here soon. And last note, if you want to subscribe to this, uh, you can click, there's a button right on the market volatility page that allows you to do so. Um, we'll be back to you soon. Stay safe, everyone.