CrowdStreet's Anna-Marie Allander-Lieb is joined by Malcolm Davies, Principal and Managing Director at George Smith Partners, to talk about what they're hoping to see as a result of the upcoming election, recent travel numbers and the effects on hospitality and how things are shaping up for 2021.
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.
00:00:03 Welcome back to this week's edition of StreetBeats, uh, where we cover all things capital markets. Um, today we, I'm joined here with by Malcolm Davies from, uh, George Smith Partners, where he's principal and managing director. And I'm Anna-Marie. I'm the Director of Investments here at CrowdStreet. Uh, Malcolm, you know, we've got an exciting week ahead of us coming next week with, with election coming up. Um, you know, there's a lot of volatility in the market that we're seeing. Um, what's, what's your take on all the craziness that's kind of going on right now?
00:00:31 I mean, uh, it's some sense, I feel like, you know, it, the markets wanna just see, uh, clarity, right? Um, you know, in essence you're seeing a bit of, uh, you know, volatility in the stock market this week. Um, you know, but what our, what our capital markets teams are seeing is that we wanna see clarity in the election, right? So the biggest thing we want to see is, uh, is that when we have this election next week, that we have some level of a result. Uh, we don't wanna see a scenario where you don't know who's won or whatever it might be. That'll add a little influx into the capital markets. And so, I don't know, right now it feels like the column before the storm, so to speak. However, you know, our Los Angeles Dodgers won last night, so we're all happy here in la.
00:01:15 There you go. Great to hear. Um, yeah, I mean, on, on, I was talking earlier to you, um, before we jumped on here, kind of, um, you know, getting the updates on, you know, what's happening in the hospitality side of things. Yeah. Um, STR put out their, their update earlier in the week. Um, again, I think nothing too new there. Um, you know, they're pointing to see room demand kind of come back to 2019 levels by 2023 with the average daily rate, you know, probably not coming back until 2025. Right. Um, you know, perhaps kind of the luxury upper upscale sectors coming back a little sooner, um, with kind of the outcast there. I guess the, not, not the outcast, but the one that's winning is kind of the economy side of things where, you know, we potentially, a lot of them are, are kind of hitting the, those average daily rates that we saw in 2019 already.
00:02:05 Um, that's demand in that sector is, is still, still pretty high. Um, and then kind of the, the revenue per available room, you know, if you take the occupancy and the ADR put together, you know, back by 2024. Um, you know, another, another interesting side that we, we saw there was, um, you know, the luxury, um, side of things, you know, the, the occupancy has gone down to 40 to 50%, um, but the ADR is only down 11%. Um, also we're seeing a lot of closures, um, currently in that space at 11 to 12% that are currently offline, may or may not be coming back with kind of the big cities that really have the demand drivers through the, the corporate and group travel, um, tourism, um, from the international, um, perspective, um, being hit hardest. So, you know, we see New York and San Francisco in that space. They've had closures up to 30%. Um, that being said, um, you know, they, they think once, if, if those luxury hotels can kind of get through this mm-hmm. <affirmative>, um, you know, there potentially could be a seller's market there, just given that there's little construction in the space. Um, a lot of those hotels are offline, may not be coming back. Um, so there could be a bright spot for, for, for that segment, assuming they can get through the, the next few years.
00:03:24 I mean, I've got, uh, you know, I had a, um, a lunch with, uh, a great client of mine hotel, big hotel owner here in Southern Lake, California. And we, we had a discussion about, you know, what are hotel values, you know, today, which, you know, they're impacted. We was pretty <inaudible>, right? But he said, you know, if we all believe the numbers that you just said, 23, 24, and 25, and I have a hotel that you know, is, you know, I can't service that and I can't cap, you know, I can't service the operations of the hotel. Well, if I was to, if I was to just close the hotel and basically calculate what my taxes and my debt service and my insurance costs would be over the next two to three years, in essence, whatever my value was pre covid, I reduced that value right.
00:04:11 By that exact amount of money. Right. So the reality is, so you calculate this two to three years, my hotel was worth a hundred million and I needed to do, I don't know, for debt service and all that was 10 to 15. Right now, my hotel will be worth 85 to 90 million. Right. And I'll just hold it. Yeah. Calculate it and I'll wait because, you know, that's better than in essence, you know, paying all this money to keep it open. But theoretically, if we do believe it's gonna come back, that's the really way to calculate it in that sense. So, um, you know, we'll see it, it is unprecedented times we have to deal with it, and we'll see how it goes. Um, we've talked about corporate travel. I mean, the reason why we see these anemic numbers in hospitality is that we have absolutely zero Yeah.
00:04:55 Relative perspective, corporate travel. And so how are we gonna get through that? I am, look, I'm going, let's give you an example. I have, I had a lunch today with a new client. Uh, we had a, a big zoom call with another new client, both clients. One is based up of Northern California, one based here in Southern California. Um, one is doing a deal in Boise and the other is doing their deal in Reno. And we're going out to both those markets on Monday and Tuesday to go capitalize those transactions on behalf of their, their strategies. And, you know, in that sense, we're moving forward. They're moving forward, you know, let's see how the rest of the world moves forward and, and coincidentally they're going to these markets. Yeah. You know, Ian and I have talked about this before where we're like, mountain state strategy, let's go. Uh, there seems to be something there. Um, we'll continue to see if that lasts through covid and, and, and where we get to their side, but secondary markets are coming, I'm telling you it's gonna happen.
00:05:51 No, I think also, you know, another factor that plays in there that we also talked about is kind state regulations state by state. Mm-hmm. <affirmative> there. Um, as I mentioned, I was kinda talking through with one of our sponsors in, in their hospitality portfolio this morning. Um, and they were comparing kind of, uh, you know, leisure towns in Vermont, um, and kind of New York and in right Vermont's, heavily regulated, um, hotels there during the summer weren't allowed having higher than 50% occupancy. They hit that 50% occupancy with adr, um, you know, in the summer. So they, you know, for the avail amount of rooms available, they, they were at full, full occupancy almost similarly in New York. They were also getting leisure travel down there. But there you have a state that doesn't have that regulation in place, um, and they hit, you know, upper eighties and occupancy with, you know, the same kind of high A d R rates. Um, and so just, you know, luck of the draw in terms of what state these hotel operators are in has such a big effect as well.
00:06:49 Well talk about regulations. So, um, one big element of next week is going to be propositions that are a big dynamic, um, at least as a Californian that we see. Proposition 21 is an eviction ordinance, gives more rights to the government to, to stall, prevent, uh, property rights and property owner's rights to evict mm-hmm. <affirmative>. Um, and the other one is Prop 15, which, um, now, you know, we've had this Prop 13 in California for years kind of legendary. Um, we're gonna split it. So the commercial properties now will be reassessed, um, uh, every three years I believe. So both of these will have an impact to tenants, right? Prop 15 rolling to tenants and their, and their cam charges. Right? And then you have Prop 21 where you impact your rights as an owner on, you know, on a multi-family. We're seeing that and investors are paying attention to that.
00:07:43 Um, both of which, um, government control too is a big dynamic right now. I mean, I, like I talked to my clients who have built hotels at Disneyland, and it's tough. I mean, the state right now, if you were to look at what the reopening plan is, they may not reopen until next summer. Right. Um, and that would be what, 16, 17 months of closure, um, really difficult environment for any of these, any of this stuff, you know, for folks that, that are, um, around there. So, you know, but then again, COVID is res spiking and you know, don't, you don't know necessarily what the ramifications of that might be. Um, it's just something that we have to pay attention to. Um, you know, from the financing market, it's also why you're seeing interest rates so low, why some strategies are absolutely completely working. You know, last mile industrial, industrial in general, it's incredible multi-family in built to rent space, you know, across, you know, Arizona and Texas and Florida is going incredibly well. So it is the tale of two worlds. Uh, I noticed that Blackstone is acquiring simply self-storage, so seems like to me that there's institutional investment in that space. So again, it's just tricky. But here, we, we are, I think, to calm before the storm, and I think even next week we've decided to do, um, you know, make sure that we don't do this on Tuesday, we do it on Wednesday. So we kind of have an idea of what the,
00:09:05 For sure. What, what, where things are trending. Hopefully, you know, we will have a clear picture, you know, of, of what things will look like going forward, you know, when you Yeah,
00:09:13 No doubt.
00:09:15 Uh, fingers crossed. Yeah.
00:09:17 And we're, we're coming into the end of the year believing that, you know, we're, I think I mentioned this to Ian last week, which is, you know, Q4 will be bigger and is bigger than certainly Q2 and three combined. Yeah. For us right now, Q2 is anemic for everyone. Um, but the reality is that means to me that all the pent up demand from those deals that weren't able to get done, and two and three are getting done now, and then there are new deals and people are coming up with new strategies now based upon what they believe the world will look like in 21. So we're, we're pretty bullish on 21. Uh, it's been an interesting year to say the least for all of us in 2020.
00:09:54 Oh, for sure. It's been one to get through. Um, and, you know, I, for your sentiment, you know, I think in terms of the, the kinda crowd, street marketplace side of things, um, you know, expect things to, to kind pick up again towards the end of, end of the quarter. And yeah, we're kind in the planning phases for, for 2021 now, and I'm excited for, for the things to come. So
00:10:14 I think you guys have done great. I think if I correctly talked to Darren and Ian, I think that you're at, you've raised as much money, I think, or the marketplace has raised as much money this year as it did in 2019, somewhere over there,
00:10:26 You know, hoping to slightly, um, outpace 2019. Um,
00:10:31 I can tell you this, nobody in commercial real estate, at least from a transactional perspective, has done as much in 20 yes. As, as it did in 2019, except for, I would say CrowdStreet <laugh>.
00:10:43 Well, Malcolm, as always, it's, it's been a pleasure today. Ian Formigle will be joining you all next week. Um,
00:10:49 Yeah. Come, come see you. What we're gonna have to talk about, you know, we'll at least have, hopefully we'll know where we're going. Yes. Hopefully.
00:10:56 There we go. All right, Malcolm.
00:00:31 I mean, uh, it's some sense, I feel like, you know, it, the markets wanna just see, uh, clarity, right? Um, you know, in essence you're seeing a bit of, uh, you know, volatility in the stock market this week. Um, you know, but what our, what our capital markets teams are seeing is that we wanna see clarity in the election, right? So the biggest thing we want to see is, uh, is that when we have this election next week, that we have some level of a result. Uh, we don't wanna see a scenario where you don't know who's won or whatever it might be. That'll add a little influx into the capital markets. And so, I don't know, right now it feels like the column before the storm, so to speak. However, you know, our Los Angeles Dodgers won last night, so we're all happy here in la.
00:01:15 There you go. Great to hear. Um, yeah, I mean, on, on, I was talking earlier to you, um, before we jumped on here, kind of, um, you know, getting the updates on, you know, what's happening in the hospitality side of things. Yeah. Um, STR put out their, their update earlier in the week. Um, again, I think nothing too new there. Um, you know, they're pointing to see room demand kind of come back to 2019 levels by 2023 with the average daily rate, you know, probably not coming back until 2025. Right. Um, you know, perhaps kind of the luxury upper upscale sectors coming back a little sooner, um, with kind of the outcast there. I guess the, not, not the outcast, but the one that's winning is kind of the economy side of things where, you know, we potentially, a lot of them are, are kind of hitting the, those average daily rates that we saw in 2019 already.
00:02:05 Um, that's demand in that sector is, is still, still pretty high. Um, and then kind of the, the revenue per available room, you know, if you take the occupancy and the ADR put together, you know, back by 2024. Um, you know, another, another interesting side that we, we saw there was, um, you know, the luxury, um, side of things, you know, the, the occupancy has gone down to 40 to 50%, um, but the ADR is only down 11%. Um, also we're seeing a lot of closures, um, currently in that space at 11 to 12% that are currently offline, may or may not be coming back with kind of the big cities that really have the demand drivers through the, the corporate and group travel, um, tourism, um, from the international, um, perspective, um, being hit hardest. So, you know, we see New York and San Francisco in that space. They've had closures up to 30%. Um, that being said, um, you know, they, they think once, if, if those luxury hotels can kind of get through this mm-hmm. <affirmative>, um, you know, there potentially could be a seller's market there, just given that there's little construction in the space. Um, a lot of those hotels are offline, may not be coming back. Um, so there could be a bright spot for, for, for that segment, assuming they can get through the, the next few years.
00:03:24 I mean, I've got, uh, you know, I had a, um, a lunch with, uh, a great client of mine hotel, big hotel owner here in Southern Lake, California. And we, we had a discussion about, you know, what are hotel values, you know, today, which, you know, they're impacted. We was pretty <inaudible>, right? But he said, you know, if we all believe the numbers that you just said, 23, 24, and 25, and I have a hotel that you know, is, you know, I can't service that and I can't cap, you know, I can't service the operations of the hotel. Well, if I was to, if I was to just close the hotel and basically calculate what my taxes and my debt service and my insurance costs would be over the next two to three years, in essence, whatever my value was pre covid, I reduced that value right.
00:04:11 By that exact amount of money. Right. So the reality is, so you calculate this two to three years, my hotel was worth a hundred million and I needed to do, I don't know, for debt service and all that was 10 to 15. Right now, my hotel will be worth 85 to 90 million. Right. And I'll just hold it. Yeah. Calculate it and I'll wait because, you know, that's better than in essence, you know, paying all this money to keep it open. But theoretically, if we do believe it's gonna come back, that's the really way to calculate it in that sense. So, um, you know, we'll see it, it is unprecedented times we have to deal with it, and we'll see how it goes. Um, we've talked about corporate travel. I mean, the reason why we see these anemic numbers in hospitality is that we have absolutely zero Yeah.
00:04:55 Relative perspective, corporate travel. And so how are we gonna get through that? I am, look, I'm going, let's give you an example. I have, I had a lunch today with a new client. Uh, we had a, a big zoom call with another new client, both clients. One is based up of Northern California, one based here in Southern California. Um, one is doing a deal in Boise and the other is doing their deal in Reno. And we're going out to both those markets on Monday and Tuesday to go capitalize those transactions on behalf of their, their strategies. And, you know, in that sense, we're moving forward. They're moving forward, you know, let's see how the rest of the world moves forward and, and coincidentally they're going to these markets. Yeah. You know, Ian and I have talked about this before where we're like, mountain state strategy, let's go. Uh, there seems to be something there. Um, we'll continue to see if that lasts through covid and, and, and where we get to their side, but secondary markets are coming, I'm telling you it's gonna happen.
00:05:51 No, I think also, you know, another factor that plays in there that we also talked about is kind state regulations state by state. Mm-hmm. <affirmative> there. Um, as I mentioned, I was kinda talking through with one of our sponsors in, in their hospitality portfolio this morning. Um, and they were comparing kind of, uh, you know, leisure towns in Vermont, um, and kind of New York and in right Vermont's, heavily regulated, um, hotels there during the summer weren't allowed having higher than 50% occupancy. They hit that 50% occupancy with adr, um, you know, in the summer. So they, you know, for the avail amount of rooms available, they, they were at full, full occupancy almost similarly in New York. They were also getting leisure travel down there. But there you have a state that doesn't have that regulation in place, um, and they hit, you know, upper eighties and occupancy with, you know, the same kind of high A d R rates. Um, and so just, you know, luck of the draw in terms of what state these hotel operators are in has such a big effect as well.
00:06:49 Well talk about regulations. So, um, one big element of next week is going to be propositions that are a big dynamic, um, at least as a Californian that we see. Proposition 21 is an eviction ordinance, gives more rights to the government to, to stall, prevent, uh, property rights and property owner's rights to evict mm-hmm. <affirmative>. Um, and the other one is Prop 15, which, um, now, you know, we've had this Prop 13 in California for years kind of legendary. Um, we're gonna split it. So the commercial properties now will be reassessed, um, uh, every three years I believe. So both of these will have an impact to tenants, right? Prop 15 rolling to tenants and their, and their cam charges. Right? And then you have Prop 21 where you impact your rights as an owner on, you know, on a multi-family. We're seeing that and investors are paying attention to that.
00:07:43 Um, both of which, um, government control too is a big dynamic right now. I mean, I, like I talked to my clients who have built hotels at Disneyland, and it's tough. I mean, the state right now, if you were to look at what the reopening plan is, they may not reopen until next summer. Right. Um, and that would be what, 16, 17 months of closure, um, really difficult environment for any of these, any of this stuff, you know, for folks that, that are, um, around there. So, you know, but then again, COVID is res spiking and you know, don't, you don't know necessarily what the ramifications of that might be. Um, it's just something that we have to pay attention to. Um, you know, from the financing market, it's also why you're seeing interest rates so low, why some strategies are absolutely completely working. You know, last mile industrial, industrial in general, it's incredible multi-family in built to rent space, you know, across, you know, Arizona and Texas and Florida is going incredibly well. So it is the tale of two worlds. Uh, I noticed that Blackstone is acquiring simply self-storage, so seems like to me that there's institutional investment in that space. So again, it's just tricky. But here, we, we are, I think, to calm before the storm, and I think even next week we've decided to do, um, you know, make sure that we don't do this on Tuesday, we do it on Wednesday. So we kind of have an idea of what the,
00:09:05 For sure. What, what, where things are trending. Hopefully, you know, we will have a clear picture, you know, of, of what things will look like going forward, you know, when you Yeah,
00:09:13 No doubt.
00:09:15 Uh, fingers crossed. Yeah.
00:09:17 And we're, we're coming into the end of the year believing that, you know, we're, I think I mentioned this to Ian last week, which is, you know, Q4 will be bigger and is bigger than certainly Q2 and three combined. Yeah. For us right now, Q2 is anemic for everyone. Um, but the reality is that means to me that all the pent up demand from those deals that weren't able to get done, and two and three are getting done now, and then there are new deals and people are coming up with new strategies now based upon what they believe the world will look like in 21. So we're, we're pretty bullish on 21. Uh, it's been an interesting year to say the least for all of us in 2020.
00:09:54 Oh, for sure. It's been one to get through. Um, and, you know, I, for your sentiment, you know, I think in terms of the, the kinda crowd, street marketplace side of things, um, you know, expect things to, to kind pick up again towards the end of, end of the quarter. And yeah, we're kind in the planning phases for, for 2021 now, and I'm excited for, for the things to come. So
00:10:14 I think you guys have done great. I think if I correctly talked to Darren and Ian, I think that you're at, you've raised as much money, I think, or the marketplace has raised as much money this year as it did in 2019, somewhere over there,
00:10:26 You know, hoping to slightly, um, outpace 2019. Um,
00:10:31 I can tell you this, nobody in commercial real estate, at least from a transactional perspective, has done as much in 20 yes. As, as it did in 2019, except for, I would say CrowdStreet <laugh>.
00:10:43 Well, Malcolm, as always, it's, it's been a pleasure today. Ian Formigle will be joining you all next week. Um,
00:10:49 Yeah. Come, come see you. What we're gonna have to talk about, you know, we'll at least have, hopefully we'll know where we're going. Yes. Hopefully.
00:10:56 There we go. All right, Malcolm.