StreetBeats : Expert Insights

Malcolm Davies, Capital Markets Update | Ep. 82

We’re back with the first episode of StreetBeats for 2021. In this Capital Markets edition, CrowdStreet’s Anna-Marie Allander Lieb is joined by Malcolm Dav...

by Cyrus Maunakea
January 07, 2021 ·


We’re back with the first episode of StreetBeats for 2021. In this Capital Markets edition, CrowdStreet’s Anna-Marie Allander Lieb is joined by Malcolm Davies, Principal and Managing Director at George Smith Partners to discuss how work-from-home is continuing to fuel migration patterns throughout the country, the repurposing of retail locations into industrial hubs, and trends we’re likely to see in the coming year.

Anna-Marie Allander Lieb, Director of Investments

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

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, 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.

00:00:04    Well, welcome back for 2020 one's, first episode of CrowdStreet StreetBeats Capital Markets Edition. Uh, first off, I'd like to thank everyone who tuned in throughout 2020. Uh, it was difficult in in tumultuous year, but we hope that kind of throughout we were able to provide kind of in shed some light on what was happening throughout the, the capital markets. Um, and we hope in hope to continue to do so through 2021. Um, with that, you know, I'd like to welcome back Malcolm Davies from George Smith Partners, um, Malcolm, happy New Year. I hope you enjoyed the holidays.  

00:00:34    Yeah, happy New Year. It was, uh, it was an interesting one and I, I actually worked more during the holidays than I normally do. Try to take that last week off. But, uh, look, 2020 ended strong. A lot stronger, I think for all of us that, um, you know, compared to what we thought was happened in the beginning part of the year, um, to see us going into 21, I think very, uh, optimistic. Yeah. Lots of things in front of us, but we're certainly optimistic.  

00:00:57    Definitely. I, I think we had the, the same, same experience I had on my end. I mean, we, we definitely closed out the year strong. Um, ended on a record month in December for us, which, which was exciting. Um, and yeah, we're working to kind of finalize those, those deals that we're gonna launch here in February, kind of that la last week of the month. So, so kind of kept busy throughout, but, um,  

00:01:17    My, my prediction is all the deals that we had to put on hold for 20, we will get done in 21. So that's why we're very optimistic.  

00:01:24    Definitely. Um, well, how about we dive in? I mean, I think you and I talked kind of earlier, I think the, the big news today that, that everybody's watching was the Georgia runoff. Um, it seems that's gonna turn double blue, um, with the Democratic party kind of holding all three seats there. And, and I mean, Malcolm, what do you think that that signal for the markets and kind of going forward within commercial real estate?  
00:01:44    I mean, stock market's up. I mean, look, I, you know, who knows? But, uh, the reality is, uh, I think one of the reasons why the market's up is we have, so sort of like what we can see the future. We know we have all of the, kind of, the decisions are being made and we, we will have a new administration and a couple weeks we will have a new Congress, we will have a new Senate, um, and, you know, three chambers of the house under, uh, blue looks like, uh, from what we see right now. Um, and we'll see what, what will be enacted. Um, my, my biggest, um, kind of hope is that, you know, the one part that we are still trying to make sure we underwrite is how long or how, how this process of, of vaccinating, you know, the US and frankly the world will take, how long is it really gonna take?  

00:02:26    I see so many folks talking about, you know, maybe by August everybody that wants a vaccination will get it. And if that's the case, then that's great how that deployment will occur. So I'm hopeful that, you know, as this new kind of Congress come gets put together that there's a real concerted nationalistic approach to getting that vaccination done. It's good for our business, it's good for a lot of our clients. It gets people back out in the world. Um, particularly our, our hospitality clients will certainly love to see that. Um, and, uh, that's a big optimism. So look amazing that we were able to get this vaccine done. And I kudos to everybody, um, in the medical world outside of what we do, but it impacts so much of our investment decisions.  

00:03:07    Definitely. Um, I, I definitely would second that. Um, and I think it's, it's gonna be what, what we're watching to see how, how the rollout continues with that. And, and I second it. I, I feel like, um, you know, the expectation is that hopefully by, you know, July, August this year, you know, we should have mass vaccination and, and things are gonna start normalizing, um, and getting back to normal, which I know we've been talking about for, for a long time here, <laugh>. Uh, but it's, it's exciting to see it move in that direction. Um, sure. To point out, I mean, we saw this morning kind of the, the tenure treasury spike up above 1% first time. We've seen that in, you know, the past nine months. And I think that kind of goes back to, uh, the, the double blue outcome in, in Georgia and kind of the signaling there that, you know, there's probably gonna be some, some more fiscal stimulus coming through Yep. Um, as a result of that. Yeah. Look, I mean, um, one thing you're gonna see here is that we, we want to get everyone back on their feet. Um, we have always talked about stimulus, how much stimulus is too much, who knows? Um, but the reality is we have some visions of where we're going, which is the most important part one way or the other. Um, and look, rates are going up a little bit here. So, you know, um, when that occurs, you know, you start to try to lock in, um, you know, some of the refinances that you've had on the books. Um, and so we are, we're getting a lot of requests to do that. Um, I think folks have thought that we would keep our historic rates as low as possible over this period of time, and we still could dip back down. But, um, look, rates are still incredibly low. Um, you know, we're not out of the woods by any stretch of the imagination. We're certainly, um, at least in the my world in Los Angeles, it's uh, you know, quite, uh, you know, quote unquote locked down. Um, and we really gotta open that back up in our societies to have real efficiencies back.  

00:04:53    Yeah, no, 100%. Um, I think that the other news that we are paying attention to, or, or the report that that came out, uh, this week that we at CrowdStreet looked at was the United Van Lines National Migration study, um, knowing where people are are moving and moving into and, and, and what cities they're leaving. And I think, you know, the, the big one there was Idaho coming in and Yeah. One with Boise, which I know is kind of a, an area that, that both, uh, George Smith partners in CrowdStreet has kind of been, been looking at, especially coming into 2021.  

00:05:23    No, no question. I mean, out of all these states, right? Idaho number one above Florida, Texas, and the like. And so, uh, we think that that's a, a very strong market. We both are, um, kind of planting our flags and that, and that's, and that and that location in the world. And, uh, look, I think it's, there's something to be said here. Look, the overall migration patterns, no matter what happens, how we come out of this are gonna change a bit. And you're seeing that, I mean, the growth in Texas and Florida and Arizona and Idaho and Utah, you know, these are places, Tennessee, North Carolina, um, you know, this is a, these are great places to live, high quality life. And, um, you know, reality is companies can be in different areas. They are making their decisions based upon how certain states, um, are in either attracting labor or having better tax efficiencies for their companies.  

00:06:11    Um, uh, we just saw the announcement that one of our, kind of our, our, what I call our top four kind of commercial real estate, um, investment companies here in Los Angeles make a decision to move, uh, its corporate headquarters from here to Florida. And that's colony. So, um, that is a continued trend, not only in tech companies, but also in, you know, investment in real estate and at the likes of New York and, uh, California into places that are maybe a bit, you know, obviously not bit, but definitely more tax efficient for them, uh, as companies. And that will, as much as they say that the major portions of the jobs will not Lieb the, the home base of where they're based over time, those things will change over a five, 10 year period of time.  

00:06:54    Yeah, no, I, I, I completely agree with that. Um, and as you said, I mean, pointing to the, the quality of life, uh, aspect of it, I think the number one reason people were saying they were moving to the, the Idaho kind of Boise area per the survey was, you know, cost of living. Um, yeah. And also I think also we're, we're following the trend too of those non-tax states. Um, and, and really focusing kind of on the non-tax states, kind of the southern region and kind of the, the western portion kind of mountain region going, going forward. Cause I think those are where we're gonna see a lot of growth here in 2021.  

00:07:26    I mean, you can see how back in the day, you had to live in certain places for the jobs that you could work on Yeah. And work for. And that's changed either from work from home or companies are opening up satellite offices. Um, you know, it isn't unusual today for me to have communications and conversations with folks in different markets and thinking and doing zooms just like this Doesn't matter where you're really located at the end of the day. So states are going to have to compete with each other and, um, be able to offer the best they possibly can. That's from taxation, um, cost of living. I mean, you know, look, California's an expensive place to live. Um, and look, it's a great place to live, frankly, and that's why people are paying, you know, not only high taxation, but you know, the reality is they've got a lot of employment and jobs here. Um, it's not like that everything's gonna change. It's still innovation, incredible innovation in places like California and New York and the like. So this just maybe spreads it out evenly a bit more. Um, and you know, the reality is those places like the Boise and Salt Lakes and Phoenixes on the West Coast will certainly pay dividends from what's happening right now.  

00:08:31    Yeah, definitely. It's, you know, it's the kind of what we saw happen in 2021 in terms of the work from home and that trend kind of continuing forward. And we're gonna see that, um, continue in 2021. And, and sure. It's not, it's not going away. So,  no, not at all.  
00:08:46    <laugh>. And then I think the other thing I saw that was interesting was the Epic games. Um, you know, the, the company behind the, the Fortnite, um, is purchasing the, the Carry Town Center. Um, it's a shopping center, you know, in North Carolina, um, to convert it into their kind of headquarter campus, um, which I thought was interesting. We've seen the, you know, the mall to industrial play was talked about, I think 2020. Um, and this is kind of now another use that, that were repurposing kind of those, those previous malls for which was, which was interesting. Again, the, they're purchasing it, you know, call it one twenty six a square foot. Mm-hmm. <affirmative>, you know, if they were going to purchase office space in in the area, it probably would be more like two 17. So, you know, the, the value there make sense if you can, you make it work. And I think this is  

00:09:33    Plus plus, uh, you know, all the parking Yeah. You know, I'm sure they're gonna use it as a, they'll probably have a gaming area as well and, and make it this the spectacular type of situation. So I I, one of the things I wrote down were what, what were the trends that we're gonna see in 21? Yeah. You know, one of 'em was retail redevelopment. Yeah. Um, you know, all of these malls or retail centers or whatever, the strip centers, they're all in well located areas. So, you know, the reality is these are, these are spots that if it's not redevelopment for a, a corporate headquarters, which is, is what's happening here with, with Epic, um, it's redevelopment. Um, like for example, in downtown San Diego, Horton Plazas being redeveloped as a life science, um, redevelopment. That was a mall, one of the first malls in downtown San Diego.  

00:10:16    So we're, we'll, we'll see how this kind of plays out through 2021 Industrial is, you know, logistics, last mile delivery that's just gonna continue to grow. Um, you know, that's, that is, that is a trend that is continuing, continuing onward. And I think I also think you'll see growth in, in niches and trends that, that relate to housing, you know, providing affordable type housing for folks in any markets they've got that you, that you, you currently live that would be, you know, hotels that will be converted to resi. Yeah. So, you know, again, you know, over, you know, the cost of, of, you know, below replacement cost, housing, the lowest dollar that you can do per foot to deliver, to provide affordable housing folks, you'll, you'll see that continue to grow, I think micro units and co-living, which, you know, has had some of its challenges in 2020.  

00:11:06    I do think though it's a great solution for affordable housing in really high cost markets, and then in the, in the, maybe not nearly as high cost markets, but from a consumer demand that built for rent, um, single family home for rent will continue to grow in these markets like Florida, Texas, Arizona, Nevada, and Utah. Uh, because, and Tennessee, because, you know, everybody wants to have that level of, um, independence and have a yard and, you know, high, high ceilings and windows everywhere, um, but can't afford the down payment. Um, and, and the reality is those trends will continue to, to grow I think in 21. Um, what are you guys thinking? What's, what's the CrowdStreet thought process as as you guys look at 2021?  

00:11:50    Yeah, no, I think, as you mentioned, we also, you know, are, are still very bullish on the, the BTR, um mm-hmm. <affirmative>, especially as you, as you mentioned in in those states where, you know, like the Denver or call it, um, sure. Dallas Phoenix, I think are, are definitely markets for that, that, that we think make a lot of sense. Um, where you have the, the lead available to, to kind of make it work and build it. You're not gonna find it right in, in urban cores, but also where you are seeing kind of, um, you know, the, the population growth, um, with it. And, you know, it goes back to, I mean, again, the, the amount of student debt that people have, the <inaudible> specifically kind of moving into that age bracket where they would be, you know, purchasing, um, homes at this point, but they may not have the down payment.  

00:12:34    The BTR just makes so much sense that they're, they're providing that space. Um, but also those amenities that, that, you know, they, they've gotten used to, um, within those kind of BTR complexes. Um, so I think that that's one where we're looking forward to, um, industrial as well. Um, I think, you know, that that's gonna be, uh, an area that's gonna, you know, it was strong in 2020 and I think it's, it's gonna be strong in the future. I don't think there's anything right now in terms of the distribution and manufacturing space that's, um, gonna put downward pressure on it because, you know, again, we've seen the growth in e-commerce, um, and then also just the scarcity of lead kind of in those close and urban mm-hmm. <affirmative>, um, you know, I, I think that's something that still is gonna have a lot of value going forward. So  

00:13:22    I think the ingenuity of, uh, of, of real estate, um, developers and owners will, you'll, you'll find, will be interesting to see how it plays out. You know, I've always believed that we don't need, you don't need the retail storefront to be as large. Right? You just need, you could, so I'm, I'm looking forward to seeing the ingenuity of, of places where you have really small retail, uh, foot storefronts with one or two people that can help answer questions. Cause that is one of the, the challenges when you're buying something, uh, maybe returning it or picking it up, but then having a massive fulfillment center located within some very short period of time where you can get the good, order it by it, and then by the time you're home, they're delivering it to you. Right. So, um, we'll continue to see, obviously that trend.  

00:14:06    I think going into the, the, the whole, all of the twenties, um, you know, I, I always think about, you know, where we were at the end of, you know, uh, beginning of last year and where we are today, man, talk about a different world. Um, but the reality is where we are today compared to nine months ago, um, is certainly impressive. Um, we've all gotten used to these zooms. I think we are a little tired of the zooms. I mean, I, I would, you know, it's, but it's really useful. It really is. Um, you know, and, and I do think when we come on the other side of this, how much we use Zooms versus, um, in-person meetings and travel and the like, will be interesting. You know, I did a Zoom meeting this morning with my team and, you know, I thought it was interesting, we decided to kind of not have everyone come into the office for a bit, obviously, because of what's happening in Los Angeles, but it's so efficient, you know, that, you know, you have all these people on it and you're getting through everything. And I'm like, that, that was almost as efficient as being a person.  

00:15:00    Yeah, no, I agree. I i I think it's, it's, it's gonna carry forward. It, it has been efficient, but at the, the same time, I feel like to your point, the kind of the zoom fatigue, right? Just Oh yeah. The amount of time you can spend on Zoom versus in person I, in terms of meeting length is, is a bit different. So I, I agree. I think we're, we're gonna get back to a place where it's, it's gonna be a combination of, of, of both, because I think everybody's kind of missing that in-person interaction, so,  

00:15:25    Well, that was funny. I, I saw Ian once in 2020, right? And we had a lunch in Portland, I think in October, and we had, we have done, you know, you myself, Zack and Ian have done a lot of these, but it was so much more fulfilling to see him at lunch and do talking it through than just in this two dimensional way on a, on a screen. So, um, I'm looking forward to more travel. Uh, you know, I was traveling from September through November. Uh, I've taken a little bit of a break. I should be back on the road again. It's impossible for me to get my business and to do all the things we do without being in, out, out the road. I will say, uh, travel is resilient. I'll tell you, like, if you look at the travel counts from the holidays, we were over 50% of the year previously, which was pretty darn high. I think there were a few days we had 1.3 million, 1.2 million through the TSA throughputs, um, when in those same period we were at 2.2, 2.3 million. But that's pretty impressive considering you have all these stay at home, you know, discussions and, you know, it's just, so you're, I think the resiliency of the, the customer is gonna be big. Um, and that question's gonna be how does the corporate demand con continue to come back? And that to us is a big part of, uh, our, our, our, our philosophies looking at things going forward too.  

00:16:42    For sure. Well, Malcolm, we appreciate the, the time today. Um, happy New Year and I think, uh, next week, Ian, for me, we'll, we'll be back joining you here. Um, until then, everyone out there stay safe and, and happy to hear.