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PROPERTY AND PORTFOLIO RESEARCH

CONFIDENTIAL

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PROPERTY AND PORTFOLIO RESEARCH

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  1. CONFIDENTIAL This document contains proprietary, strictly confidential information and is subject to the non-disclosure agreement between the client and Property and Portfolio Research. This document, or any of its parts, may not be copied, distributed or cited in any manner without Property and Portfolio Research’s written permission. The Current CRE Lending Environment – 2012 UConn CRE Conference Mark Fitzgerald March 6, 2012 PROPERTY AND PORTFOLIO RESEARCH NORTH AMERICA EUROPE ASIA-PACIFIC

  2. chapter 1 Excess Leverage

  3. BANKS HAVE CUTEXPOSURE TO REAL ESTATE SINCE 2007 REAL ESTATE LOANS AS A PERCENT OF TOTAL ASSETS, FDIC UNIVERSE

  4. REAL ESTATE IMBALANCES REMAIN CHANGE IN OUTSTANDING BALANCE BY LOAN TYPE, U.S. BANKS Source: PPR, FDIC

  5. REMOVING LEVERAGE FROM THE SYSTEM CHANGE IN COMMERCIAL REAL ESTATE DEBT OUTSTANDING BY LENDER CATEGORY Sources: Federal Reserve; Moody’s Analytics; PPR As of 11Q3

  6. CAN LENDERS HANDLE THE TIDAL WAVE OF MATURING LOANS? CRE MATURING LOANS BY YEAR Sources: PPR; Federal Reserve; Trepp; ACLI As of 11Q1

  7. THE CAN BEING KICKED CONTINUES TO GROW FORECAST 2011 CRE MATURITIES, AS OF DECEMBER OF REFERENCED YEAR Sources: PPR; Federal Reserve; Trepp; ACLI As of 11Q1 page 7

  8. CONSTRUCTION LOANS ARE BEING DEALT WITH FIRST BANK CRE PORTFOLIO NONPERFORMING LOANS

  9. REGIONAL & COMMUNITY BANKS FACE MORE DIFFICULTY IN “EARNING THEIR WAY OUT”…. ROE BY BANK ASSET SIZE

  10. BANK FAILURES ARE BEING DRIVEN BY THE CRE PORTFOLIO COMMERCIAL REAL ESTATE AS A PERCENT OF TOTAL ASSETS FOR FAILED BANKS Sources: PPR; FDIC As of 11Q4

  11. chapter 2 Lender Modification & Disposition of Nonperforming Assets

  12. “TRUE” MODIFICATIONS CONTINUE TO RAMP UP…. SPECIAL SERVICER MODIFICATIONS BY QUARTER Sources: PPR; Trepp As of 11Q4 page 12

  13. CMBS LIQUIDATION ACTIVITY IS INCREASING LIQUIDATION ACTIVITY & LOSS SEVERITY ON CMBS LOANS, BY QUARTER Sources: PPR; Trepp As of 11Q4 page 13

  14. BIFURCATION IN LIQUIDATION: LARGE COASTAL METROS GETTING BETTER EXECUTION CMBS LOSS SEVERITY AT LIQUIDATION, BY METRO, ON 2009 & 2010 LIQUIDATIONS Sources: PPR; Trepp page 14

  15. 2012 CMBS MATURING LOANS WILL CONTINUE TO STRUGGLE PERCENT OF LOANS ABLE TO SECURE TAKE-OUT PROCEEDS UNDER VARIOUS ECONOMIC SCENARIOS Source: PPR, Trepp As of 12/31/2011 page 15 Note: Underwriting standards at refinance vary based upon economic outlook.

  16. BANKS BEGINNING TO MOVE LEGACY LOANS OFF THE BOOKS BANKS’ NON-PERFORMING LOAN SALES BY QUARTER page 16

  17. WHAT DISTRESSED OPPORTUNITY LOOKS LIKE BANKS’ CRE OREO SALES BY QUARTER Source: PPR, CoStar Group, Inc. As of 11Q4 page 17

  18. chapter 3 Relative Value in Today’s Environment

  19. LENDING ON SMALLER CRE ASSETS REMAINS CONSTRICTED CHANGE IN TOTAL BANK CRE LOANS OUTSTANDING BY LOAN SIZE 80% 60% 40% 20% 0% (20%) (40%) <$100K $100-$250K $250K-$1M >$1M 2003-2008 2008-2011 Sources: PPR; FDIC As of 11Q3 page 19

  20. CRE LENDERS HAVE TURNED THE CORNER CRE LENDING INDEX BY SOURCE OF CAPITAL Sources: ACLI; Moody’s Analytics; Commercial Mortgage Alert; MBA; PPR As of 11Q4

  21. NORTHEAST BANKS ARE LENDING AGAIN 2011 CHANGE IN CRE LOANS OUTSTANDING, BY STATE OF BANK HEADQUARTERS Sources: PPR; FDIC Note: Banks with greater than $50 billion in assets excluded from analysis. As of 11Q4

  22. LENDERS PULLED BACK IN 2H2011 DEBT YIELD BREAKOUT BY DEAL ISSUANCE TIMEFRAME Sources: PPR; Trepp As of 11Q4 page 22

  23. LENDING SPREAD DIFFERENTIALS BETWEEN LARGEST MARKETS AND REST OF U.S. REMAIN WIDE LENDING SPREAD DIFFERENTIAL FOR LARGEST SIX U.S. MARKETS VERSUS REST OF U.S. Sources: PPR; ACLI As of 11Q4

  24. LENDERS CATERING TO SMALLER ASSETS CAN FIND ATTRACTIVE RETURNS COMPARED TO LOANS GREATER THAN $25 MILLION, LENDING SPREADS BY LOAN SIZE Sources: PPR; ACLI As of 11Q4

  25. LENDERS CAN GET PAID FOR INCREMENTAL RISK IN TERTIARY MARKETS ADDITIONAL SPREAD AND SPREAD PER UNIT OF YIELD DEGRADATION, COMPARED TO 65% LTV LOAN IN TIER I MARKET Spread/YD Add'l Spread 20.0 2.50% 18.0 16.0 2.00% 14.0 12.0 1.50% 10.0 8.0 1.00% 6.0 4.0 0.50% 2.0 0.0 0.00% Tier I Tier 2 Tier 3 75% LTV Spread/YD 85% LTV Spread/YD 75% LTV Add'l Spread 85% LTV Add'l Spread Sources: PPR; ACLI Note: This analysis captures office loans and assumes 2012Q1 PPR cap rates for each asset. As of 11Q4 page 25

  26. A GOOD TIME TO BE A LENDER Sources: Snyderman/Esaki; FitchRatings; Giliberto-Levy; PPR; Trepp; NCREIF As of 11Q2 Note: Purple bars combine actual to date & Compass projected defaults

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