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NCREIF PRESENTATION. MARCH 2011. NCREIF Presentation March 10, 2011. NCREIF Presentation March 10, 2011. Keystone & Johnson Capital Introductions Capital Markets General Overview Debt---CHW; JCS Equity---JCS; CHW Debt (property preferences, underwriting, pricing, markets, sponsorship)

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ncreif presentation march 10 2011
NCREIF PresentationMarch 10, 2011
  • Keystone & Johnson Capital Introductions
  • Capital Markets General Overview
    • Debt---CHW; JCS
    • Equity---JCS; CHW
  • Debt (property preferences, underwriting, pricing, markets, sponsorship)
    • Life Co’s---CHW
    • Agencies---JCS
    • Bridge, Mezz, Other—CHW
    • CMBS---JCS
    • Banks---CHW/JCS
  • Property Types
    • MF---CHW
    • Retail---JCS
    • Office---CHW
    • Industrial---JCS
    • Other---CHW
  • Summary and Conclusions
slide8

Theme for the day:

Capital Flow has been and continues to INCREASE

  • SOURCES: Life Companies, Agencies, CMBS and Opportunity Funds, with Banks just starting to emerge
  • It is cautious, thorough and very selective.
  • Expect a lot of logical and specific questions:
    • Borrower Quality
    • True Market Rents
    • True Market Vacancy
    • Stressed Cap Rates
    • NOTHING LIKE 2005 – WE HAVE TO ADJUST

8

slide9

National Capital Flow Increase Statistics Mortgage Bankers Association of America

  • Life Insurance Companies
    • Capital to grow close to 2007 levels.
    • Need for yield and quality.
  • Agency
    • Administration will keep the flow open even in the midst of agency reform.
  • CMBS
    • Markets are a small fraction of what they were but expect a 4-fold increase over 2010. That said, it will be 10% of the flow of 2007.
  • Banks
    • Like CMBS, Banks have many maturing loans. The general thought is that they will begin to lend more aggressively as they work through these maturities.

9

slide10

National Sales Statistics

Greater than $5,000,000

$100B/Qtr.

Q4 ‘10 $52B (52% of Peak)

FY ‘10 $132B (33% of Peak)

10

slide12

Life Insurance Co. Commitments

‘05-’07 @ $40-$50B/Yr.

‘08 @ $30B/Yr.

‘09 @ $20B/Yr.

‘10 @ $30B/Yr.

Est. ‘11 @ $40B/Yr.

12

slide13

CMBS Issuance

‘06-’07 @ $300B/Yr.

‘10 @ $12B/Yr.

(4% of Peak)

Est. ‘11 @ $39B/Yr.

(13% of Peak)

13

slide15

Who Holds The Commercial & Multifamily Mortgage Debt

Banks @ $1.4T

CMBS @ $640B

Agency @ $317B

Life Co. @ $300B

The Big 4 = 85% of Total

15

slide16

Commercial/Multifamily Mortgage Delinquency

Banks & Thrifts > 4%

CMBS > 8%

Life Insurance < 1%

Fannie/Freddie < 1%

16

slide17

Looming Loan Maturities

‘11-’13 @ $300B/Yr. - almost $1T

Most maturities lie with Banks and CMBS. Nearly $300 Billion per year / Almost $1 Trillion ‘11-’13. It is imperative that Banks and CMBS re-establish themselves to meet the demand. If Agency and Life Companies do $50 Billion per year each they will total 1/3, or $100 Million of all maturities annually.

17

agency debt profile
Agency Debt Profile

Fannie (GSE)

Freddie (GSE)

________________

FHA (HUD)

  • Fixed & Floating Rate Debt
    • Fannie, Fixed Execution
    • Freddie, CAPPED ARM Execution
  • 5,7,10 year terms
    • 30 year amortization
    • I/O
agency debt profile continued
Agency Debt Profile Continued
  • Pricing
    • TIERS by LTV & DSCR range from 4.42% to 5.79%, fixed and 3.32% to 5.36% floating
    • 1% to lender (DUS or Seller/Servicer)
  • 60 Day Execution
    • Early rate lock available
  • Underwriting
    • MAI Appraisal
    • 85% occupancy
    • T-3, T-6, T-12 trends
    • Up to 80% LTV & 1.25 x DSC
  • Supplementals
fha hud
FHA (HUD)
  • Refinance
    • No cash out
    • 35/35
    • 9-12 + months processing
    • Open @ par after year 10
    • Pricing 4.15-4.50%, fixed
    • 1.20x DSCR & 83.3% LTV
  • New Construction
    • 40/40
    • 12-15 + months processing
    • Open @ par after year 10
    • Pricing 5.45-5.75%
    • 1.20x DSCR & 83.3% LTV
underwriting for commercial real estate
Underwriting for Commercial Real Estate
  • All rents at current market
    • Property & submarket checks
  • Sponsorship
    • Track record
    • Bones
    • Schedule of REO
    • Contingent liabilities
    • Liquidity
    • Real equity
underwriting for commercial real estate continued
Underwriting for Commercial Real Estate Continued
  • Underwriting
    • 3 to 25 year terms
    • 20-25 year amortizations
    • No I/O except MF
    • Internal value (cap rates)
    • TILC reserves (true cost to re-tenant)
  • Pricing
    • Mortgage yields are current favorable to other asset categories
    • Junk bonds @ 6.48%
    • Further spread compression likely
    • Spreads are 150-250 over UST for life companies are 200-250 over swap spreads for CMBS
underwriting for commercial real estate continued28
Underwriting for Commercial Real Estate Continued
  • Other
    • YM or Defeasance
    • Submarket Critical
  • Multifamily
    • 3 to 25 year terms
    • 30 year amortizations
    • Some I/O
    • Underwrite current trends
    • Most competitive pricing
    • Debt yields under 8%
    • Highest LTV;maybe lower DSCRs
    • Cap rate flexibility