Debt Presentation

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) – 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

JOHNSON CAPITAL OFFICES 

USA Offices

2010 Deal Volume by Loan Type Construction 7% Permanent-floater 7%

Bridge 2%

Permanent-fixed 84%

2010 Deal Volume by Lender Type CMBS 5%

Agency 40% Life 36%

Bank 18%

2010 Deal Volume by Property Type

Retail 21%

Office 2%

Other 2%

Apartments 42% Assisted Living 3%

Industrial 28%

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

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

National Sales Statistics Greater than $5,000,000 $100B/Qtr.

Q4 ‘10 $52B (52% of Peak) FY ‘10 $132B (33% of Peak)

10

MBA Commercial/Multifamily Origination Index 20% off high of ‘07.

11

Life Insurance Co. Commitments ‘05-’07 @ $40-$50B/Yr.

‘08 @ $30B/Yr. ‘09 @ $20B/Yr. ‘10 @ $30B/Yr.

Est. ‘11 @ $40B/Yr.

12

CMBS Issuance ‘06-’07 @ $300B/Yr.

‘10 @ $12B/Yr. (4% of Peak) Est. ‘11 @ $39B/Yr. (13% of Peak)

13

Commercial & Multifamily Mortgage Debt Outstanding

‘09 @ $3.5T

‘10 @ $3.2T

14

Who Holds The Commercial & Multifamily Mortgage Debt Banks @ $1.4T

CMBS @ $640B Agency @ $317B Life Co. @ $300B

The Big 4 = 85% of Total

15

Commercial/Multifamily Mortgage Delinquency

16

Banks & Thrifts > 4%

CMBS > 8%

Life Insurance < 1%

Fannie/Freddie < 1%

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 Fannie (GSE) Freddie (GSE) ________________ FHA (HUD) 1. Fixed & Floating Rate Debt • •

Fannie, Fixed Execution Freddie, CAPPED ARM Execution

2. 5,7,10 year terms • •

30 year amortization I/O

Agency Debt Profile Continued 3.

Pricing • •

4.

60 Day Execution •

5.

Early rate lock available

Underwriting • • • •

6.

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)

MAI Appraisal 85% occupancy T-3, T-6, T-12 trends Up to 80% LTV & 1.25 x DSC

Supplementals

FHA (HUD) 1.

Refinance • • • • • •

2.

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 1. All rents at current market •

Property & submarket checks

2. Sponsorship • • • • • •

Track record Bones Schedule of REO Contingent liabilities Liquidity Real equity

Underwriting for Commercial Real Estate Continued 3.

Underwriting • • • • •

4.

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 Continued 5. Other • •

YM or Defeasance Submarket Critical

6. 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