NCREIF PRESENTATION
MARCH 2011
NCREIF Presentation March 10, 2011
NCREIF Presentation
March 10, 2011
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Keystone & Johnson Capital Introductions
Capital Markets General Overview
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Debt---CHW; JCS
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Equity---JCS; CHW
Debt (property preferences, underwriting, pricing, markets, sponsorship)
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Life Co’s---CHW
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Agencies---JCS
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Bridge, Mezz, Other—CHW
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CMBS---JCS
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Banks---CHW/JCS
Property Types
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MF---CHW
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Retail---JCS
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Office---CHW
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Industrial---JCS
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Other---CHW
Summary and Conclusions
JOHNSON CAPITAL OFFICES
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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
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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.
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National Sales Statistics
Greater than $5,000,000
$100B/Qtr.
Q4 ‘10 $52B (52% of Peak)
FY ‘10 $132B (33% of Peak)
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MBA Commercial/Multifamily
Origination Index
20% off
high of ‘07.
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Life Insurance Co. Commitments
‘05-’07 @ $40-$50B/Yr.
‘08 @ $30B/Yr.
‘09 @ $20B/Yr.
‘10 @ $30B/Yr.
Est. ‘11 @ $40B/Yr.
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CMBS Issuance
‘06-’07 @ $300B/Yr.
‘10 @ $12B/Yr.
(4% of Peak)
Est. ‘11 @ $39B/Yr.
(13% of Peak)
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Commercial & Multifamily Mortgage
Debt Outstanding
‘09 @ $3.5T
‘10 @ $3.2T
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Who Holds The Commercial &
Multifamily Mortgage Debt
Banks @ $1.4T
CMBS @ $640B
Agency @ $317B
Life Co. @ $300B
The Big 4 = 85% of Total
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Commercial/Multifamily Mortgage Delinquency
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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.
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Agency Debt Profile
Fannie (GSE)
Freddie (GSE)
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FHA (HUD)
1. Fixed & Floating Rate Debt
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Fannie, Fixed Execution
Freddie, CAPPED ARM Execution
2. 5,7,10 year terms
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30 year amortization
I/O
Agency Debt Profile
Continued
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Pricing
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60 Day Execution
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Early rate lock available
Underwriting
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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)
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Refinance
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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
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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
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Property & submarket checks
2. Sponsorship
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Track record
Bones
Schedule of REO
Contingent liabilities
Liquidity
Real equity
Underwriting for Commercial Real
Estate Continued
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Underwriting
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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
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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
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YM or Defeasance
Submarket Critical
6. Multifamily
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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