Capital Markets Overview
Dennis Williams
Managing Director
NorthMarq Capital
May 2011
Key Themes of 2011
• Conduit collateral performance still declining.
– Total delinquency rate 9.4% as of Q-1 2011
• New underwriting standards and projected loan volumes are still not
sufficient to rollover debt maturities.
• CRE fundamentals are slowly improving, but weak across most major
property segments and markets.
• 2011 ushered in the rebirth of the life insurance companies , banks and
the return of new CMBS issuance.
–
Underwriting more aggressive and “strike zone” widening
Banks Hold Largest Share of CRE Loans
Mortgage Debt Outstanding ($trillion)
Governmentsponsored
enterprises Other
$189.40 $439.00
5%
13%
Commercial
$2.60
18%
Farm
$0.11
1%
Multifamily
Residential
$0.90
6%
Commercial and Multifamitly Mortgages Outstanding ($billion)
Finance
companies
$66.60
2%
Home
$11.03
75%
Source: Federal Reserve Flow of Funds Report Q408 (3/ 12/ 09).
Savings
institutions
$192.90
6%
Life
insurance
companies
$315.50
9%
Commercial
banks
$1,548.80
44%
CMBS, CDO
and other
ABS issuers
$746.40
21%
• 44% of commercial real estate loans are held on bank balance sheets.
• CMBS accounts for 21% of the $3.4 trillion commercial real estate market
CMBS Market: Maturities Through 2017
Commercial Mortgage Delinquency Rates by Lender Type
16%
Range Since 1990
Latest
Delinquency Rate
12%
8%
4%
0%
CMBS
Life
Fannie Mae Freddie Mac
Companies
Banks &
Thrifts
•Sources: Fannie Mae, Freddie Mac, Morgan Stanley Research
•CMBS: 9.4%; Life Companies: 0.5% Fannie Mae: 0.62%; Freddie Mac: 0.12%; Banks and Thrifts: 3.6%
A New World:
Commercial Mortgage Underwriting 2007 to Present
2007 Underwriting
2009 Underwriting
2011 Underwriting
$5,000,000
$5,000,000
$5,000,000
$100,000,000
$62,500,000
$74,100,000
5.00%
8.00%
6.75%
Loan to Value
80%
55%
70%
Loan Amount
$80,000,000
$34,375,000
$51,870,000
Equity
$20,000,000
$28,125,000
$22,230,000
Interest Rate
5.70%
8.00%
5.00%
Amortization
I/O
30
30
Debt Service
$4,560,000
$3,026,800
$3,341,400
1.10x
1.65x
1.50x
NOI
Purchase Price
Lender Cap Rate
Debt Service Coverage
Looking Ahead:
1. Agencies Remain Reliable:
– Rates and terms remain
attractive, but underwriting
guidelines penalize
properties showing any
weakness
2. Rebirth of Life Companies:
– In 2009, 60% of Life Co’s
said they were “in the market”
– In 2011, 95% are “in
business” with allocation
goals indicating at least $50
billion in originations
3. CMBS Returns:
– Rates in the high 4’s to mid
5’s, up to 75% LTV, all major
property types
4. Underwriting:
– Rents to lesser of actual or market
– Lender-imposed minimum
vacancy by property type/market
– Special attention to rollover
(reserves or cash flow sweeps)
– LTV: 65-75% on real cap rate
– DSC: 1.25x–1.40x