Capital Markets Overview Dennis Williams Managing Director NorthMarq Capital April 2012 Key Themes of 2012 • CMBS Delinquency has leveled off but could spike again. Originations have picked up pace again but remain vulnerable to market shocks. – Total delinquency rate currently 9.5% as of April 2012 – Defaults likely to increase when aggressive originations from 2005-07 mature. • New underwriting standards and projected loan volumes still not sufficient to rollover debt maturities (but getting closer). • 2012 has seen much more activity from life insurance companies, commercial banks and value add lenders. – Underwriting more aggressive and “strike zone” widening Commercial/Multi-Family Less Than ¼ of All Mortgage Debt Mortgage Debt Outstanding ($ Trillion) Farm $0.13 1% Commercial $2.22 17% Multi-Family $0.84 6% Home $10.29 76% Source: Federal Reserve Flow of Funds Report Q4’11 GSE’s Nearly Half of Multi-Family Market & Growing Multi-Family Outstanding ($Billion) Fed, State & Local Gov't $83.7 CMBS/ABS 10% $91.1 11% Other $17.7 2% GSE's $341.8 41% Banks/S&Ls $251.2 30% Source: Federal Reserve Flow of Funds Report Q4’11 Life Cos/Pensions $55.3 6% Banks Hold a Majority of CRE Loans Commercial Outstanding ($ Billion) Fed, State & Local Gov't $81.5 4% Other $30.7 1% CMBS/ABS $498.1 22% Source: Federal Reserve Flow of Funds Report Q4’11 Finance Cos/REITS $84.8 4% Life Cos/Pensions $280.4 13% Banks/S&Ls $1,253.4 56% CMBS Market: Maturities Through 2017 Commercial Mortgage Delinquency Rates by Lender Type Year End 2011 Range Since 1990 Latest Delinquency Rate 12% 8% 4% 0% CMBS Life Companies Fannie Mae Freddie Mac Source: Mortgage Banking Association CMBS: 8.56%; Life Companies: 0.17% Fannie Mae: 0.59%; Freddie Mac: 0.22%; Banks and Thrifts: 3.55% Bank & Thrifts A New World: Commercial Mortgage Underwriting 2007 to Present 2007 Underwriting 2009 Underwriting New Underwriting 5% NOI Decline $5,000,000 $5,000,000 $4,750,000 $100,000,000 $62,500,000 $79,200,000 5.00% 8.00% 6.00% Loan to Value 80% 55% 70% Loan Amount $80,000,000 $34,375,000 $55,400,000 Equity $20,000,000 $28,125,000 $23,800,000 Interest Rate 5.75% 8.00% 4.25% Amortization I/O 30 30 Debt Service $4,638,940 $3,026,779 $3,270,000 1.08x 1.65x 1.45x NOI Purchase Price Lender Cap Rate Debt Service Coverage Looking Ahead: 1. Agencies Remain Reliable: – Rates and terms remain attractive, and underwriting guidelines less conservative. 3. CMBS Doing Some Business: – Rates have dropped from the high 5’s to high 4’s, up to 75% LTV, all property types. 2. Rebirth of Life Companies and Banks: – In 2012 most life companies in the market and originating at or near 2007 levels. – Most large banks remain active, while regional banks starting to lend again. 4. Underwriting: – Special attention to rollover (reserves/cash flow sweeps). – Single tenant problematic. – LTV: 50-70% on real cap rate – DSC: 1.30x–1.50x.