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State of the Market

State of the Market. State of the Market. What does the mortgage market currently look like? Pricing Value Property Types Lending Platforms Financial Structures Katrina-New Orleans/Atlanta Equity is the vision of the future, Debt reflects the past. Pricing.

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State of the Market

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  1. State of the Market

  2. State of the Market What does the mortgage market currently look like? Pricing Value Property Types Lending Platforms Financial Structures Katrina-New Orleans/Atlanta Equity is the vision of the future, Debt reflects the past

  3. Pricing RATES In Basis Points (9/9) 2004 2005 Short Term Libor 175 373 Prime 450 650 Long Term 5 yr 334 391 10 yr 413 411 SWAPS 5 yr 44 43 10 yr 44 44 SPREADS In Basis Points (10 yr) Multifamily 105-115 90-100 Commercial 115-130 100-120

  4. Pricing • You could receive more loan dollars through debt service coverage this year unless you have value constraints • Currently, 10-15BP lower coupon on 10-year term compared to last year

  5. Moody’sBaa Corp Moody’sAaa Corp 10Y TBill 5Y TBill Retail Office Apartment Value • CAP rates right now 300 BP premium over Treasuries

  6. Value • Rating services feel market is “frothy” due to LTV at over 100% • Use a stressed cap rate (i.e. 200 BP premium in office) • Worst case scenario on rents – rollover or concessions • If Cap rates go up, investor will need to depend on • Positive changes in real estate fundamentals (rents, occupancy and expenses) • Appreciation • No current fear • Cap rates down .5% over the last year First Qtr20042005 Retail 7.7 7.2 Office 8.2 7.6 Multifamily 7.1 6.6

  7. Property Type • Fundamentals appear to be improving as rent and occupancy are stable to slightly positive • Potential issues on expenses with higher repair materials, insurance and taxes • Market is getting better slowly

  8. Platforms Conduit • Match investor with risk/return from super-senior AAA CMBS (30% subordination) to first loss • Money is plentiful thanks to the yield crossover from investors wanting relief from the stock market and low bond yields • Higher leverage available through property secured “B” piece or borrower secured Mez piece - 85% to 90% LTV stack is typical • Structure to borrower cash flow needs • Interest only • Reserves waiver (springing) • Relax warm body guarantees • Forwards • Early prepayment • Don’t be afraid to ask

  9. Platforms Agency • Fannie • Distracted-has not changed pricing matrix in a year • Waivers are a necessity to compete in the market • Watch List is growing • Strong underwriting expertise in niche areas Senior Living, Manufactured Housing, Student Housing, Tax Exempt, Credit Facilities and Structured Debt • Freddie • One of the highest concentrations in Atlanta • Very competitive pricing 85-95 BP on 9/1 fixed/float term and 200 BP on floater over reference rate • Rate lock up to 24 months • IO with small premium in pricing • Still a force in the market but concern over Watch List and Concentration issues. Supplemental funding still an important loan feature.

  10. Platforms Life Company • Converted from vanilla deals to structured transactions – A/B, float to fixed, flexible prepayment etc. • For 60% LTV – 65 to 80 BP in spread • Quality matter in pricing • High Quality Pricing Commercial 100-125 BP Multifamily 95+/-BP • Lesser Quality Pricing Commercial 130-150 BP Multifamily 100+BP • Forwards up to 18 months priced at 3 BP a month after the first 90 days • Rate lock at application with or without third party reports • IO 1-2 years for 70%-75% LTV • . . . not the same old Life Companies

  11. Platforms Construction • Recourse • Corporate guarantees accepted • Smaller guarantee percentages for right sponsorship (25-50%) • Sub 200 BP pricing with .25 to .50% origination fees • Mixed use finance • Non Recourse • 20-25% real equity • High interest reserves • 300-325 BP pricing with 1% front end and exist fees • GMAX contract • Condos with presales

  12. Platforms • Rising costs, land shortage in desirable urban areas and spot over supply will prove challenging • Much like today’s cars and computers with many parts and components from a variety of sources, mortgages can have participants and “piece” buyers from all platforms - Liquidity

  13. Structures Grade “A” Office • Refinance with concessions and occupancy in the 70% range • Life Company Senior Debt on an A/B structure – up to 65% LTV • A Fixed-Yield Maintenance • B Floating-Fixed Prepayment Premium 18 months • Term 3 years • Mez from another Lender – up to 80% LTV • Floating with Libor Cap • Coterminous Term • Cash Sweep for Debt Service and TI/LC

  14. Structures Grade “B” Office • Acquisitions with concessions and occupancy in the 70% range • Conduit Interim Floater with 3 year term and 2 (1) year extensions LTV 75% • Libor Cap with progressive strike rate based on cash flow • Springing cash flow sweep based on major tenant renewals • Mez same lender but through new market tax credit investors • Fixed rate 25% below typical conduits • 88% loan to cost

  15. Structures Grade “A” Multifamily • Acquisition with occupancy concessions in the 80% range • Conduit 10 year fixed rate execution at below 100 BP pricing • Individual SPE and carve out guarantees for TIC Investors up to 35 • 80% loan to cost with an additional “B” Piece of 5% at a 10% fixed rate – DSC 1.20 on “A” Piece and 1.15 on “B” Piece

  16. Structures Grade “B” Multifamily • Refinance with physical occupancy at 93% and concession at 16% • Conduit fixed rate execution for 5 years at 125 BP • Guarantee from borrowers for loan amount difference between 1.10 and 1.20 DSC (8% of loan amount at closing) • Release of Guarantee with trailing 3 month’s NOI at 1.20 DSC • One year IO with 30 year amortization

  17. Katrina- New Orleans/Atlanta • New Orleans may never be the same, at least not for a very long time. • It will take at least a year before life can return to anything resembling normal in most of the city, and some of the worst-affected areas may never be rebuilt. • Consequences for property owners in New Orleans could be very serious. In many parts of the city, insurance claims will be the only asset with any value. • The economic implications are ominous in the near-term, since the city relies heavily on tourism that will not exist for at least several months, if not years. • Damage to infrastructure for the Port of New Orleans and for the oil and natural gas industry will cause some temporary setbacks to the local economy. • The labor markets in neighboring states are competitive. Displaced workers may need to travel longer distances to find jobs and housing. • Nearby cities such as Houston, Dallas, Memphis and Atlanta may benefit from the relocation of thousands of people from New Orleans and other affected areas. Demand for apartments, retail space and office space is likely to increase in these markets.

  18. The End You are cordially invited to have a cocktail with me at dinner tonight…. to commiserate about the market!

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