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Alternative Debt Financing Options

Alternative Debt Financing Options. October 14, 2014. Philip S. Rachels – Senior Vice President, Debt & Structured Finance CBRE | Capital Markets. Todd Trehubenko – Senior Vice President, Multifamily Finance Walker & Dunlop. Chris Tokarski – Principal & Managing Director

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Alternative Debt Financing Options

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  1. Alternative Debt Financing Options October 14, 2014 Philip S. Rachels – Senior Vice President, Debt & Structured Finance CBRE | Capital Markets Todd Trehubenko – Senior Vice President, Multifamily Finance Walker & Dunlop Chris Tokarski – Principal & Managing Director Coastal Capital Partners

  2. TOPICS • Non-recourse high leverage bridge based on total capitalization. • We are seeing 80-85% for multi-family at competitive rates • Higher leverage senior CMBS • Blended mezz into the senior trust • Structured mezz above same senior lender • FHA • Structure • Timing to close

  3. Alternative Debt Financing Options Case Studies Bridge, Conduit, and Mezzanine – Todd Trehubenko Acquisition, Reposition, Earn Out – Chris Tokarski FHA for Acquisition and Conversion – Todd Trehubenko Broken Condo Sell Down – Chris Tokarski

  4. New Products in an Evolving Market • Interim Loan Program (bridge financing) created in 2013 • CMBS program created 2014 • Continuing to diversify – mezzanine, preferred equity, etc. • Can evaluate all opportunities across all channels

  5. Case Study 1 • Bridge, Conduit and Mezzanine • Gulf Coast portfolio acquisition • 6 Properties in TX and LA • 1,032 apartments • Strong competition for portfolio • $72.2 million in new financing: • $35.4 million bridge loan over three properties, crossed • $31.4 million CMBS loan, 10-year term (4 years IO) • $5.4 million mezzanine loan • Executed as a single transaction, one underwriting and one closing

  6. Case Study 2 Acquisition, Reposition, Earn Out First Mortgage / Mezz Combination • $32,400,000 ($178,000/unit, $240/SF) for the acquisition of a 10 property portfolio consisting of 173 multifamily units (6 to 60 units per property). • Funded $30,400,000 at closing $2MM of future funding for unit renovations and capital improvements. • Earn-out of $15MM of additional proceeds upon achieving annually increasing DY hurdles: • (6.25%, then 6.5%, then 6.75%) • minimum DSCR (1.47x through month 12, increasing 6 bps every 12 months thereafter) • maximum LTV of 75% • In-place rents across the portfolio are 38.0% below market on average (subject to rent control).

  7. Case Study 2 • Other Deal Terms • Release Provisions: • Properties can be released at the greater of • 110% of the allocated Loan Amount; or • a post-release debt yield on the remaining portfolio equal to the greater of: • 7.00%; or • debt yield immediately prior to release • Cash Management: • Event of Default • BK proceeding of Borrower, Guarantor or property manager • DSCR less than 1.35x during the Initial Loan Term • DSCR less than 1.55x during any Extension Term • Debt Yield less than 6.0% during Initial Loan Term • Debt Yield less than 6.75% during any Extension Term

  8. Case Study 3 • FHA for Acquisition and Conversion-Hartford • Acquisition and conversion of vacant office tower • 286 apartments, targeted LEED Platinum • $90 million TDC including commercial and garage • Located in CBD, few comps but strategic, emerging area • Developer seeking high leverage, long-term financing

  9. Case Study 3 • FHA for Acquisition and Conversion (cont’d) • Arranged new $37.2 million 1st mortgage through FHA Section 221(d)(4) • IO during construction period • Base permanent loan with 40-year term • Tranches for tax exemption and LRECs (15 years) • Subordinated new state debt and equity of $21 million • Tradeoffs for affordability set-aside, commercial/garage

  10. Case Study 4 Broken Condo Sell Down Loan • $17,400,000 for the acquisition of a 25 out of 86 condominium units • Funded $16,000,000 at closing $1.4 MM of future funding for unit renovations

  11. Case Study 4 Broken Condo Sell Down Loan • Cheaper First Mortgage Money is L +2.00 – 3.00%, maybe tighter if you can keep the LTV / DY / DSCR at attractive levels (in 1-1.5% over last 12 months) • Mezz L+8-10% going up to 75-85% with low DY / DSCR • Avoid “Dealer” Status for tax purposes by renting units for some period of time and only selectively selling units

  12. Case Study 4 Broken Condo Sell Down Loan • Unique Deal Terms • Release Provisions: • 120% of allocated loan amount pay down until $500 psf is reached, after which 100% of allocated loan amount (leaks equity to Borrower to equity). 100% of sales proceeds pay down loan on last 5 units to protect against adverse selection. • Interest Rate Step Up: • Increase in rate equal to .35% if Debt Yield Drops below 4.5%

  13. Thank You! Philip S. Rachels 904-630-6363 phil.rachels@cbre.com Todd Trehubenko 781-375-7527 ttrehubenko@walkerdunlop.com Chris Tokarski 415-595-8210 tokarski@coastalcp.com

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