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NCREIF PRESENTATION

NCREIF PRESENTATION. MARCH 2011. NCREIF Presentation March 10, 2011. NCREIF Presentation March 10, 2011. Keystone & Johnson Capital Introductions Capital Markets General Overview Debt---CHW; JCS Equity---JCS; CHW Debt (property preferences, underwriting, pricing, markets, sponsorship)

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NCREIF PRESENTATION

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  1. NCREIF PRESENTATION MARCH 2011

  2. NCREIF Presentation March 10, 2011

  3. NCREIF PresentationMarch 10, 2011 • Keystone & Johnson Capital Introductions • Capital Markets General Overview • Debt---CHW; JCS • Equity---JCS; CHW • Debt (property preferences, underwriting, pricing, markets, sponsorship) • Life Co’s---CHW • Agencies---JCS • Bridge, Mezz, Other—CHW • CMBS---JCS • Banks---CHW/JCS • Property Types • MF---CHW • Retail---JCS • Office---CHW • Industrial---JCS • Other---CHW • Summary and Conclusions

  4. JOHNSONCAPITALOFFICES • USA Offices

  5. 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 8

  6. 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. 9

  7. National Sales Statistics Greater than $5,000,000 $100B/Qtr. Q4 ‘10 $52B (52% of Peak) FY ‘10 $132B (33% of Peak) 10

  8. MBA Commercial/Multifamily Origination Index 20% off high of ‘07. 11

  9. Life Insurance Co. Commitments ‘05-’07 @ $40-$50B/Yr. ‘08 @ $30B/Yr. ‘09 @ $20B/Yr. ‘10 @ $30B/Yr. Est. ‘11 @ $40B/Yr. 12

  10. CMBS Issuance ‘06-’07 @ $300B/Yr. ‘10 @ $12B/Yr. (4% of Peak) Est. ‘11 @ $39B/Yr. (13% of Peak) 13

  11. Commercial & Multifamily Mortgage Debt Outstanding ‘09 @ $3.5T ‘10 @ $3.2T 14

  12. Who Holds The Commercial & Multifamily Mortgage Debt Banks @ $1.4T CMBS @ $640B Agency @ $317B Life Co. @ $300B The Big 4 = 85% of Total 15

  13. Commercial/Multifamily Mortgage Delinquency Banks & Thrifts > 4% CMBS > 8% Life Insurance < 1% Fannie/Freddie < 1% 16

  14. 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. 17

  15. Agency Debt Profile Fannie (GSE) Freddie (GSE) ________________ FHA (HUD) • Fixed & Floating Rate Debt • Fannie, Fixed Execution • Freddie, CAPPED ARM Execution • 5,7,10 year terms • 30 year amortization • I/O

  16. Agency Debt Profile Continued • Pricing • 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) • 60 Day Execution • Early rate lock available • Underwriting • MAI Appraisal • 85% occupancy • T-3, T-6, T-12 trends • Up to 80% LTV & 1.25 x DSC • Supplementals

  17. FHA (HUD) • Refinance • 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 • 40/40 • 12-15 + months processing • Open @ par after year 10 • Pricing 5.45-5.75% • 1.20x DSCR & 83.3% LTV

  18. Underwriting for Commercial Real Estate • All rents at current market • Property & submarket checks • Sponsorship • Track record • Bones • Schedule of REO • Contingent liabilities • Liquidity • Real equity

  19. Underwriting for Commercial Real Estate Continued • Underwriting • 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 • 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

  20. Underwriting for Commercial Real Estate Continued • Other • YM or Defeasance • Submarket Critical • Multifamily • 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

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