2010 NC-CCIM Charlotte Commercial Real Estate Market Forecast

1. 2010 NC-CCIM Charlotte Commercial Real Estate Market Forecast “Commercial Real Estate Debt: Market, Availability, and Characteristics”

2. Review Where have we been?

3. 2005 -- 2007

4. 2009

5. What Happened? • Capital adequacy questioned • Liquidity evaporated • True asset value incalculable • Transactions stalled • Inability • Unwillingness

6. What Happened? • 2007 - CMBS Issuance = $230 Billion • 2008 - CMBS Issuance = $14 Billion • 2009 – CMBS Issuance = nil

7. What Happened? • 2007 – Insurance Company Commitments = $42.7 Billion • 2008 – Insurance Company Commitments = $24 Billion • 2009 – Insurance Company Commitments = $16 Billion

8. Can you finance multifamily and commercial real estate??

9. SURE! (cautiously…..)

10. MARKET

11. 2010

12. Lender Types Active Today • Insurance companies • Freddie Mac; Fannie Mae; FHA/HUD • Bridge lenders • Mezzanine lenders • Preferred equity providers • Banks • CMBS Lenders • Non-traditional lenders

13. Lending Activity Snapshot • 2010 – CMBS Issuance = re-hiring, limited lending, priming the pump • 2010 – Insurance Company Commitments (Expected) = $32 – 36 Billion • Fannie/Freddie Market Share = +/- 80% • Freddie 2008 -- $24 B 2009 -- $17 B 2010 -- $12-14 B Expectation • Expect Insurance Companies to Retake Share

14. AVAILABILITY

15. Loan Types Available Today • Immediate funding interim and permanent loans • Acquisition, refinance • Fixed or variable rate • Bullet or self-amortizing • 3 to 20 year terms (30-35 for multifamily) • Amortization 15-25 years with some 30- year schedules (FHA – 35) and limited interest-only

16. Loan Types Available Today • Forward commitments are tough (3+ months) • Credit tenant lease (CTL) • Acquisition / bridge loans • Mezzanine and preferred equity • Note acquisition financing

17. CHARACTERISTICS

18. Loan Characteristics • Borrower is key • Primary and secondary markets • Four major food groups • Fundamentals must all be in place • Amortization is critical • Recourse is back in some instances

19. Loan Characteristics • Tighter underwriting • Submarket vacancy or actual • Above-market rents may be adjusted downward • Higher cap rates (what IS a cap rate?) • Lower LTV, although some recovery • Collections, debt coverage and debt yield are king • 1.20 - 1.45x DCR • 11% -- 14% debt yield

20. Loan Characteristics • Debt Yield………what’s a Debt Yield? • Combines cap rate and LTV ratio • NOI (or net underwriting cash flow) divided by loan amount 7.90% cap; 65% LTV = 12% DY 8.125% cap; 70% LTV = 12% DY 9.00% cap; 75% LTV = 12% DY (75 bps less in cap rate = 11% DY)

21. CMBS Underwriting/Structuring • $10 million minimum size range • Four major food groups; will go to smaller markets • 70% LTV (maybe higher with blended mezzanine) • 1.30x DCR • 12% debt yield • 6.25% rate (10-yr) plus ½% loan fee • 5/7/10-year term; 30-year am. NO interest-only • Hard lock box; escrow for taxes, insurance, reserves • May or may not reserve for TI and commissions

22. Rate Comparison • Pre-meltdown 10 year Treasury = 5.26% Spread = 100 basis points Coupon = 6.26%

23. Rate Comparison • Present day 10 year Treasury = 3.85% (as of 3/26/10) Multifamily Spread = 190 - 220 basis points Coupon = 5.75 - 6.05% Commercial Spread = 225 - 325 basis points (+/-) Coupon = 6 - 7%

24. Rate Comparison • 5-year money in the 5’s • 7-year money in the upper 5’s • 5-year multifamily money, <55% LTV, in the upper 3’s INTEREST-ONLY

25. Conclusions • Uncertain regulatory environment • Banks may apply pressure or bifurcate loans • Borrowers may be forced to choose asset capitalization • Equity requirements greater and new construction will be slow

26. Conclusions BUT……. • More capital sources returning to market • LT debt more than twice the availability of 2009 • Underwriting moving up the LTV, DCR curve • Pricing getting more attractive/competitive

27. 201?