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UConn Presentation October 2, 2004

UConn Presentation October 2, 2004. Agenda. GE Overview - How Real Estate fits into the company Basics of Commercial Real Estate Lending - Definitions - Impact of leverage - Deal process Deal Examples Questions & Answers.

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UConn Presentation October 2, 2004

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  1. UConn Presentation October 2, 2004

  2. Agenda • GE Overview- How Real Estate fits into the company • Basics of Commercial Real Estate Lending- Definitions - Impact of leverage - Deal process • Deal Examples • Questions & Answers

  3. GE: A company with a strong track record of performance for all stakeholders • Founded by Thomas Edison in 1878 as the Edison Electric Co. • The only company listed in the Dow Jones Industrial Index today that was also included in the original index in 1896 • Earnings have more than tripled since 1990 Earnings* ($ in Billions) * Before required accounting changes

  4. A company with global reach • Operations in over 100 countries • Manufacturing facilities in 32 countries • Research centers in Germany, India, China and the U.S. • 305,000+ employees worldwide • $134 billion in revenues in 2003 • $61 billion in international revenues in 2003 GE revenues US/ World

  5. We are an 11-business company that can grow in any market cycle. Transportation NBC Infrastructure Healthcare Consumer Finance Energy Commercial Finance Advanced Materials Equipment Services Insurance Consumer & Industrial

  6. GE Commercial Finance Offers businesses of all sizes an array of financial services and products worldwide MARKETS: Aviation & Transportation Services, Corporate Finance, Commercial Equipment Financing, Dealer and Distributor Financing, Energy Financial Services, Fleet Management, Healthcare, Real Estate 2003 Revenues (in millions): $20,813 President and CEO: Michael A. Neal Amelia Island Presentation 6 20040265-1

  7. North America Debt • Volume 55% of GE Real Estate • Income 30% of GE Real Estate • 12 Regional Offices • 230 Associates Debt GE Real Estate GE Real Estate • $30 Billion in Assets • Net income $834 Million • 30 Offices • 6,000 Associates

  8. Definitions Commercial Real Estate: Income-producing properties, primarily leased to 3rd-party tenants. Examples: Office, retail, multi-family, industrial, self-storage, hotel. Net Operating Income (NOI): Revenue generated at the property by the tenants, less operating expenses incurred in running the property (excluding debt service). Capital Improvements: Non-recurring property expenses that improve/maintain asset value (replacement of roofs, windows, elevators, HVAC systems). Cap Rate: Rate of return used to derive the capital value of an income stream. Property value = NOI / Cap Rate. Leverage: Use of borrowed funds to increase purchasing power and profitability. Includes Mortgage Debt and Mezzanine Financing. Mortgage Debt: Real estate financing secured by a recorded mortgage lien. Mortgage Debt is the most senior level of financing on a property. Loan-to-Value (LTV): Ratio of Leverage to the total value of an asset. Cash-on-Cash (CoC): NOI / loan amount on the property. Debt Coverage Ratio (DSCR): NOI / debt service (interest & amortization) on the loan. Borrower Cash Equity: Asset value less the total amount of Leverage. Mezzanine Debt: Financing that is subordinate/junior to Mortgage Debt. Secured by a pledge of the property owner’s partnership interests in the asset.

  9. Impact of Leverage $100MM asset purchase price; $7MM NOI $15MMEquity $35MMEquity $20MM8% MezzDebt $100MMEquity 1.7xDSCR $65MMMortgageDebt @4.00% $65MMMortgageDebt @4.00% 2.7xDSCR Equity Yield: 7.0% 12.6% 18.7% Leverage Increases Buying Power & Returns … And Risk

  10. Deal Process AssetManagement Approval &Closing Marketing Sourcing Underwriting • Advertisements in newspapers, magazines, trade publications. • Meetings with new and existing clients to communicate strategy & product offerings. • Hosting dinners, golf outings, sporting events and group trips to build personal relationships with customers. • Networking at industry conferences, outings. • Receipt of a financing package from customers or brokers. • Analysis of property financials, asset quality, market conditions and execution strategy. • Negotiate loan pricing, proceeds and structure while in competition with other lenders for the business. • Execute a term sheet / loan application with the client. • Detailed analysis of property rent roll and expenses. • Property site inspection and identification of rent and sale comps. • Engineering and environmental due diligence completed by expert 3rd-party consultants. • Complete a credit request to obtain internal approval for the deal. • Presentation of credit request & analysis to committee for approval. • Preparation and negotiation of legal documentation. • Execution of legal documents and wiring of money. • Host a closing dinner with the client. • Monitoring of loan performance, focused on CoC, DSCR, and LTV. • Execute future funding draws, loan extensions, asset releases, and cash flow sweeps. • Seek approval for and close any modifications to the loan terms. • Complete foreclosures of assets where borrower is in default.

  11. Deal Process AssetManagement Approval &Closing Marketing Sourcing Underwriting • Advertisements in newspapers, magazines, trade publications. • Meetings with new and existing clients to communicate strategy & product offerings. • Hosting dinners, golf outings, sporting events and group trips to build personal relationships with customers. • Networking at industry conferences, outings. • Receipt of a financing package from customers or brokers. • Analysis of property financials, asset quality, market conditions and execution strategy. • Negotiate loan pricing, proceeds and structure while in competition with other lenders for the business. • Execute a term sheet / loan application with the client. • Detailed analysis of property rent roll and expenses. • Property site inspection and identification of rent and sale comps. • Engineering and environmental due diligence completed by expert 3rd-party consultants. • Complete a credit request to obtain internal approval for the deal. • Presentation of credit request & analysis to committee for approval. • Preparation and negotiation of legal documentation. • Execution of legal documents and wiring of money. • Host a closing dinner with the client. • Monitoring of loan performance, focused on CoC, DSCR, and LTV. • Execute future funding draws, loan extensions, asset releases, and cash flow sweeps. • Seek approval for and close any modifications to the loan terms. • Complete foreclosures of assets where borrower is in default.

  12. Deal Process AssetManagement Approval &Closing Marketing Sourcing Underwriting • Advertisements in newspapers, magazines, trade publications. • Meetings with new and existing clients to communicate strategy & product offerings. • Hosting dinners, golf outings, sporting events and group trips to build personal relationships with customers. • Networking at industry conferences, outings. • Receipt of a financing package from customers or brokers. • Analysis of property financials, asset quality, market conditions and execution strategy. • Negotiate loan pricing, proceeds and structure while in competition with other lenders for the business. • Execute a term sheet / loan application with the client. • Detailed analysis of property rent roll and expenses. • Property site inspection and identification of rent and sale comps. • Engineering and environmental due diligence completed by expert 3rd-party consultants. • Complete a credit request to obtain internal approval for the deal. • Presentation of credit request & analysis to committee for approval. • Preparation and negotiation of legal documentation. • Execution of legal documents and wiring of money. • Host a closing dinner with the client. • Monitoring of loan performance, focused on CoC, DSCR, and LTV. • Execute future funding draws, loan extensions, asset releases, and cash flow sweeps. • Seek approval for and close any modifications to the loan terms. • Complete foreclosures of assets where borrower is in default.

  13. Deal Process AssetManagement Approval &Closing Marketing Sourcing Underwriting • Advertisements in newspapers, magazines, trade publications. • Meetings with new and existing clients to communicate strategy & product offerings. • Hosting dinners, golf outings, sporting events and group trips to build personal relationships with customers. • Networking at industry conferences, outings. • Receipt of a financing package from customers or brokers. • Analysis of property financials, asset quality, market conditions and execution strategy. • Negotiate loan pricing, proceeds and structure while in competition with other lenders for the business. • Execute a term sheet / loan application with the client. • Detailed analysis of property rent roll and expenses. • Property site inspection and identification of rent and sale comps. • Engineering and environmental due diligence completed by expert 3rd-party consultants. • Complete a credit request to obtain internal approval for the deal. • Presentation of credit request & analysis to committee for approval. • Preparation and negotiation of legal documentation. • Execution of legal documents and wiring of money. • Host a closing dinner with the client. • Monitoring of loan performance, focused on CoC, DSCR, and LTV. • Execute future funding draws, loan extensions, asset releases, and cash flow sweeps. • Seek approval for and close any modifications to the loan terms. • Complete foreclosures of assets where borrower is in default.

  14. Deal Process AssetManagement Approval &Closing Marketing Sourcing Underwriting • Advertisements in newspapers, magazines, trade publications. • Meetings with new and existing clients to communicate strategy & product offerings. • Hosting dinners, golf outings, sporting events and group trips to build personal relationships with customers. • Networking at industry conferences, outings. • Receipt of a financing package from customers or brokers. • Analysis of property financials, asset quality, market conditions and execution strategy. • Negotiate loan pricing, proceeds and structure while in competition with other lenders for the business. • Execute a term sheet / loan application with the client. • Detailed analysis of property rent roll and expenses. • Property site inspection and identification of rent and sale comps. • Engineering and environmental due diligence completed by expert 3rd-party consultants. • Complete a credit request to obtain internal approval for the deal. • Presentation of credit request & analysis to committee for approval. • Preparation and negotiation of legal documentation. • Execution of legal documents and wiring of money. • Host a closing dinner with the client. • Monitoring of loan performance, focused on CoC, DSCR, and LTV. • Execute future funding draws, loan extensions, asset releases, and cash flow sweeps. • Seek approval for and close any modifications to the loan terms. • Complete foreclosures of assets where borrower is in default.

  15. 110 Plaza • $54 MM deal with BCL and Lehman Brothers • 320,200 sq. ft. office building in San Diego • Refinance of existing GE 1st mortgage & Lehman mezz loans Deal Structure • Floating rate first mortgage secured by a single office property • $49.5MM initial funding plus a $4.5MM commitment for future TI and leasing commission costs • 3 year term, 9.5% CoC, interest only Deal Challenges • Loan secured by a single office asset • Strong market, sponsorship and in-place property metrics (3.4x DSCR) • $15.5MM increase to the existing GE 1st mortgage loan • Improved NOI since closing; customer retained cash equity in the transaction

  16. Eaglewood Apartments • $16 MM deal with Whitehall / Archon • 424 apartment units in Orlando • Refinance & increase of existing GE debt Deal Structure • 2-year floating rate loan – 8.5% CoC, 2.1x DSCR, 84% LTV • $10MM existing balance on the final asset remaining from a portfolio loan that is nearing maturity. Extending loan and funding an additional $6MM. Deal Challenges • Increasing loan balance by $6MM, with no remaining borrower cash equity at risk. • Strong metrics at the higher loan amount (8.5% CoC, 2.1x DSCR). • Good quality, well maintained asset located in a low risk market.

  17. Metro Park South • $33 MM deal with Morgan Stanley and Normandy Real Estate Partners • 205,000 sq. ft. office building in Old Bridge, NJ. Constructed in 2001. • Currently 21% occupied Deal Structure • 3-year floating rate loan at 75% LTC at initial funding, plus a $1.5MM letter of credit for interest carry, taxes & insurance. • $9MM future funding commitment for TI/LC/CapEx; $5MM Earnout at stabilization. Deal Challenges • Financing of a 21% leased asset with no in-place cash flow to cover debt service. • Structure includes a letter of credit to cover 1 year of debt service, taxes & insurance. • Class ‘A’ asset that is well located in a recovering market.

  18. AMLI at Spring Creek • $35 MM deal with Morgan Stanley • 1,180 apartment units in Atlanta • Constructed in 4 phases Deal Structure • 3-year floating rate loan secured by all 4 phases. • A portion of the debt was subordinate to low floater, long-term county bonds in place on 3 of the phases. Deal Challenges • Structure: 3 phases of the asset encumbered by attractive senior bond financing. • Loan structured as a senior preferred equity deal on the 3 encumbered phases, crossed with a 1st mortgage lien on the 4th phase. • LTV: High at 90% • Strong coverage due to the bonds; rate protection purchased.

  19. Charter Oak Portfolio • $160 MM deal with Blackstone • 9 Outlet Center Malls • Located in 8 States Across the U.S. Deal Structure • Fixed rate loan, subordinate to $187MM assumed low leverage mortgage debt • Structured as preferred equity due to restrictions on debt in the senior mortgage • 4.75 year term, 13% CoC, interest only for 3 years Deal Challenges • Asset type: Outlet Malls not a traditional asset class • Strong sponsorship with extensive retail/outlet experience • Security position: Subordinate loan not secured by a mortgage lien • Structured as preferred equity with extensive control rights

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