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NCREIF PRESENTATION

This presentation discusses the increase in capital flow in the commercial real estate market and provides an overview of financing options including debt, equity, agencies, CMBS, and banks. It also covers property types and provides statistics on national capital flow and sales.

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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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