Real Estate Debt Market Overview

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					    Real Estate Debt Market Overview




1
Quarterly Transaction Volumes: 1Q2008 – 1Q2010*

                                   2008 Annual Total:                                 2009 Annual Total:
                                        $136 bn                                            $49 bn
      $50
                      $44

                                        $39
      $40              $8
                                         $6             $34

                                                        $4
      $30            $14

                                        $17
                                                    $14
                                                                $19
      $20                                                                                                   $17
                      $8                                         $3
                                                                                                  $13        $5
                                         $6             $5
                                                                 $8                  $10          $2
                                                                             $9
      $10                                                                            $2
                                                                                                            $4
                                                                            $2                    $5
                     $14                                         $3                  $3                     $3              $5
                                        $10         $11                                           $2                                $1
                                                                            $4       $2                                             $1
                                                                 $5          $1                   $4        $5                      $1
                                                                                     $3                                     $2
        $0                                                                   $2

                  1Q2008             2Q2008       3Q2008      4Q2008       1Q2009   2Q2009      3Q2009     4Q2009         1Q2010*
                            Apartm ent                        Industrial              Office                     Retail


$ in billions. Source: Real Capital Analytics.
* Preliminary as of 1Q 2010.
2
Loan maturities will continue deleveraging trend

                                                              Estimated Total U.S. CRE Maturities

                 350.0
                                                                                                                      $337.6               $331.0
                              Banks/Thrift
                              Insurance Company
                 300.0        CMBS-Floating                                             $295.9
                              CMBS-Fixed
                                                                                                                               $137.6b                 $131.0b
                                                          $246.5                                       $95.9b                  Shortfall               Shortfall
                 250.0
                                                                                                       Shortfall
                                          $4.0b                         $46.5b
    $ US (Bil)




                              $204.0      Shortfall                     Shortfall
                 200.0



                 150.0                                                                                                                    Cumulative Shortfalls
                                                                                                                                       2009-2013: est. $415.0 billion

                 100.0



                  50.0



                   0.0
                              2009e                        2010e                        2011e                        2012e                 2013e
                    Projected
                    Originations1

1 Origination projections based on the average 3-year historical gross originations from all non-commercial CMBS lenders.

Source: Deutsche Bank, Intex, Trepp, Mortgage Bankers Association, Federal Reserve.
As of August 2009.
3
Out-performance of CRE loans made immediately following a recession

                                                  Yield Spread on CRE Whole Loans Compared with Direct CRE Equity Returns
 Four quarter
rolling average                                                                                                                                                                                                   Direct valuation recovery leads to                                                                                              Limited competition
      6%                                                                                                                                                                                                         attractive refinance opportunities for                                                                                         currently providing high
                                                                                                                                                                                                                    equity investors, providing debt                                                                                                 spread levels
                                                                                                                                                                                                                       investors an exit strategy.

     4

     2

     0


    -2
                                                                                                                                              Attractive risk-adjusted spreads
                                                                                                                                            available during previous economic                                                                                                                           Competitive lending during RE
    -4                                                                                                                                                    downturns                                                                                                                                      bull market (eg CMBS) placed
                                                                                                                                                                                                                                                                                                         prolonged downward pressure
                                                                                                                                                                                                                                                                                                            on CRE lending spreads
    -6

    -8
         1 Q1 9 8 8
                      4 Q1 9 8 8
                                   3 Q1 9 8 9
                                                2 Q1 9 9 0
                                                             1 Q1 9 9 1
                                                                          4 Q1 9 9 1
                                                                                       3 Q1 9 9 2
                                                                                                    2 Q1 9 9 3
                                                                                                                 1 Q1 9 9 4
                                                                                                                              4 Q1 9 9 4
                                                                                                                                           3 Q1 9 9 5
                                                                                                                                                        2 Q1 9 9 6
                                                                                                                                                                     1 Q1 9 9 7
                                                                                                                                                                                  4 Q1 9 9 7
                                                                                                                                                                                               3 Q1 9 9 8
                                                                                                                                                                                                            2 Q1 9 9 9
                                                                                                                                                                                                                         1 Q2 0 0 0
                                                                                                                                                                                                                                      4 Q2 0 0 0
                                                                                                                                                                                                                                                   3 Q2 0 0 1
                                                                                                                                                                                                                                                                2 Q2 0 0 2
                                                                                                                                                                                                                                                                              1 Q2 0 0 3
                                                                                                                                                                                                                                                                                           4 Q2 0 0 3
                                                                                                                                                                                                                                                                                                        3 Q2 0 0 4
                                                                                                                                                                                                                                                                                                                     2 Q2 0 0 5
                                                                                                                                                                                                                                                                                                                                  1 Q2 0 0 6
                                                                                                                                                                                                                                                                                                                                               4 Q2 0 0 6
                                                                                                                                                                                                                                                                                                                                                            3 Q2 0 0 7
                                                                                                                                                                                                                                                                                                                                                                         2 Q2 0 0 8
                                                                                                                                                                                                                                                                                                                                                                                      1 Q2 0 0 9
                                                                                                                                                                                                                                                                                                                                                                                                   4 Q2 0 0 9
                                                                                                    ACLI Contract Yield Spread Over 10Yr Treasuries                                                                                                                          NCREIF NPI

Source: ACLI, NCREIF, economy.com, RREEF Research data through 2Q09

4
Real Estate Debt Summary

    Dislocation in the global real estate and credit markets have presented compelling investment
    opportunities, as property owners face liquidity issues and loan maturities

    Real estate debt investments will continue to be attractive because it offers investors excellent
    risk-adjusted returns, current income, manageable credit risk and predictable duration

    Life companies and other portfolio lenders are lending again, albeit mostly on high quality,
    stabilized assets

    Although many banks indicate they are back in the market, it remains to be seen whether they
    will make a significant impact given their existing issues. Banks are only lending selectively on
    high quality assets, require some level of recourse and construction loans are scarce

    Borrowers, taking the cue, begin to return as well as they seek “reasonable” financing that was
    unavailable over the last two years

    While there has been a discernible increase in the availability of real estate debt capital
    available to borrowers, there remains a tremendous shortfall in the amount available and the
    projected amount necessary to refinance maturing debt over the next 4 to 5 years




5
Strategies Up and Down the Risk Return Spectrum
Depending on investor’s risk-return profile, real estate provides a range of investment strategies

                                                                                Senior Mortgages
                                                                                ●   Senior Mortgage loans secured by stable, cash flowing
                                                                                    real estate assets
                                                                                ●   Strong credit structures and transparency
                                          Senior
                                          Senior           Senior Mortgage      ●   Up to ~65% LTV; interest rate of 5-7%; fixed and floating;
                                         Mortgage
                                         Mortgage          0 – 65% LTV              term of 3-7 years

                                                                               Subordinate Debt
                                                                              10%
                                                        Subordinate Debt        ●Subordinate debt investments in real estate assets and
                                         Sub Debt
                                         Sub Debt       60 – 75% LTV             real estate companies
                                                                               ● Mezzanine loans, B notes, or low-leveraged preferred
                                                        Opportunistic Debt       equity
                                         Opp. Debt      80%+ LTV
                                          Equity                             30% Selected commercial mortgage back securities
                                                                               ●
                                                                               ● 60-75% LTV; return of 8-15% (mostly current income;
                                                                                 some accrual); fixed or floating; term of 3-7 years
                                                         Equity                 Opportunistic Debt
                                           Equity        50 - 100% LTV
                                                                                ●   Debt instruments secured by real estate and related
                                                                                    assets where there is an opportunity to gain control
                                                                                    and/or receive high debt returns
      Commercial Real                   Asset Capital                           ●   Purchase loans, positions or assets from distressed debt
        Estate Asset                     Structure                                  holders including banks, funds, insurance companies,
                                                                                    owners etc
                                                                                ●   Provide debt to operating companies, capital-constrained
                                                                                    PE funds, cash-strapped borrowers; various levels of
                                                                                    repositioning
                                                                                ●   80%+ LTV; returns of 16%+ (some current income); 2-7
                                                                                    year terms

 For illustrative purposes only. Not to scale.

 6
Senior Lending
    The collapse of financial markets, ensuing credit crunch and pronounced economic recession will
    continue to have a profound impact on the commercial real estate financing markets.

    Maturing real estate debt shortfall of approximately $415 billion from now until 2013 provide great
    opportunities for loan originations

    Newly originated loans on today’s values provide lenders with the ability to choose from the
    highest quality collateral, sponsors and credit structures

    Senior mortgage strategies have potential to deliver excellent risk adjusted returns.

         Asset classes include office, industrial, residential, retail, and mixed use; target properties
         that are predominantly stable, cash-flowing.

         Loan size of $10-$30 million; well-structured loans at lower leverage (~65% LTV), strong
         DSCR (min. 1.30x) and debt yield (min. 10%); interest rates of 5-7%.

         Well-located properties in major metropolitan markets or stable regions near major markets.




7
    Opportunistic Debt

    Opportunistic plays that provide investors with attractive risk-adjusted returns, oftentimes, with the
    prospect of eventually controlling the asset or situation.

          Purchase discounted or distressed positions in the capital structure
               Purchase performing and non-performing loans, assets or positions from banks, funds,
               insurance companies, owners etc.
               Distressed loans of banks and debt holders can be in form of Senior Mortgages,
               Mezzanine loans, sub-debt notes, or participations
          Rescue Capital (e.g. gap equity, “white knight” capital, LIFO)
               Provide capital (in the form of debt or preferred equity) to cash-strapped individual
               borrowers, capital-constrained funds, and operating companies to meet capital
               requirements for loan covenant breaches, construction completion, lease up, etc.
               Provide capital (as debt or preferred equity) to property owners who want to execute a
               debt purchase or Discounted Pay Off (DPO).




8
Current Challenges facing Debt Holders
•   Operational
       Debt service payments cease/reserves run out
       Extensions and Modifications
       Discounted Payoffs (DPO)
       Discounted Sales
       Foreclosure
       Loss of ability to influence or consent to major decisions, including terms of debt
       modifications
•   Accounting
       Unrealized Losses (FV) or Valuation allowances (Historical Cost)
       Income recognition/Non-accrual status
       Write off of investment
       Bring on property and senior debt onto books

				
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