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					San Diego
Mid-Year Update




June 2009
CAPITAL MARKETS




June 2009
                Current Fannie & Freddie Terms

Fixed rates are volatile. Currently in the 5.50 – 6.10% range
    • Still attractive pricing & positive leverage
    • Today’s Rates: 10-year: 5.95% ;
     7-year: 5.85% ; 5-year: 5.4%

Tremendous demand for Capped ARM product
   • Low Start Rate – 3.75 - 4.75% interest rate
   • Interest Rate Protection – lifetime cap of 7.00 - 7.75%
   • Prepayment flexibility – 3/2/1 or 1 yr lockout, 1%; no yield
     maintenance
   • Term – typically 7 or 10 years
   • Supplemental financing – available after 12 months
   • Assumability – attractive for future buyers


Unique Situation: declining fundamentals; attractive loan terms
                Recent Fannie & Freddie Commitments
Orange County – Acquisition – High leverage and quick close
   • Lender:         Fannie Mae / CBRE
   • Status:         Committed & Rate Lock April 24th / Closed Apr 30th
   • Loan Amount:    $55.0m
   • Leverage:       78% LTC, 1.25x DSCR

San Diego – Refinance – Low leverage = lower rate
   • Lender:         Fannie Mae / CBRE
   • Status:         Committed & Rate Locked May 15th
   • Loan Amount:    $9.7m (5.09% rate)
   • Leverage:       50% LTV, 2.0x DSCR

Imperial Valley – Construction Loan Refinance – Cash-in Refi in Tough Market
   • Lender:         Freddie Mac / CBRE
   • Status:         Rate Locked March 6th Closed April 24th
   • Loan Amount:    $12.2m
   • Leverage:       75% LTC, 1.25x DSCR
                 Recent Fannie & Freddie Commitments
San Diego – Cash-Out Refinance
    • Lender:         Freddie Mac / CBRE
    • Status:         Rate Locked March 26th / Closed April 30th
    • Loan Amount:    $16.75m
    • Leverage:       70% LTV, 1.30x DSCR (due to significant
                         cash out)

Texas – Acquisition – High leverage and quick closing
    • Lender:         Freddie Mac CME / CBRE
    • Status:         In process; 3-Week close
    • Loan Amount:    $13.4m
    • Leverage:       80% LTC, 1.25x DSCR
        Need Additional Coverage? Consider HUD

Acquisition/Refinance program
  Approximately 10-15% higher proceeds than Fannie/Freddie
     1.17x debt service coverage based on a 35-yr amortization
     Maximum leverage of 85%
  Fixed rates approximately 5.75% inclusive of MIP

Construction financing available – seriously!
  Up to 90% loan-to-cost
  1.11x debt service coverage
  40-yr term & amortization
  Construction loan that converts to a permanent
  Non-recourse
  Open at par after 10 years
  Fully assumable
  Fixed rates approximately 6.90% inclusive of MIP
              Source of Current Deal Flow

Loans coming due in the next 3 years

Construction refinances

Condos going rental

Refinance in anticipation of sale

Lender REO financing to free up balance sheets
                    Capital Markets Conclusion

Business as usual
  CBRE closed over $2 billion year-to-date with over $1 billion
  currently under application


Weakening fundamentals will continue to tighten underwriting and
negatively impact loan proceeds
   Rental collections issues
           Vacancy increases
           Delinquency Issues
           Concessions increasing
           Appraisal issues


Focus on borrower credit-worthiness – i.e. liquidity, net worth, real
estate schedule
                Capital Markets Conclusion


Indexes – Treasuries/LIBOR – have hit their lows in the 2Q09 but
have remained volatile.
   Big picture - you’ll get a higher loan amount today compared
   to tomorrow
   Although rates are off their highs, overall financing remains
   attractive


We believe production will continue at high levels with Fannie,
Freddie & HUD making them the top three lenders in the market
for 2009
THE ECONOMY




June 2009
                                                   Job Growth
60,000                                                  5 2 ,7 0 0                                                           14%
50,000
40,000                                                                                                                       12%
                                                                                                                1 0 .9 %
30,000                                                                                                           9 .1 %
                          9 .4 %                                                                                             10%
20,000
10,000
                          7 .6 %                                                                                             8%
      0
-10,000
                                                                                                                             6%
-20,000              - 1 3 ,3 0 0

-30,000                                                                                                                      4%
-40,000
                                                             3 .0 %                                           - 4 5 ,2 0 0
-50,000                                                                                                                      2%
           90   91   92    93       94   95   96   97   98    99      00   01   02   03   04   05   06   07     08   09



      J o b Gro wth - S a n Dieg o             Unemp lo y men t - S a n Dieg o             Unemp lo y ment - C a lifo rnia



                                     Current # of Jobs                      Unemployment Rate
          San Diego                           1.27M                                   9.1%
          Orange County                       1.43M                                   8.3%
          Los Angeles                         3.95M                                   10.7%
          California                          18.54M                                  10.9%
                                                                                                         *Job numbers based on April YOY
                                                                                                                         Source: CA EDD
                  2008-2009 Employment by Sector

                      Financial Activities Construction
                        74,200 (-3.4%) 66,400 (-13.9%)        Other Services
        Manufacturing
       96,300 (-6.3%)                                        47,600 (-2.1%)
                                                                   Information
 Educational &
                                                                  38,000 (-0.3%)
Health Services                    6%     5%    4%
                            8%                        3%
135,900 (0.2%)    11%                                      18%          Government
                                                                       229,800 (0.9%)
                      12%                            17%
                                    16%



      Leisure &
      Hospitality                                            Professional &
                                      Trade,
    156,900 (-3.6%)                                         Business Services
                                 Transportation &
                                                            210,300 (-3.7%)
                                     Utilities
                                 203,200 (-6.0%)

                                                                 *Employment numbers based on April YOY
                                                                                        Source: CA EDD
                      Median Single Family Home vs. Condo Price


                                                                            $611
            $700                                                           236%
Thousands




            $600
            $500                                                                        $340
            $400                                     $346                               -44%
            $300                                                     $387
                   $182                                              231%
            $200
                                                      $231                            $190
            $100
                   $117                                                               -51%
              $0
                   90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

                               Single Family Homes   Condos & Townhouses

                          Average SF Home Annual Increase = 4.3%
                           Average Condo Annual Increase = 3.7%

                                                                           *Median Home Price is based
                                                                                         on April YOY

                                                                           Source: CA Assoc of Realtors
                 Affordability & Median Home Price


80%                                                                             $800




                                                                                          Thousands
                                                          $611
60%                                                                             $600
                 43%                                                44%
40%                                      $346                                   $400
      23%
                                                                      $340
20%                                      29%                                    $200
      $182      $179
                                                          13%
0%                                                                              $0
      90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

                 SFR Affordability        Median Home Price


                                                                        *Based on 1st Quarter YOY

                                                          Source: California Association of Realtors
                 Mission Valley Own vs. Rent Cost Perspective

Own:         $290,000 condo (2009 YTD sales average per MLS)
Rent:        $1,761 two bedroom/two bath apartment (MPF Class A Product 1Q09)

                                    Monthly Comparison
                                  Condo        Apartment                Differential
Monthly Payment                   $2,104*      $1,761                   $343
Up Front Costs**                  $29,000      $1,000                   $28,000
Total Cash Needed                 $31,104      $2,761                   $28,343

*Assumes 10% Down Payment ($29,000), 6.0% Interest
Rate Fully Amortized, PITI Including HOA. Number                  Own vs. Rent by Month
shown is a pre-tax figure, does not factor in mortgage
interest deductions.
**Up-Front Costs Includes Down Payment or Security       $2,500       $2,104
                                                                                $1,761
Deposit, Loan or Applications Fees, etc.                 $2,000
                                                         $1,500
                                                         $1,000
                                                           $500
                                                             $0
                                                                          Own      Rent
RENTAL MARKET




June 2009
Current Rent by Submarket




                              Source: MPF
                            Research 1Q09
                       Same Store Rent Index


$1,600                                                                      12.0%
                            10.2%
                    9.2%
$1,400                                                        $1,336
                                                                            8.0%
$1,200
                                                                            4.0%
$1,000   0.2%
                                                                            0.0%
 $800    $716
                                                              -1.6%
 $600                                                                       -4.0%
         94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
                Same Store Rents           Rent Growth

                Average Annual Rent Growth = $41 (4.0%)
                                                         Source: Torto Wheaton Research 1Q09
                       Job Growth vs. Rent Growth


                          52,700
60,000                          10.2%                       12%
40,000                                                      10%
          8,800                                             8%
20,000                                                      6%
     0                                                      4%
-20,000   0.2%                                              2%
                                                            0%
-40,000                                            -1.6%    -2%
-60,000                                             -45,200 -4%
          94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
                           Job Growth      Rent Growth

     Average Rent Growth = 4.0%         Average Employment Growth = 1.8%

                                                            Source: Torto Wheaton Research 1Q09
                 Vacancy Rates vs. Employment Growth


8.0%                         4.8%                                                     6.0%
7.0%                                                                                  4.0%
                                                                         6.1%
6.0%     0.9%
                                                                                      2.0%
5.0%
                                                                                      0.0%
4.0%
3.0%      3.8%                                                                        -2.0%
2.0%                                                                                  -4.0%
                                  2.1%                                 -3.4%
1.0%                                                                                  -6.0%
          94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

                      Vacancy Rates           Employment Growth


       Average Vacancy = 3.4%            Average Employment Growth = 1.8%



                                                 Source: Torto Wheaton Research 1Q09 & CA EDD April ‘09
SALES




June 2009
                                          Volume: 100+ Unit Sales


           $2,500
Millions



                                                                                              $2,180

           $2,000
                                                                                                     $1,563

           $1,500                                                                                                  $1,252
                                                                                  $1,086
                                                                                       $881                 $1,025
           $1,000                                   $706    $684
                      Average = $647M           $569    $617
                                                                                                                          $438
            $500    $231    $134   $254     $388                $328
                                $166    $212                                                                                     $111
                        $118
              $0
                     90   91   92   93   94   95    96   97   98   99   00   01     02   03     04     05     06     07     08    09




                                                   Average # of Sales = 27




                                                                                                                   Source: CBRE, CoStar
                      2009 Sales 100+ Units YTD




  VILLAGES OF MONTEREY                        MONTECITO VILLAGE
        $52,000,000                               $32,000,000
   424 Units COE: 4/09                       234 Units COE: 4/09
 Buyer: Prime Seller: NML                  Buyer: Prime Seller: NML




          THE GROVE                                PARK TERRACE
          $14,700,000                                $12,400,000
     144 Units COE: 3/09                        117 Units COE: 2/09
Buyer: Conrad Prebys Seller: 3D         Buyer: Conrad Prebys Seller: Private
                                            Historical Cap Rates



11%                          10. 3%
                       10. 0%
10%               9. 4%            9. 5%
          9. 3%                            9. 3%
                                                   8. 9%
9%                                                               8. 3%      8. 2%
                                                           8. 1%      8. 2%
      8. 0%
8%                                                                                  7. 4%               Average = 7.8%

                                                                                                                                            6. 8%
7%                                                                                          6. 3%
                                                                                                            5. 9%
6%                                                                                                  5. 8%                           5. 4%
                                                                                                                    5. 2%
                                                                                                                            4. 8%
5%
4%
      90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09




                                                                                                                                    Source: CoStar
                   Cap Rates Vs. 10-Yr Cost of Money

10%
      8.9%       8.3%
9%
             8.1%     8.2% 8.2%
8%                                     7.4%
                                                                                              6.8%
7% 7.8%                 7.8%
                                               6.3%             5.9%
             7.1%7.2%          7.0%                    5.8%                   5.8% 6.1%
6%                                     6.4%                            5.7%
                                                                                               6.0%
5%                                                    5.3%          5.2%
                                              5.3%              5.2%                 5.4%
4%                                                                            4.8%

3%
       97     98   99    00     01       02      03        04     05     06     07     08        09
                                     10-Yr Cost of Money          Cap Rates


                                                                                     Source: CoStar, CBRE
DEVELOPMENT PIPELINE




June 2009
                    Apartment Completions



                         4,655   4,752
5,000
4,000
3,000
2,000
1,000                                                                366
         146
   0
        94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09




                                            Source: Torto Wheaton Research 1Q09
Development
  Pipeline
Downtown Development
                       Predictions / Forecast

• For-sale housing market clearly hits bottom by mid ’09, which
  lays the seeds for a recovery in 2010-2011. San Diego the first
  market in So Cal to recover.

• With virtually no new supply, the rental market will see a very
  quick turn around in San Diego when job growth turns positive
  (2011?). Expect high single digit rent growth by 2012.

• The buying window should be open in 2009-2010 with strong
  positive leverage and significant discounts to replacement cost.
  Don’t expect to see a high volume of REO or distressed assets
  come to market. Most will be worked out with Lender or
  recapitalized as opposed to going back to Lender. Act
  decisively when opportunities present themselves.
San Diego
Mid-Year Update




June 2009

				
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