Distressed Multifamily Opportunities

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Distressed Multifamily Opportunities: Who Will Be the First to Jump In, and Who Will Follow? by Mike Kelly, President, Caldera Asset Management. Presented at GreenPearl Events' Distressed Real Estate Summit Chicago on May 13, 2010.

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Distressed Multifamily Opportunities

  1. 1. Green Pearl Chicago Distressed Real Estate Summit May 2010 May 2010 Confidential & Proprietary
  2. 2. Questions 1. Are the spike in values justified ? • What kind of deals and related cap rates are in the market ? • Are you seeing a V-shaped recovery at your properties ? Is the revenue increase driven by occupancy gains or real rent increases ? 2. Debt ? • What type of deals are out there to buy from servicers and constr. lenders ? • What are the pitfalls ? • How are buyers, sellers, or lenders reacting to terms in the market ? • Are banks or servicers going to get more aggressive in foreclosures /DPOs ? • Is buying loans getting played out or is there more room to run ? • Current lending environment and terms for Agencies, or mezz, or hard money investors ? • What is the outlook for Fannie /Freddie ? Will they merge, shrink ? 3. Have we forgotten the impact of the debt bubble still ahead of us ? • How will the large amount of construction debts play out ? • How will the maturing CMBS products get refinanced, or flushed through ? • Who are the buyers going to be for the “non–A” grade products ? Confidential & Proprietary Page 2
  3. 3. Questions 4. Legal side • Any major changes in players, deal terms, client sentiments ? 5. Development of apartment/condos going forward • What is the time frame to start building again ? • What type of terms will investors get on equity and construction debt ? • Any new ways to look at this model ? Looking ahead • Where does the new equity come from for acquisitions when the supply of assets gets larger ? What type of returns would investors expect ? • What have we learned in the past 24 months ? • NOI – Buyers are all underwriting significant growth due to recovery and lack of new construction – What are your thoughts on this assumption ? • Where do new jobs come from ? • Wrap up Confidential & Proprietary Page 3
  4. 4. Apartment transactions Apartment Transaction Volume through April 2010 $120 B 5,000 3,795 3,814 3,871 Number of Transactions $100 B $99.6 4,000 Total $ Amount $88.8 $91.7 $80 B 2,462 3,000 $60 B $51.0 2,055 1,649 2,000 $40 B 1,251 $37.3 1,169 $30.3 975 $22.7 868 $20.4 1,000 $20 B $14.1 $17.3 $0 B 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Annualized Garden Mid/highrise Total Price Transactions Source: Real Capital Analytics Confidential & Proprietary Page 4
  5. 5. Detailed Multifamily Maturities $ billions Multifamily Maturities - by Investor Types: 2010 to 2017 (Does not include commercial lenders/ thrifts or savings institutions) $60 $50.8 $47.2 $50 $39.9 $7.9 $40.5 Average- $37 billion $33.8 $1.8 $5.6 $40 $1.7 $7.5 $6.0 $28.1 $29.3 $1.8 $23.6 $3.2 $30 $6.5 $21.1 $25.3 $1.6 $5.1 $5.9 $16.0 $12.8 $7.1 $1.6 $4.5 $4.0 $20 $8.3 $7.4 $10.7 $10 $17.0 $18.6 $18.8 $7.4 $14.3 $16.1 $15.8 $7.5 $4.3 $0 2010 2011 2012 2013 2014 2015 2016 2017 Fannie, Freddie, FHA and Ginnie Mae CMBS, CDO or other ABS Credit Companies, Warehouse, and Other Life Insurance Companies Source: Mortgage Bankers Association (“MBA”). Note: Does not include commercial banks which have over The December 2009 MBA Survey covered most multifamily $200 billion in apartment debt O/S loans outstanding from the investor pool except for Commercial Banks/Thrifts. Confidential & Proprietary Page 5
  6. 6. Current Apartment Mortgage Holders $400 Commercial Banks Can the Agencies $379 Savings institutions continue to deploy capital $357 $350 Life Insurance to make up for the lack of Private mtg Cond uits CMBS and Life $300 $302 Insurance originations ? Total Gov't backed entities $250 $244 $229 $215 $210 Increase from 2005 $200 (billions) $ % $168 Fannie/Freddie $140 77.5% $158 Gov't entities (non Fannie $150 $139 & Freddie) $9 4.1% $125 $114 $108 $103 Commercial Banks $71 51.3% $98 $100 $93 $89 $96 Savings Institutions ($38) -39.1% $65 $60 Life Companies $7 17.7% $50 $52 $52 $50 $46 $42 Conduits $19 21.2% $0 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 Source: Federal Reserve Confidential & Proprietary Page 6
  7. 7. Trepp Multifamily Delinquencies 30 days 60 days 90 days Non perf Forclose/ REO 90 days+ non-perf + REO Total 14 13.32 13.17 12 11.22 11.55 9.72 9.86 10 9.26 8.74 8.29 8 7.66 7.69 7.06 7.06 6.67 6.74 6.79 6.14 5.66 6 5.61 5.23 5.39 5.16 5.08 4.85 4.04 4.37 3.74 3.86 3.79 4 3.52 3.66 3.44 3.33 3.37 2.82 3.81 3.79 3.88 2.58 2.90 2.65 3.34 2.20 2 1.88 2.54 1.43 0 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 Source: Trepp Confidential & Proprietary Page 7
  8. 8. Multifamily Delinquencies 12.00% 11.55% Trepp CMBS - Trepp- 11.22% multifamily Fannie- multifamily 10.00% Freddie -multifamily Fannie- single family 8.29% 8.00% Freddie- single family 7.69% 6.72% 6.14% Fannie 6.00% 5.66% 5.69% 5.52% 5.29% 5.38% 5.08% 4.85% 4.72% 4.98% 4.37% 4.04% 3.94% Freddie- 4.00% 3.42% 3.37% 4.15% 4.20% 4.13% 3.15% 3.87% 2.96% 3.72% 3.33% 3.54% 2.65% 3.30% 3.13% 2.95% 2.78% 2.62% 2.00% 2.44% 2.13% Fannie Multi 0.66% 0.63% 0.69% 0.73% 0.50% 0.51% 0.56% 0.56% 0.62% 0.61% 0.32% 0.34% 0.36% 0.25% 0.24% 0.08% 0.09% 0.10% 0.12% 0.11% 0.11% 0.10% 0.11% 0.17% 0.19% 0.19% 0.21% 0.00% Freddie Confidential & Proprietary Page 8
  9. 9. Non-current Multifamily C&D loans Percentage of Multifamily- non current (90 days past due or non accrual status) Multifamily Non $ o/s current % (billions) 5.00% Dec-05 0.25% $188 4.44% Mar-06 0.28% $191 4.50% $192 Jun-06 0.29% Sep-06 0.31% $193 4.00% 3.58% Dec-06 0.41% $193 3.50% Mar-07 0.60% $192 3.13% Jun-07 0.66% $190 3.00% Sep-07 0.68% $193 2.45% Dec-07 0.76% $202 2.50% Mar-08 0.98% $207 2.00% 1.74% Jun-08 1.20% $211 1.47% Sep-08 1.47% $205 1.50% 1.20% Dec-08 1.74% $206 0.98% Mar-09 2.45% $211 1.00% 0.68% 0.76% 0.60% 0.66% Jun-09 3.13% $213 $ NC 0.41% 0.50% 0.25% 0.28% 0.29% 0.31% Sep-09 3.58% $216 $7.73 Dec-09 4.44% $211 $9.39 0.00% Note: In the past 6 quarters the amount of outstanding apt loans has remained virtually the same. Source: Federal Reserve However, total C&D for all real estate has dropped $170 billion . Confidential & Proprietary Page 9
  10. 10. Conclusion 1. Should we jump back into the pool now ? • Will NOI increases offset any increases in interest rates and cap rates ? • Has the market been too conservative over the past 24 months ? • What type of returns (IRR or COC) for apartment acquisitions ? 2. Debt • Will Fannie/Freddie continue to fuel the market ? • Is there a real risk that Fannie/Freddie will slow down, or even consolidate ? • Will CMBS come back to save B and C grade properties market ? 3. What is ahead of us ? • What keeps you up at night ? Confidential & Proprietary Page 10
  11. 11. Caldera Asset Management Caldera Asset Management is a turnaround and restructuring consulting working exclusively with multifamily assets. We offer lenders, equity investors, developers and lawyers the convenience and efficiency of one-stop shopping. We provide solutions that fit their individual needs.  Caldera brings a wealth of experience that covers virtually all aspects of apartments: – Asset management – Restructuring and recapitalization of portfolios as well as one-off assets – Executive experience • Public REITS • Private REITS • Pension fund advisors • Entrepreneurial firms – Experience in direct ownership of all classes of apartment assets (A,B and C) – Financing – Accounting – Brokerage – Portfolio acquisition / disposition www.CalderaAssetManagement.com Confidential & Proprietary Page 11
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