6th Western Borrowers N Investors Mezz Loans And Distress Debt 26 March09

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$$100MM Real Estate Fund to Purchase Distressed Sellers and/or their assets

$$100MM Real Estate Fund to Purchase Distressed Sellers and/or their assets

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  • 1. By: Scott L. Podvin, Managing Director The Crest at Waterford Lakes, LLC spodvin@post.harvard.edu www.TheCrestLife.com http://www.linkedin.com/in/sp0dvin Tel: (305) 793-5762; Fax: (305) 665-3971 Scott L. Podvin: Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt – April 27-28, 2009
  • 2. UPDATE: TARP AND GOVERNMENT LIQUIDITY FACILITIES 9:45 Scrutinizing Government Bailout and Liquidity Facilities: What Will They Mean For Real Estate Mezzanine Financing? • Examining the Treasury/Obama Administration's initiatives to relieve balance sheets and the capital markets. What signals have been given about the Administration's plans for managing the quot;rescuequot; funds? • Is a bailout for Commercial Real Estate a good or bad idea? Why? • Will TARP recipients begin shedding troubled loan assets in 2009? • Will the lack of credit encourage Opportunity Funds to originate mezzanine-like debt? • What will TARP ultimately mean for the Real Estate Mezzanine loan industry? • Fed Bad Bank: How will it operate? How will they deal with the bad paper? What is the time frame? Comparing and contrasting with the RTC • What will be the role of regulators in the new economic landscape? • Why are certain banks refusing TARP money? Are community banks discriminated against in favor of money-center banks when it comes to bailouts? • Why is credit so scarce after billions of TARP dollars were put to work? • How will an extended recession affect local, regional and money-center banks? Moderator: Mark Grinis, Partner, Ernst & Young LLP Panelists: Richard K. Hollowell, Managing Director, Alvarez & Marsal Real Estate Advisory Services, LLC Scott L. Podvin, Managing Director, The Crest At Waterford Lakes, LLC Mark Landau, Managing Director, GoldenBridge Advisors Jay N. Rollins, President, JCR Capital Chad Robins, CEO - North Amercia, Opportune Stuart Boesky, Chief Executive Officer, The Pembrook Group, LLC
  • 3. DIRE OUTLOOK FOR WORLD ECONOMY 12mm pple in US looking • Capital Markets are closed for • European Recession Deepening and UE work rising: now at 8.5% • Europe's recession risks lasting into • IMF is expected to borrow 2010 $100Bn from Japan and • US deals drop from 154 to 99; • European Central Bank's revises down may even issue bonds, an UK deals fell from 74 to 50; its 2010 growth forecast for eurozone unprecedented step in its FASB Revises rules from 1% to zero. 64-yr history Securitization trusts hold 1.5T • 3 European governments have fallen - • • Russia to supervise a in Belgium, Latvia and Iceland, which of subprime and alt-A consolidation plan that would is not a EU member but could soon loans, $400B of which are see the number of banks cut apply to join – IMF called in for delinquent from 1,100 to 500. Hungary, Romania and Latvia. • Global financial tsunami • Growth expected to resume • Europe needs a unified front on the batters Hong Kong, as it early 2010, IF successful economic crisis. falls into recession resolution to banking crisis • WORLD BANK FOUND 17 OF THE G20 HAVE IMPLEMENTED 47 MEASURES • 742,000 jobs cut in March and SINCE LAST G20 SUMMIT WITH A 706,000 in February. PROTECTIONIST AGENDA • Mexico seeks $47Bn credit line from IMF Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu 3 http://www.linkedin.com/in/sp0dvin
  • 4. BIG DEBT • By 2012, the ratio of gross public debt to gross domestic product could be: • 117% in Italy; • 97% in the US; • 80% in France; • 79% in Germany; & • 75% in the UK. • 224% in Japan Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 5. *The chart (left) shows the flow of consumer credit by type in 2007 & 08. Securitized lending took a U-turn, $22Bn in „07 to $28Bn in ‟08 *Lending by finance companies turned negative as well, -$7 billion in 2008. *Tight credit conditions are the primary drag on consumer credit; and therefore, spend ing is collapsing. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 6. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 7. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu
  • 8. RED INK OF A GREYER FUTURE Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu
  • 9. NATIONALIZING THE BANKING SYSTEM Total losses now exceed impact of RTC Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 10. NATIONAL DEBT FORECASTS Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 11. BEAST OF BURDEN US BRITAIN • US has seen forecasts • Britain has seen a for its national debt as bigger increase in its a share of gross forecast debt domestic product in burden, from 43 per 2012 rise from 66 per cent to 75 per cent cent to 97 per cent Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 12. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 13. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 14. FORECAST FOR DEFAULTS AND BANKRUPTCIES • Debt defaults increase at double-digit rate next 24 months • 160 to 190 defaults in 2009 • B/n 120 and 140 in 2010 • Typically, 2 out of 3 to 3 out of 4 defaults end in bankruptcies within 3 months. • Thus, we are looking at: – 150 bankruptcies in 2009 and – 100 in 2010. according to a bi-annual study in November 2008 by Bain Corporate Renewal Group. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 15. ASSET BUBBLE W/ CRATERING VALUES • U.S. home owners lost a cumulative $3.3T in home values in 2008, according to Zillow. • Since 2006, more than $6.1T in quot;valuequot; has evaporated. Recipe for real estate bubble: slice of mbs into a bowl of cdos and (add) another layer of cdos on top Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu
  • 16. THE GRAND PLAN Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 17. Public Law 110-343/HR 1424 SON OF TARP IS BORNE • Effective October 3, 2008, this 169- page law created a $700 billion dollar Troubled Assets Relief Program under the Emergency Economic Stabilization Act of 2008 (division A), and also enacted the Energy Improvement and Extension Act of 2008 (division B), Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (division C) Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 18. WHAT‟S LEFT • 81% of $700Bn in TARP is committed. • $135Bn of TARP funds available –$22Bn of which will go to auto industry Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 19. PARTIAL PAYMENTS COMING IN • Four banks paid back TARP money: 1. Signature Bank of NY repays $120MM 2. Old National Bank of Indiana repays $100MM 3. Iberiabank of LA paid back $90MM 4. Bank of Marin Bancorp of Novato, Calif rapid $28MM Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 20. TALF • Of $700Bn of TARP money, $100Bn earmarked for TALF; • NY Fed. Res. Bank uses $100Bn as collateral on loans to be made to investors in asset backed securities (ABS) such as CMBS. • Facility expires 12/31/2009. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 21. TALF‟S “ELIGIBLE BORROWERS” Any U.S. Co. owning “eligible collateral” w/ primary dealer acct. An entity is a U.S. company for TALF if: – (i) Business entity organized under US laws; or – (ii) U.S. branch or agency of foreign bank (other than a foreign central bank) that maintains reserves with a Fed. Res. Bank; or – (iii) U.S.-organized investment fund managed by US investment manager. • NO entity controlled by a foreign gov‟t or is mngd by an investment mngr controlled by a foreign gov‟t. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 22. WHAT IS AN “INVESTMENT FUND” FOR PURPOSES OF THE TALF “ELIGIBLE BORROWER” DEFINITION? An investment fund is any type of pooled investment vehicle, including a: 1. Hedge Fund, 2. Private Equity fund, and 3. Mutual Fund, or 4. Vehicle that primarily or exclusively invests in eligible collateral and borrows from the TALF. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 23. TALF -- LOAN TERMS AND STRUCTURE • Non-recourse loans • 3-yr term • Not subject to mark-to- market or re-margining requirements. • pre-payable (in whole or in part) • No substitution of collateral Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 24. TALF: RAY OF HOPE ON TOXIC ASSETS To start the process, banks will • identify to the FDIC the assets, typically a pool of loans, that they wish to sell. Assets eligible for purchase will be • determined by the participating banks, including primary regulators– FDIC & Treasury. FDIC retains contractors to analyze • loan pools and determine the level of debt to be issued by the PPIF that it is willing to guarantee. $10MM -- min. loan amt • NY Fed assesses admin fee = 5 bps • of loan amt Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 25. TALF‟S ELIGIBLE COLLATERAL • ABS with AAA ratings • Eligible small business loan of ABS. • ABS cleared through Depository Trust Company. • Substantially all credit exposure exposed to U.S.- domiciled obligors. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 26. ELIGIBLE COLLATERAL CONT.- Underlying credit exposures of eligible ABS must be: (1) auto loans, (2) student loans, (3) credit card loans, (4) equipment loans, (5) floor-plan loans, (6) small business loans fully guaranteed by the U.S. SBA, or (7) receivables related to residential mortgage servicing advances (servicing advance receivables). Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 27. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 28. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 29. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu
  • 30. TIME FOR A MARKET STABILITY REGULATOR Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 31. Addressing The First Component of Regulatory Reform: Systemic Risk • A Single Independent Regulator With Responsibility Over Systemically Important Firms and Critical Payment and Settlement Systems • Higher Standards on Capital and Risk Management for Systemically Important Firms • Registration of All Hedge Fund Advisers With Assets Under Management Above a Moderate Threshold • A Comprehensive Framework of Oversight, Protections and Disclosure for the OTC Derivatives Market • New Requirements for Money Market Funds to Reduce the Risk of Rapid Withdrawals Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 32. Doing Deals Today & Devising Your Business Strategy For The Next 12 Months Moderator: • • A Borrowers' Perspective Norman Radow, President, The Among the questions to be discussed: – RADCO Companies Who are you borrowing from? – Panelists: • What Real Estate are you investing in? – How did you get Lenders interested in Michael F. – • your deal? Severson, VP, A&D, Bixby Land What terms and pricing are you seeing? – Co What do you want to see that will – realistically increase returns? Scott L. Podvin, Managing • Where do you see terms/pricing going in – Director, The Crest at the next year? Mezzanine or equity: Waterford Lakes Which is easier? What are the key issues and barriers for Bob – • prospective Borrowers at this time? Sonnenblick, CEO, Sonnenblick What are your business plans for the – Del Rio next 12 months? How does this compare to the last 12 – Christopher • months? Bley, Principal, Turnkey Group What deals are you actively seeking? –
  • 33. NOW IS THE TIME TO RAISE A FUND Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 34. VULTURES CIRCLING – EYEING THEIR PREY • In 2008, $87Bn was • Benson Elliot raised by 87 Real Estate opportunistic or debt and Partners III, a distressed debt focused pan-European funds. distressed real estate fund. The • Of the $87Bn, U.S. fund managed to accounted for $47Bn and raise around €510 Europe for $15.8Bn million, officials • $56.25Bn raised in 2006 at the firm said. • $73.75Bn raised in 2007 Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 35. FUND RAISING TIME • Invista, w/ £8.7Bn of AUM, launched distressed property fund • MGPA, owned in part by Australia‟s Macquarie Bank, secured $3.9Bn in equity, giving it $15.6Bn of potential buying power. • MGPA committed $2.2Bn to investments in: – Singapore, - Japan, – China and -Thailand. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 36. OTHERS ARE WAITING ON THE SIDELINES COMPELLING STORY Consider explosive growth of RE-oriented private equity: Apollo • Blackstone • Colony Capital • Carlyle Group • Ramius • Bain Capital • SAC Capital • Recent Deals • London Opportunity Fund • Stamford‟s Opportunity Fund • Source: Kingsley Associates and Institutional Real Estate, Inc – Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu
  • 37. REITS RAISING MONEY TOO: DON‟T BE THE LAST ONE TO THE PARTY • 2 BIG DEALS 1. Simon Property Group, Inc. (“SPG”) announces: 1. closed equity and debt offerings. 2. underwriters of the equity offering exercised their over- allotment option in full. 3. Sold 17,250,000 shares of common stock at $31.50 per share. 4. SPG‟s operating partnership completed its offering of $650 million aggregate principal amount of its 10.35% senior unsecured notes due 2019. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 38. DEALMAKERS 2.AMB Property Corp. (AMB) priced 41.25 million shares, with an option to purchase up to 6.1 million, at $12.15 per share. Proposed closing date is May 30th. • Both Simon and AMB are selling equity at heavily depressed prices – AMB is trading near 8-year lows and SPG near 10-year lows. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 39. WHO IS SELLING SWFs • HEDGE & OPPORTUNITY FUNDS • REITS • PRIVATE EQUITY FIRMS • PENSION FUNDS • ENDOWMENTS • SPECIAL SERVICERS/MASTER • SERVICERS • REAL ESTATE COMPANIES Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 40. SIZE OF SWFS -AUM of SWFs reaches $3.8Tr -Add‟l $5.5Tr in other sovereign investment vehicles -$6.1Tr official foreign exchange reserves. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu
  • 41. SUPER SEVEN SWF FUNDS: 1. Abu Dhabi Invest Authority ($875 Bn); 2. Gov‟t Pension Fund Norway ($350Bn); 3. Singapore Investment Corp. ($330 Bn); 4. Kuwait Investment Authority ($250 Bn); 5. China Investment Corp. ($200 Bn); 6. Singapore's Temasek Holdings ($159.2 Bn); and 7. Stabilisation Fund of the Russian Fed. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 42. HEDGE FUND CENTRAL 2008 2007 200 hedge funds hold assets worth 350 hedge funds held asssets • • more than $1Bn worth moreh than $1Bn 22,350 distinct investment vehicles 22,640 distinct investment vehicles • • – 15,150 single manager hedge – 15,250 single manager hedges funds – 7,400 funds of hedge funds – 7,200 funds of hedge funds Total assets $1,760Bn • Total assets $1,330Bn • Per Trac Financial Solutions • Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 43. HEDGE FUND LIQUIDATIONS • Industry Managed approx. $2.5T • No. of hedge funds managing more than $1Bn fell by more than 40% • 1,471 funds, or roughly 15% of the hedge fund industry, were liquidated • More than 775 funds closed in the final quarter of 2008 Per Trac Financial Solutions • Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 44. THE GREAT LIQUIDATION • $200Bn to be withdrawn in 2009 • $155Bn was taken out in 2008 • This cycle will likely see more liquidations than in the last three combined, said Steven Smith, global head of leveraged finance at UBS in NY. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 45. WHO IS LIQUIDATING Drake Management, • Centaurus Capital, • London Diversified Fund Management • Basso Capital, • Ferox Capital Management • Norwich Union‟s £2.8Bn unit-linked vehicle • forced to close • The Man Group, the world‟s largest publicly traded hedge fund manager, said net outflows by institutions were about $4.2Bn Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu
  • 46. HARD TIMES HIT HEDGES • Fortress Investment Group places restrictions on redemptions. • Blackstone • Och-Ziff Capital Management • Cerberus and • Citadel are facing tougher times, as well. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 47. WHO IS GROWING THEIR ARMY • Highbridge Capital Management, once the world‟s biggest hedge fund, had a $1Bn of net inflows this year, including $225MM from JPMorgan –ends qtr with $20Bn AUM Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 48. TARGET PRACTICE HIT THE HEDGE Funds without independent admins 1) ESL Investments, run by Eddie Lampert 2) Renaissance Technologies, run by billionaire Jim Simons 3) Chicago Citadel, run by Ken Griffin 4) SAC CAPITAL, run by billionaire Steven Cohen 5) Cerberus 6) HBK Capital, Dallas, Tx 7) Caxton Associates, run by billionaire Bruce Kovner These are the targets!!! Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu
  • 49. BOOM IN SECONDARY MARKET FOR HEDGE FUNDS 100s of funds freeze withdrawals • Investors need cash • Investors offer stakes at deep discounts • PERMAL, hedge fund specialist w/ €25Bn • AUM, ready to snap up secondhand stakes at a discount • HFX Capital Mngmnt and VEGA Asset Mngmnt raising $1Bn fund to purchase secondary stakes in hedges Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 50. CDS CLEANING SERVICE Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu
  • 51. MASSIVE SALES 1.RBS Hires Ubs To Sell £500mm Of Invstmnts In • Private Equity Funds 2.$134bn Of Private Equity Assets On The Balance Sheet 5 Of 6 Big Money Banks And Aig 3.AIG selling Tokyo landmark near Imperial Palace. 4.GE is a seller 5.Japanese companies start selling properties to meet financing needs, says Eiji Sakaguchi, head of real estate banking at Morgan Stanley in Japan Source: super return conference Berlin, Germany Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 52. Private Equity Fund Diagram Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009
  • 53. MATURING & ROBUST 2DRY MARKET FOR SELLERS OF PRIVATE EQUITY ASSETS • Types of Secondary Transactions 2.1 Sale of Limited Partnership Interests 2.2 Sale of Direct Interests Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu
  • 54. FOUR POCKETS OF DEMAND 1.Opportunity Funds that have been established to buy real estate equity 2.Newer Opp. Funds that have been created as dedicated debt investors 3.Private Equity looking at real estate debt 4.Real Estate Companies buy back their own debt or debt of others Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 55. REITS UNLOAD • REITS among 1st to sell • Hotel Reits – down 38% properties • Retail REITs down 39% • Dow Jones Equity ALL REIT • Health Care REITS down Total Return Index, which 28% tracks 113 stocks, posted a • Self Storage REITs down negative total return of 32% 32% in first quarter of 2009. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 56. BLUE HORESHOE LOVES DISTRESS • Consider the dramatic tilt in institutional investors‟ (2007) allocations: – $44.5 billion targeted to domestic real estate – $36.3 billion to private real estate • $24.7 billion to non-core (i.e., value- added and opportunistic), • $11.6 billion to core (i.e., stabilized apartment, industrial, office & retail) Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 57. PODVIN DEVELOPMENT GROUP RAISING $$100MM FUND TO PURCHASE REAL ESTATE, DISTRESSED/OPPORTUNISTIC ASSETS THIS FUND SHALL FOCUS ON PURCHASING THE FOLLOWING TYPES OF ASSETS/DEBT: Strategically located developments, located in the centre of a city, being large-scale and multi-phase developments typically consisting City-Core of residential, hospitality, office, retail, entertainment and cultural Development properties with a blend of historic restoration and modern Projects architecture. Large-scale multi-family residential communities in secondary and tertiary markets located on main and main where we can implement a Integrated capital improvement program to push the rents. We will be prepared to Residential purchase asset/debt on an all cash basis, but once the community has Development Projects been stabilized, we shall lever it or dispose of the asset, triggering a repayment event. There will be tremendous opportunities in busted condos and conversions Broken Condos & while value add plays will also be easy to find. Likewise, there will be many Conversions or Partially projects with incomplete construction that we will be able to pick up on the Constructed cheap, complete construction and reposition the asset to create a vibrant Communities working, walkable (with bike paths and all), sustainable and living community for working class people. WE ARE NOW RAISING A Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate $100,000,000 FUND TO Mezzanine Loans & Distressed Real Estate Debt PURCHASE DISTRESSED April 27-28, 2009
  • 58. INVESTORS 1. Institutional Investors Investors 2. Pension funds Our Preferred 3. Insurance companies Shares pay 4. Endowments cumulative 5. Investment Banks preferential cash 6. Commercial Banks distributions at an 7. Fund of funds annual rate of 9%. 8. Hedge Funds 9. High net worth individuals 10. Family offices 11. Sovereign wealth funds Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 59. WHAT WE DO • We identify real estate opportunities that generate superior risk- adjusted returns while ensuring capital preservation. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 60. CORE BUSINESS FOCUS 1. Identification; 2. Acquisition; 3. Ownership; and 4. Operation of multi-family residential and hospitality real estate properties. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 61. TYPES OF INVESTMENT WE MAKE THE FOLLOWING TYPES OF DEAL SIZE INVESTMENTS: • The ideal deal size will • single assets and start at US$2-25MM, portfolios; with a minimum equity • development or investment of US$5 redevelopment million. projects; • We have capacity for • real estate operating large transactions as a platforms; and result of co-investment • structured loans and and partnerships with partnerships. our broad institutional client base. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 62. Investment Objectives (1)acquire neglected multi-family residential &/or hospitality properties; and (2) increase profitability thru: (a) providing superior property management, (b) improving appearance & environment; (c) implementing renovation strategies; and, (d) cross-selling ancillary services Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 63. INVESTMENT APPROACH Conduct thorough and comprehensive research • Perform ongoing review • Commit to strong on-the-ground presence • Add value by applying focused leasing & expense • reduction strategy Undertake development or redevelopment plans • Create a tailored plan for each investment • Identify key milestones and profit drivers to • achieve the targeted result. Capital and financial structuring. • Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 64. OUR PHILOSOPHY • DO THE RIGHT THING: Our core ethos is to quot;do the right thing” -- responsible investment. • ALIGNING INTERESTS: To deliver results, we strategically structure the organization and employment compensation plans. • PARTNERING: Working together (within our business and with clients & service providers), we achieve far more than on our own. • DELIVERING INVESTMENT EXCELLENCE: delivering investment excellence lies at the heart of building client confidence. Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 65. OUR STRATEGY • Attract and retain investors; • Continuous research and innovation; • Deliver stable platform for growth; Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 66. REAL ESTATE FUNDS – THE ANATOMY OF THE DEAL Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dv in
  • 67. What to Look for in a REAL ESTATE FUND Experience • Skills • Contacts • Practical problem solving • Reputation • Team • Capacity • $$ Balance Sheet $$ • Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 68. THE CHEMISTRY COUNTS Alignment of Interests: FUND & REAL ESTATE COMPANY • Fund Objectives • Fund Life • Leverage and Financing • Guarantees • Management Style and Control • Tax Considerations • Dealing with Unexpected Issues Scott L. Podvin: IMN‟s 6th Annual Western Borrowers & Investors Forum on Real Estate Mezzanine Loans & Distressed Real Estate Debt -- April 27-28, 2009 spodvin@post.harvard.edu http://www.linkedin.com/in/sp0dvin
  • 69. ABOUT US • PDG is an independently managed private equity real estate investment advisory company focused on real estate investment in the U.S., Europe and Asia. • Our managed investments include development and redevelopment projects, joint-ventures and real estate operating companies in the office, retail, industrial, residential and hotel sectors. • We combine local knowledge of our real estate professionals with broad global perspectives to develop our strategies and identify investment opportunities. • Our team of real estate professionals come from diverse backgrounds, with the full range of skills required to invest in and manage real estate and advise real estate funds. Our specialists apply their skills to ensure that we drive every one of our investments to perform at its optimum. • PDG is independent of any broader financial services group. We can invest funds on behalf of a number of different organizations, including pension funds, insurance companies, government entities and financial institutions, as well as charities and endowments.
  • 70. • Scott L. Podvin, Managing Director of The Crest at Waterford Lakes, LLC • www.TheCrestLife.com • spodvin@post.harvard.edu • Cell: (305) 793-5762 • Fax: (305) 665-3971