Real Estate Finance 301October 26, 2011Tim Wright,Senior ManagingDirector
Debt Market Snapshot – Fall 2011Life Companies•    50% to 70% LTV (more going to 75% for multi-housing and higher quality ...
Debt Market Snapshot – Fall 2011  Mortgage REITs and Debt Funds  •   75% to 80%  •   Up to 10 Years  •   30 Year Amort (wi...
Project:              Circa 37 ApartmentsDescription:    306 Unit Class A Multi-Family San DiegoTotal Budget: $72MM - $235...
Project:              Sheraton LAXDescription:   802 Key Full Service HotelFinancing:     $47.5MMAssignment: Refinance exi...
ULI Fall Meeting 2011Real Estate Finance 301Gary GowdyManaging Director, UBS Global Asset Management, RealEstateOctober 26...
Overview of UBS Global Real Estate funds in the USGross assets – USD 16.1 billion   Assets by property type               ...
Participating mortgage structureIllustrative exampleSan Diego, California                                        First mor...
Chicago Industrial                     9
Meridian at Eisenhower StationAlexandria, Virginia                                 10
Hilton Carlsbad Oceanfront Resort & SpaCarlsbad, CA                                          11
Wythe ConfectioneryBrooklyn, New York                      12
2011 ULI Fall Meeting  Douglas D. O’Donnell      Los Angeles, CA   October 25-28th, 2011                           13
Talking PointsEquity & Debt For Industrial Projects1. Speculative2. Value Added3. Build To Suits4. CORE                   ...
Speculative Projects(Intentionally Blank)                                    15
Value Added Buildings         Debt                       Equity• 60% LTV                  •   Pension Funds, REIT’s,• 2 Ye...
Build To Suits         Debt                          Equity•   70% LTC                   •   Pension Funds, REIT’s,•   2 Y...
CORE Assets         Debt                            Equity•   65% LTV                     •   Pension Funds, REIT’s,•   Sh...
Real Estate Finance 301    Ken Kahan, Principal    California Landmark
Fall 2011Fall2005
For Sale1817 Prosser1303 Wellesley
Rent vs Buy                                            FHA 30 Yr Fix                      30 Yr Fix                      7...
CHR Investors
Southpoint Executive Center                               Opportunistic DistressedMaitland Green I & II                   ...
Opportunistic DistressedOne Park Square at Doral                                             RecapitalizationDoral, FL    ...
Value-Add Acquisition                           Gut Renovation of Failed CondoProperty Description• Unit Count: 86 of 260 ...
Value-Add Acquisition                                        Infill DevelopmentProperty Description • Original units: 322 ...
2006                                               2012 Debt replaced equity                         Minimum leverage V...
2006                                         2012 Sponsor had leverage                      Hope certificate to Sponsor...
Upcoming SlideShare
Loading in …5
×

Real Estate Finance 301: Raising Capital in Today’s Economy – Strategies and Deal Points (Richard Peiser) - ULI Fall Meeting 102611

548 views

Published on

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
548
On SlideShare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
15
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • Value Added ExampleCT deal in Beamont– $49 Basis on $.29 NNN RentsHigher LTC with Private Bank (60%) Higher rate (8%) Non RecourseLadders did the dealTough Underwriting (Market Rents, 1.2 DCR @ 6.5%)
  • Real Estate Finance 301: Raising Capital in Today’s Economy – Strategies and Deal Points (Richard Peiser) - ULI Fall Meeting 102611

    1. 1. Real Estate Finance 301October 26, 2011Tim Wright,Senior ManagingDirector
    2. 2. Debt Market Snapshot – Fall 2011Life Companies• 50% to 70% LTV (more going to 75% for multi-housing and higher quality deals)• Life Companies do have plenty of money beyond 10 year terms up to 30 years.• Interest rate floors have been instituted by most firms and are typically 4.00 to 4.50%. There are some that will break 4.00% and stated floors for low leverage and shorter terms (7 yrs or less) and spreads are 200-250 bp with floors (3.50% to 4.00%).• 25 to 30 Yr. Amort. (low leverage loans – some will quote full term I/O)• DSCR – 1.25x to 1.35x• Must increase allocation for next year and hit target for 2011CMBS Aggregators• Up to 75% - May go higher as the focus is really on debt yields of <9% to 10% plus they now can offer mezz to get them up to 85% LTV.• Up to 10 Years (5 to 10 years are typical - some are now offering 7 yrs but at higher spreads)• 30 Yr. Amort. (will offer 1 to 5 yrs. of interest only with LTVs of 65% or lower to win business)• CMBS spreads are 325-350 bp with all-in rates between 5.5% (best deals) - 6.0% – Pricing on 5 and 7 year deals is higher but still results in the same rate range.• DSCR – 1.25x to 1.35x Source: HFF HFF, L.P. Page 2
    3. 3. Debt Market Snapshot – Fall 2011 Mortgage REITs and Debt Funds • 75% to 80% • Up to 10 Years • 30 Year Amort (will consider some 1 to 3 years of I/O) • Pricing 6.0% to 10% - want fees of 50 bps to 1% up-front as well as exit fees of 50 bps to 1% • DSCR – 1.00x to 1.25x • Good news money or structure Commercial Banks – Bridge Lenders • 60% to 75% non-recourse in the 4% to 5% floating/fixed for 2 to 5 years for either stabilized and/or transitional assets • Low Libor floaters popular with institutional buyers 50-60% LTV Agencies • 70% to 80% LTV (lower LTVs & high quality assets with strong sponsors will break rates below) • Requires 1.25x-1.30x DSCR (1.30x required for cash out) • Cheapest fixed rate spreads are Freddie CME execution • Freddie portfolio execution is roughly 50 bps higher than CME 4.25 vs 4.75% • Fannie roughly 15 bps higher than Freddie CME • Both compete well with each other buy losing some market share on high quality assetsSource: HFFHFF, L.P. Page 3
    4. 4. Project: Circa 37 ApartmentsDescription: 306 Unit Class A Multi-Family San DiegoTotal Budget: $72MM - $235,000 per unitAssignment: Arrange maximum leverage non-recourse construction financingChallenges: Limited number of banks offering non- recourse and those that were lower leveragedSolution: Engineer a construction facility with a mezzanine piece to get to 80% LTVTactics: • Maximize cheaper first lien dollars, while still leaving enough mezz to be interesting to mezz lender • Demonstrate a sensitized exit scenario showing the mezz could be readily taken out with a permanent loan.Issues: • Negotiating intercreditor such reporting and control could be done efficiently • Ability to exit out of Mezz early as possible while offering investor a reasonable multiple.Current Trends: • More non-recourse debt available at higher leverage today, but still debt yield driven • Mezz money has come down in pricing • Structure becoming more common again in this cycle so pre-negotiated intercreditor agreements are becoming easier to find.HFF, L.P. Page 4
    5. 5. Project: Sheraton LAXDescription: 802 Key Full Service HotelFinancing: $47.5MMAssignment: Refinance existing loan with flexible, low coupon, interest only debtChallenges: • Hotel recovering from downturn and T-12 underwriting did not support requested financing. • Hotel running at very high occupancy but needed to push rate.Solution: • Given tangible improvement in operating results, lender was able to provide aggressive initial funding loan and offer a compelling earn out that could be realized in as little as 6 months. Major bank financed at low spread over LIBOR for two years with two, one year extensions.Tactics: • Demonstrate a very low exposure per key to Lender. • Touring the asset was a must because quality of the asset relative to peer group was readily apparent. • Review of historical numbers reflected hotels performance is strong market and budgeted numbers were inside of peak. • Articulate clear business strategy to modify demand mix to push rate (less crew, new corporate contracts) to fall in line with the peer group.Issues: • EBITA reflected operations at very high occupancy (90% plus)- lenders wanted to underwrite 80% or less- exacerbating the sizing issue. • Airport sub-market perceived as limited with respect to rate growth.Current Trends: • Bank lenders still looking for 11 to 12% debt yields on trailing 12 and properties with consistent history. • Transitional properties remain difficult to finance at low life or bank rates (province of the debt funds)- 4% vs. 7% plus • CMBS not competitive with life co’s or banks but provide reasonable fixed rate alternative again.HFF, L.P. Page 5
    6. 6. ULI Fall Meeting 2011Real Estate Finance 301Gary GowdyManaging Director, UBS Global Asset Management, RealEstateOctober 26, 2011
    7. 7. Overview of UBS Global Real Estate funds in the USGross assets – USD 16.1 billion Assets by property type Assets by geographic region (USD in millions) (USD in millions) $567 Midwest 4% $5,025 $1,380 1, 474 10% 34% Apartments 11% Office $838 Retail 6% Hotel East Industrial 5,177 West 37% $2,694 Farmland 4,987 $4,147 18% 28% 35% South 2,447 17% 7
    8. 8. Participating mortgage structureIllustrative exampleSan Diego, California First mortgage with sharing in cash flow and appreciation San Diego, Class A townhome apartments TPI construction/permanent loan $40 million investment (90% LTV, $290 thousand per unit) 6.0% 50% of 8.0% IRR hurdle Total return Interest + remaining cash flow + plus 50% of appreciation = to TPI 8
    9. 9. Chicago Industrial 9
    10. 10. Meridian at Eisenhower StationAlexandria, Virginia 10
    11. 11. Hilton Carlsbad Oceanfront Resort & SpaCarlsbad, CA 11
    12. 12. Wythe ConfectioneryBrooklyn, New York 12
    13. 13. 2011 ULI Fall Meeting Douglas D. O’Donnell Los Angeles, CA October 25-28th, 2011 13
    14. 14. Talking PointsEquity & Debt For Industrial Projects1. Speculative2. Value Added3. Build To Suits4. CORE 14
    15. 15. Speculative Projects(Intentionally Blank) 15
    16. 16. Value Added Buildings Debt Equity• 60% LTV • Pension Funds, REIT’s,• 2 Year Term Advisors, Private Money• Tough Underwriting • +/- 20% Levered IRR’s• Recourse (LIBOR + 300) • 10% Co-Investment• Non Recourse (6-8%)• Buildings Bought Below Replacement 16
    17. 17. Build To Suits Debt Equity• 70% LTC • Pension Funds, REIT’s,• 2 Year Term Advisors, Private Money• LIBOR + 275 BPS (2.99%) • +/- 15% Levered IRR’s• Recourse• Major Banks• Strong Tenant Required 17
    18. 18. CORE Assets Debt Equity• 65% LTV • Pension Funds, REIT’s,• Short & Long Term Advisors, Private Money Available • +/- 15% Levered IRR’s• 4.5-5% 10 Year Fixed• Non-Recourse• Life Insurance Companies, Banks & CMBS 18
    19. 19. Real Estate Finance 301 Ken Kahan, Principal California Landmark
    20. 20. Fall 2011Fall2005
    21. 21. For Sale1817 Prosser1303 Wellesley
    22. 22. Rent vs Buy FHA 30 Yr Fix 30 Yr Fix 7/1 arm Princ. & Interest Princ. & Interest Interest Only Rate 4.125% 4.375% 3.875% Points 0.000 0.000 0.000 Down Payment % 3.50% 20.00% 20.00%Sales Price $ 500,000 $ 500,000 $ 500,000Down Payment $ 17,500 $ 100,000 $ 100,000Loan Amount $ 482,500 $ 400,000 $ 400,000Base Loan + MIP $ 487,325 Monthly Payment InformationPrincipal and/or Interest $ 2,362 $ 1,997 $ 1,292Property Taxes $ 521 $ 521 $ 521Mortgage Insurance Premium $ 467 $ - $ -Ho-6 Insurance $ 40 $ 40 $ 40HOA Dues $ 325 $ 325 $ 325Total Payment $ 3,715 $ 2,883 $ 2,178Estimated Tax Savings (35% bracket) $ (769) $ (693) $ (634)Amortization Savings $ (703) $ (539) $ -Estimated Economic Cost $ 2,243 $ 1,651 $ 1,543Rent Equivalent $ 3,200 $ 3,200 $ 3,200Savings via Ownership $ 957 $ 1,549 $ 1,657
    23. 23. CHR Investors
    24. 24. Southpoint Executive Center Opportunistic DistressedMaitland Green I & II RecapitalizationOrlando, FL Property Description • Three suburban office buildings; 330,000 SF • 50% occupied • Purchase price $55 PSF • Capital reserve $40 PSF • 50% of replacement cost Opportunity • Market: 86% occupied • 30,000 SF tenant signed at closing Highlights • Developer imputed equity disappears • Developer funds 10% of new equity • JV receives 20% after 15%
    25. 25. Opportunistic DistressedOne Park Square at Doral RecapitalizationDoral, FL Property Description Property: 11-story Class A office asset built in 2010 totaling 281,623 SF Pricing: $27.5M ($98 PSF) – 30% of development costs $43M ($152 PSF) – Projected all-in cost - 50% of replacement cost Opportunity • Purchased $56 million loan for $27.5 million • Signed 100,000 SF lease at closing • Provided $7 million in transaction costs at closing Highlights • Developer/Property manager kept in place • No initial debt recapture to Developer • 20% after 15% preferred IRR to equity; 20% after unlevered 12%
    26. 26. Value-Add Acquisition Gut Renovation of Failed CondoProperty Description• Unit Count: 86 of 260 in three building complexProperty:• Size: 90,000 SFOriginal Developer BasisAcquisition Cost: $120,000,000Capital Improvements: 45,000,000 Alden Tower Basis: $55 million Total: $165,000,000Project CapitalizationCHR Purchase Price: $18,000,000 Debt $18 MMRenovations: 12,000,000 Dev. Equity $ 6 MM Total Cost: $30,000,000 Mezzanine $ 6 MM$6.0 million mezzanine at 10% current pay Total $ 30 MM(60-80% of capital stack)
    27. 27. Value-Add Acquisition Infill DevelopmentProperty Description • Original units: 322 • Phase 1: 45 unitsProperty: • Infill Units: 54Project CostsAcquisition: $52,400,000New Construction: 8,400,000Capital Improvement Reserve: 2,200,000 Total $63,000,000SourcesDebt: $38,100,000Construction Debt: 8,400,000Investor Equity: 8,250,000CHR Subordinated Equity: 8,250,000 Total $63,000,000
    28. 28. 2006 2012 Debt replaced equity  Minimum leverage Value determined price  No value add debt  Cost equals value Equity chasing deals  Equity doesn’t want JV headache Significant predevelopment dollars  Risk averse—all risk must be wrung out of deal available/at risk dollars shared Trees grow to the sky—don’t want to lose  Lack of trust in projections opportunity Guarantees by equity source are not real  No equity guarantees available equity—price to play the game/access deal 20% after 12%  20% after 10% Evolved to 50% after 8%  50% after 17%
    29. 29. 2006 2012 Sponsor had leverage  Hope certificate to Sponsor Joint approval  Equity controls decisions Buy/sells  Avoid legal complications 0-5% co-invest 10-20% co-invest Opportunity funds and value-add funds  Fund of Funds to local operators/funds Lehman leverage/bifurcated tranches of  Investment advisors of HNW family offices conduit debt/equity  65-75% leverage 85-97% leverage  RECOURSE debt Non-recourse debt

    ×