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International Council of Shopping Centers
Panel Discussion
Financing in Today’s Market:
Current Underwriting and the Availability of Credit
ICSC 2016 Michigan Continuing Education Program for
Real Estate Professionals
Suburban Collection Showplace, Novi, Michigan
Thursday, February 11, 2016
A. Financing in Today’s Market: Current Underwriting and the Availability of Credit
This panel of experienced commercial loan officers and mortgage brokers will discuss the
availability and general terms for obtaining financing on new commercial purchase
transactions as well as refinancing.
Moderator: Nicholas G. Maloof, Esq.
President and General Counsel
Associated Environmental Services LLC
6001 North Adams Road, Suite 205
Bloomfield Hills, MI 48304
T (248) 203-9898
F (248) 647-0526
E ngm@associatedenvironmental.net
W www.associatedenvironmental.net
Panelist: Dennis S. Bernard (DB)
Founder and President
Bernard Financial Group
20700 Civic Center Dr., Suite 240
Southfield, Michigan 48076
T: (248) 799-9200
F: (248) 799-9208
E: Dbernard@bernardfinancial.com
W: www.bernardfinancial.com
Panelist: William P. Beardsley (BB)
President and CEO
Michigan Business Connection, LLC-
Credit Union Business Loans
3600 Green Ct, Suite 120
Ann Arbor, MI 48105
T: (734) 662-0614, ext. 250
F: (734) 662-2465
E: billb@mbcloans.biz
W: www.mbcloans.biz
Panelist: Michael J. Erfourth (ME)
VP, Commercial Lending
Level One Bank
32991 Hamilton Court
Farmington Hills, MI 48334
T: (248) 871-0909
M: (313) 670-7623
F: (248) 536-5060
E: mjerfourth@levelonebank.com
W: www.levelonebank.com
Panelist: Terence M. Halverson (TH)
Managing Director
Berkadia Commercial Mortgage LLC
28411 Northwestern Highway, Suite 690
Southfield MI 48034
T: (248) 208-0521
M: (248) 762-3517
F: (248) 208-3472
E: terry.halverson@berkadia.com
W: www.berkadia.com
Panelist: David J. Skaff (DS)
Commercial Relationship Executive, SVP
Old National Bank
2723 S. State Street, Suite 210
Ann Arbor, MI 48104
T: (734) 887-2630
M: (734) 645-4829
F: (734) 887-2630
E: dave.skaff@oldnational.com
W: www.oldnational.com


Current Lending Environment and Opportunities for
Financing
Question 1: What is the current lending environment (either construction, end financing or
re-financing) for investment real estate – especially retail real estate?
BB Beauty is in the eye of the financier. The financing market for property types coveted by
life insurance companies, big banks and other Wall Street types is extremely
aggressive. Borrowers can get more money, longer and cheaper than normal times.
We’re back to those days where all the lenders are in the market and looking for deals.
Retail is a different story as that box is a little tighter with the institutional lenders.
Retail, properly leveraged and managed, has been a really big part of our business.
Notice I did not say “properly stabilized”. There are still a lot of properties with
hangovers from the darker days. Location being key, there is still room for faith,
patience and new money. Clean sponsors are important.
DB Loans and credit remain plentiful and available just not as cheap or as aggressive as
they were just a few months ago. Let’s break this down into the three main categories
we broker loans for commercial/retail properties.
Banks remain very active and aggressive. They are willing to do full loans on existing
properties but on many occasions tit’s the appraisals that will be the limiting factor. We
are seeing the amount of recourse required by banks continue to fall and even
loosening of the credit worthiness of the borrowers slide. Construction loans still
remains conservative in what really needs to be built. We are seeing the smarter banks
check with us first with the debt levels available before determining the loan amounts on
construction and bridge loans.
Life companies remain as life companies have been for the last several years. There is
plenty of money available just at lower leverage levels (60-70%) and they are looking for
shorter amortization periods. They have the ability to look rate at application and this
along with their already very low interest rates make them highly competitive. There
remain two distinct types of Life Company lenders both with a ton of money for retail
and those are the ones that specialize in the highest quality properties and those that
will for increased spread (and occasional recourse) take more risk.
CMBS lending remains plentiful but volatile when it comes to pricing. CMBS lenders will
always lend if they believe they can securitize the loan but due to the tightening in the
number of B Buyers and the impending new risk retention regulations this will become
more difficult. The other issue with CMBS lending is that the loans at 75% with mezz
money available to take it up to 85% will not really set a rate until the day before closing.
The borrower has to assume that risk.
ME Across all aspects of loans (construction, end and refinancing), there continues to be
credit available in the current market, still with fairly loose terms and with competition


from banks and permanent lenders especially for higher quality properties.
TH While financing is most abundant for apartments, the following comments pertain to
retail real estate and to the 2 lender classes we do most of our business with for this
property type.
 LIFE INSURANCE COMPANIES: Insurance companies are quite selective in
what they will lend on and with a few exceptions (such as Ann Arbor, and in-fill
locations with barriers to entry) insurance companies are more cautious of
Michigan retail real estate. Some insurance companies seek the highest quality
transactions and offer very competitive interest rates while others are seeking
higher yields and will take a little more risk in terms of what properties they will
lend on, what borrowers they will lend to and what loan terms they will offer. This
business has not changed much over the course of the past 12 months. The
typical life insurance company loan process is predictable with the borrower
locking their interest rate at application, knowing they have a commitment to
make the loan in about 30 days after application and closing being fairly low
drama.
 CONDUITS/CMBS: This is more of a commodity type of lending. If a CMBS
lender can sell the loan, they will make the loan. The real drivers of this market
now are the B-piece buyers who are very few (10-11) with the top 3 B-piece
buyers buying half of the business in 2015. They exhibit enormous control of
what a CMBS lender will and will not be able to sell and thus what that lender will
or will not originate. Since November 2015 the B-piece buyers have (a) required
a higher yield on their investments they will purchase and (b) become much more
conservative in what they will accept. The loan process for CMBS is generally
predictable and efficient but CMBS lenders do not issue loan commitments in
writing and you only know you have a deal the day of or the day before closing.
Your interest rate is not locked until this time, December was a tough month for
CMBS lenders as some deals the B-piece buyers would have accepted in the
first three quarters of 2015 were getting restructured at the 11th
hour in
December. There is going to be continued uncertainty as we move into 2016 as
all of the capital markets are in varying degrees of turmoil and regulatory
changes affecting the continuing risk the CMBS lender must retain of the
transaction coupled with the personal signature an officer of the CMBS lender
must provide that they have reviewed the loan files will either add cost to the
process, tighten up underwriting standards and drive some smaller CMBS
lenders out of business.
DS While new construction activity for investment CRE properties has still been relatively
slow, the appetite for financing the purchase or refinance of high quality CRE properties
with qualified owners/managers remains strong. We understand that there is not an
appetite for investment CRE in many banks these days, but as for ourselves it is an
area where we have a lot of expertise and have had a solid track record, and remain
very interested in financing in this space.


Question 2: What are the types of financing transactions (single tenant, multi-tenant, mixed-
use, etc.) that you are now closing?
BB All of the above. We see single tenant as overvalued. Every lender wants it and on
balance the market is ignoring the inherent risk that comes at lease expiry or the
potential credit risk of the “credit grade” tenants. When loan rates fall below the bond
rates these tenants can get on Wall Street something is wrong. Mixed use in downtown,
even small town, settings should be strong for a long time.
DB In the last 12 months and going forward we have closed literally every type of retail
property from small to large and anchored to unanchored. Multi properties are
significantly easier to find financing options for over single tenant unless your single
tenant property is long term leased (that means at least 15 years if you want non-
recourse financing) and is with rated credit.
TH We are working on all basic retail property types with the exception of regional malls.
Grocery anchored centers and in-fill unanchored or shadow anchored centers with a
mix national tenants/franchises are the most common types we are financing right now.
ME We continue to finance acquisition, construction and renovation loans for single-tenant,
multi-tenant and mixed used properties with some preference for multi-tenant
properties. Long term end financing continues to move to firms like Bernard Financial.
The typical bank loan is for an experienced operator, who is purchasing a high vacancy
property and repositioning it by adding value with a new tenant base or a strong single
tenant.
DS We have been successfully financing a broad spectrum of investment CRE properties,
including all types as mentioned in the question. When speaking of the quality of the
properties, beyond the physical maintenance and location of the properties, a lot comes
down to the quality of the tenant(s) and terms of the leases. So for example, are we
evaluating properties composed principally of “Mom & Pop” tenants, “A” Credit Tenants,
or something in between? Are the requested loans terms in line with the reality of the
current status of the property (i.e. are we requesting loan maturities of say 5-7 years,
but have in place leases with maturities of 1-3 years, no renewal options, and tenants
with a limited history at the location)? Depending upon the condition of the physical
plant as well as the substance of the rent roll, cash escrows for deferred maintenance
and ongoing CapEx and/or future payment reserves may be an important element of the
structure.


Question 3: What are current loan to value ratios, equity requirements and availability of
non-recourse vs. recourse debt that you are seeing in the current market?
BB We maintain a discipline that combines loan to value, amortization and recourse.
Property type and history are the most important influencers on the structure. We may
be a little “out of style” as we prefer property investors who want to actually build equity
by paying down debt. But everything is a function of risk. Overall, LTVs are up,
amortizations are longer, rates are lower and rules are broken.
DB Again it’s best to break this down for retail/commercial lending by type of lender.
Banks: Most are willing to go 75-80% but they have recourse at those levels.
Life: For the non-recourse Life companies like to be in the 50-65% range. There are
several life companies that will do the 65-75% range but they will require recourse, have
a higher rate and a short amortization period.
CMBS: These are all non-recourse loans and they will go to 75% and allow up to
another 10% mezz financing on selective properties.
ME Given Level One’s relationship focus specific LTV and equity requirements vary by
borrower. High quality sites with stronger tenant bases or excellent location properties
continue to demand competitive terms with lower equity requirements. Limited and non-
recourse financing on end or mini-perm loans continues to be available.
TH All CMBS loans are non-recourse (excluding normal carve-outs) and are available
generally from $2M and up. Loan-to-value ratios can exceed 75% as debt yield and
debt service coverage tend to more often constrain the transaction.
Life Companies generally prefer to be in the 65% LTV range for retail.
DS Every opportunity is reviewed individually on its own merits, risks, and circumstances,
and we will then customize a structure to fit the specifics of the particular situation.
That’s a general way of saying, “every deal/structure is different”. Having said that,
generally speaking we would more often than not be looking at LTV ratios between 75-
80% when dealing with properly cash-flowing investment CRE properties. Generally
speaking as well, we would typically be looking for full, unsecured personal guarantees
of any owners with 20% or more ownership in a project. Depending upon the
experience and financial wherewithal of the individuals in question (personal balance
sheet, liquidity, and outside cash flow), as well as the number of individuals in the
ownership structure, we may consider limiting a personal guaranties, or alternatively,
possibly allowing a full guaranty to “burn off” over time into a limited guaranty based
upon meeting pre-determined project metrics.


Question 4: What are your expectations regarding financing for deals in 2016?
BB We are, or should be, near the end of the Hospitality run. As that construction market
slows, some lenders will have to replace that volume with other property types. Land
development could actually come back. Out of the frying pan and into the fire!
DB Very similar to 2015 with high volume of loans rolling over, continued appropriate
underwriting standards and rate volatility due to external market factors but still overall
low rates. We anticipate closing over $1B again this year.
ME Interest rate increases, gas prices and global stability will play a large role in
transactions this coming year. Projecting cash flow with stabilized interest rates could
prove challenging as the year moves forward especially in deals that were projected
with minimal or low equity in.
TH 2016 will likely be similar to ’15 as there are a lot of loans maturing and a lot of capital to
fuel acquisitions.
DS We have had a healthy appetite and successful track record for financing sound CRE
loans, and are expecting this to continue in 2016. The Bank is very interested in putting
high-quality earning assets (loans) on its books with individuals of strong character and
management experience, on projects with strong historical and projected cash flow, as
well as demonstrated liquidity and “global” debt service coverage ability.
Question 5: How does a retail developer/investor overcome hurdles for underwriting
approval, including appraisals, valuation ratios, due diligence and equity requirements?
BB Realism. It will take longer than everyone want. Many lenders today are merely sales
people and will not, perhaps cannot, be as realistic and/or thorough with the borrower at
the point of application. Give the lender everything they want when they want it and
hold them accountable to an answer, even if only a conditional one. The less time a
borrower spends on the wrong page with a lender and doesn’t know it, the bigger the
problem down the line. Said another way, have a plan B---another lender, additional
capital, additional collateral.
DB Easy….work with proven Mortgage Banking firms and lenders. Avoid going direct to
end lenders that you have never heard of. Don’t listen to the sound of the siren and
follow a lender or Mortgage Banking firm that quotes you significantly better than what
seems to be market. The help of good professional will greatly assist you in closing.
ME Cash. Hard equity into a project solves a lot of problems but having an active
understanding of their market and the types of tenants which they can attract and the
ability to demonstrate that success is highly critical. We pay attention to the existing
rent roll and the rollover risk for each property and each market we look to enter in with
a customer as well as the person or group behind each project.


TH Not sure what you mean by “overcome” but there are two items to consider: first,
working with appraisers and mortgage bankers who know the values and how to
support those values. Second, being able to access equity sources like those we work
with.
DS A not-so-uncommon hurdle to overcome is the receipt of a lower-than-expected
appraisal valuation. This is an element outside of the Bank’s control, so we (and the
client) have to live with and deal with the results of the appraisal. There are some
different ways to address these situations, which could involve any combination of
bringing more cash equity into the deal, providing a pledge of additional outside
collateral, or possibly adjusting the LTV ratio that would be acceptable. As mentioned
earlier, every situation is different, and how we would address any “snags” would likely
be different from one situation to another, based upon the fact set involved. One thing
to keep in mind though is that we would typically not want to “push the envelope” on
every facet of the loan structure at the same time. So for example, if loan amortization
was a key priority for the client, we may not look to extend that loan amortization while
also pushing for a higher LTV ratio.
Question 6: What kinds of timeframes are you seeing to get to a successful closing for
financing of a commercial or retail property?
BB A fast real estate loan is 45-60 days. Our part of that is about 10-15 days; the rest is
third party reports. Make sure if there is a hard deadline, or soft target, that it is clear
enough that everyone that sees the application will notice it and remember it. If the
borrower is really confident, then they should provide good faith money up front and ask
the lender to simultaneously run the underwriting and due diligence.
DB Once we have an application we are closing loans in 30-45 days. What’s different this
time around is the amount of time in getting firm hard quotes and executed applications.
Please figure this part of the process will take 2-4 weeks due to the amount of upfront
work that lenders now want to put in.
ME This varies based on the relationship and the complexity of the deal. Generally, we are
seeing timeframes from 60-120 days depending on transaction and the complexity or
issues. For customers that we know and have a relationship with the process is always
quicker.
TH If the loan is for an acquisition, then we are generally getting the process done in 60
days. For refinances, borrowers are often dragging this out in order to minimize the
prepayment premium on their current debt. We can lock the interest rate on a new loan
for up to a year.
DS A lot of the answer to this question depends upon how complete a package of
information that we receive. If we have all of the information needed to make a credit


decision, and have answered all questions related to the deal, we could typically have a
loan underwritten within a couple of weeks (with variances depending upon the
complexity of the deal and volume of work already in the queue). As far as third party
reports are concerned, the appraisal seems to be taking the longest time, typically 4-6
weeks for receipt and review. Within this time frame, most all of the other typical due
diligence items (environmental, title work, survey, etc.) can usually be received. We will
many times get a jump on the appraisal by asking for a deposit up front from the client
so that we can order the report before the underwriting has even been completed.

$685,6962014TotalCorporateandAssociate
UnitedWayContribution
We were named a “World’s Most
Ethical Company” by the Ethisphere
Institute for the fourth consecutive
year in 2015; one of only two U.S.
financial institutions to have earned
this honor. Since 2010, we’ve also received an annual Ethics Inside®
certification from the Ethisphere Institute.
at a glance
Integrity
Diversity matters at Old National. We strive to be a
diverse and inclusive company where differences
of thought, race, gender, age, and other diverse
backgrounds are valued and embraced.
• A top 100U.S. bank
• A top 100U.S. insurance broker
• $11.9billion in assets
• An SBA Preferred Lender
Community
Teamwork
Diversity & Inclusion
As a full-service financial services company including Old National
Bank, Old National Insurance, Old National Investments and Old
National Wealth Management, our associates work in partnership to
serve each client’s unique financial needs.
$5,006,3972014TotalGrants&Sponsorships
99,7772014 Total Associate Volunteer Hours
Named 2014 volunteer program
of the year by VolunteerMatch
For over 180 years, Old National has focused on strengthening the
communities we serve through associate volunteerism, corporate
sponsorships, Foundation grant awards and financial education and
literacy initiatives. This commitment to community helps define our
mission and vision as a community bank.
oldnational.com 1-800-731-2265 NASDAQ: ONB
1115
Indiana, Kentucky
and Michigan
More than
160banking centers serving
85communities in
Since its founding in Evansville, Indiana in 1834, Old National has focused on community banking by building long-term, highly valued
partnershipswithclients.Weprovideextensiveservicesinretailandcommercialbanking,wealthmanagement,investmentsandbrokerage.
In addition, Old National Insurance, one of the 100 largest insurance brokers in the nation, provides a full line of insurance solutions.
Received two 1st place Community
Commitment awards from the
American Bankers Association

Old National is a leader in community banking with a commitment to building long-term, highly valued partnerships with our clients. We provide extensive
services in retail and commercial banking, wealth management, investments, insurance and brokerage. Old National takes a disciplined approach to credit
and risk management while continuing to invest in the communities we serve.
Strength & Stability. Ethics & Integrity.
oldnational.com 1-800-731-2265
Nasdaq: ONB Member FDIC
ATOP 100
US Bank
inEvansville,Indiana
Established
Michigan, Indiana, Kentucky
& East Central Illinois
160+
RISKAPPETITE
Statement
Board-approved;
defines Old National as
“conservative in nature”
Named one of the World’s Most Ethical
Companies by the Ethisphere Institute
for four consecutive years
Well above regulatory capital
minimum levels
Strong Moody’s Rating
Aa rated companies are judged “to be of high quality and are subject
to very low credit risk” (2nd highest possible long-term rating).
P-1 banks “have superior ability to repay short-term debt
obligations” (highest possible short-term rating).
Aa3/P-1
OLD NATIONAL BANCORP
11.9B
Asset Size
(9/30/15)
Fully Phased-In Old National
Regulatory Guidelines (9/30/15)
Minimum
Tier 1 Risk-Based Capital Ratio > 8.5% 12.5%
Total Risk-Based Capital Ratio > 10.5% 13.2%
Common Equity Tier 1 Capital Ratio > 7.0% 12.1%
Tier 1 Leverage Capital Ratio > 4.0% 8.4%

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