Spencer stuart, Multifamily Development Today

1,016 views

Published on

Spencer stuart, Multifamily Development Today

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
1,016
On SlideShare
0
From Embeds
0
Number of Embeds
5
Actions
Shares
0
Downloads
15
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Spencer stuart, Multifamily Development Today

  1. 1. Capital StacksWhat Worked, What Didn’t 2012 ULI Spring Meeting
  2. 2. The Bad Central ValleyDowntown Mall
  3. 3. Central ValleyDowntown Mall • Bridge Financing Request • Acquisition/Value Add • Originally built in 1971 • Redeveloped in 1993 • 1.185 Million Sq Ft • 400,000 Sq Ft Retail • 285,000 Sq Ft Office • 500,000 Sq Ft Anchors (not part of collateral)
  4. 4. Central Valley Downtown Mall Strengths:  Borrower ability to purchase security off-market.  Purchase well below replacement cost (~$50 psf or about 85% discount from 2007 appraisal).  Sponsorship with track record on tough value add deals, and compelling business plan. Challenges:  Low occupancy: ~55% on retail, ~35% on office.  Declining mall: “dark” space, difficult to keep national tenants, endangered by lease clauses.  Difficult market: 12% unemployment, high vacancy.  Office leases with Government tenants.  Capital required for TI/LC.
  5. 5. Central Valley Downtown Mall Why it didn’t happen:  Going in occupancy too low.  Unappealing market.  Limited appetite for retail product.  Complex and risky business plan.  Significant redevelopment/construction  want recourse.  Too opportunistic.  Turnaround plays on mall don’t fit equity expertise (if lender has to foreclose).
  6. 6. “BAD” DEAL• $20 million refinance, full- occupied retail center• 100,000 ft.² , food and drug anchored center• Urban Infill location in major Midwest market CHALLENGES:1. Aggressive Underwriting - maximum loan proceeds with complete cash out of all equity and existing debt.2. Tenancy - Health club, big-box electronics retailers, non-reporting sales psf grocer.3. Sponsorship – Pending legacy issues.
  7. 7. The Bad
  8. 8. One That Didn t Work• Denver, CO high-rise apartment development• Large deal size - $80M• 65% construction loan• 35% equity• Option to add mezz financing up to 85% of the capital stack• Top of the market proforma rents
  9. 9. Apartment Development12010080 Equity60 Mezz Debt ‐ 14%40 Construction Loan ‐ Libor20 + 225 0 Capital Capital Stack ‐W/O Stack ‐W/ Mezz Mezz
  10. 10. Denver, CO High Rise Apartment Development• Total capitalization - $80M• 65% LTV construction loan due to size ($52M)• Equity amount – $28M• 3.25% debt interest rate w/o mezz (65% LTV)• 5.77% blended interest rate w/mezz (85% LTV)• Equity Multiple – 1.71 w/o mezz, 2.04 w/mezz• Levered IRR – 17% w/o mezz, 22% w/mezz• Yield on cost – 7.25% in either scenario• Investor required return – 2.0 equity multiple, 20% IRR
  11. 11. “GOOD” DEAL• $50 million new construction• 200 units luxury, mid- rise podium• Infill location in major Western sunbelt market• Seasoned developer CHALLENGES:1. New construction - completion risk and high costs2. Oversupply - Large supply of foreclosures3. Funding - Very limited construction loan funds
  12. 12. “Good” Deal Capital StackCAPITAL STACK LEVERAGE (YIELD) UNDERWRITINGConstruction Loan 60% (2.75%) Bank funded at 250 bps + Libor with 3‐5 yr mini‐perm.Mezz Loan 15% (12%) 7% coupon rate with 12% IRR look back coterminous  w/Construction.  No participation vs. Pref Equity.JV Partner 12.25% (30%) 49/51% Pari Passu on net cash flow w/ 30% IRR, 40/60  thereafter.  Project control limited (capital decisions.)Sponsorship 12.75% (30%+) Full control and guarantees and recapture of land profits  before any reversionary profits.
  13. 13. CAPITAL STACK OPPORTUNITIES:1. Shop the Stack – Lot’s of money, limited deals2. Rates at the bottom – Moody’s Baa spreads widening. Alternative investments and “floors”3. Wraparound – Capture low rates and worry later
  14. 14. The Good
  15. 15. One That Worked• Single Tenant Triple Net Retail Portfolio• Acquired in a DST structure• 50% LTC CMBS permanent debt• 50% bridge equity• Approximately 2/3 investment grade, 1/3 sub- investment grade
  16. 16. Retail Portfolio Bridge Equity CMBS ‐ 5% FixedCapital Stack
  17. 17. Retail Portfolio ‒ DST Structure• Blended acquisition cap rate – 6.72%• Closing costs – 3%• Fees/syndication expenses – 10%• Bridge equity funded at closing – 2.5%• Interest rate on debt – 5%• Levered return to investors – 6%
  18. 18. The Good—1 CBD OfficeSan Francisco
  19. 19. CBD Office San Francisco • Acquisition • Value-Add Deal • Built in 1912 • 129,000 Sq Ft • 14 Floors + Penthouse • 9,000 Sq Ft Floor Plates • Updated Common Areas
  20. 20. CBD Office San Francisco Strengths:  Rebounding market ‐ growing demand for this product type.  Prospective leasing providing “upside” potential.  Strong North Financial District location.  Experienced and capable sponsorship.  Good basis. Challenges:  Low occupancy at 74%.  Near term lease rollover ~50% in 2012-2013.  Capital required for tenant improvements, leasing commissions, and  building improvements.
  21. 21. CBD Office San Francisco Financing Summary:  Structure: Initial funding with a capital improvement and TI/LC “holdback” reserve.  Term: 4 years  Amortization: 1 year interest only, then 30-yr schedule  Recourse: non-recourse  Rate: Mid-4% fixed rate  Lender: Life Insurance Company  Prepayment: 2.5%  1%  0.5%  open last 6 mos. @ par.  LTV: 55%
  22. 22. The Good—2 Waterfront Office San Francisco
  23. 23. Waterfront OfficeSan Francisco • Refinance of Construction Loan • Redevelopment of Historic Piers • Completed in 2006 • 83,000 Sq Ft • 64,000 Sq Ft Office • 19,000 Sq Ft Restaurant • 40,000 Sq Ft Portwalk
  24. 24. Waterfront Office San Francisco Strengths:  100% occupancy; mix of quality tenants.  Irreplaceable asset in sought after waterfront location.  Experienced and capable sponsorship in partnership with a teacher retirement fund.  Low leverage (<50%) financing request. Challenges:  Office rents at upper end of SF Market ($55-$75 psf)  Ground leasehold and historic tax credits.  Major tenant rollover within loan term.  Restaurant income.  High $ psf loan request.
  25. 25. Waterfront Office San Francisco Financing Summary:  Use of Funds: Refinance construction loan  Term: 7 years  Amortization: 30-yr schedule  Recourse: Non-recourse  Rate: Mid-4% fixed rate  Lender: Life Insurance Company  Prepayment: T+100  2% year 5  1% year 6  Open year 7  LTV: 50%
  26. 26. Thank You

×