Presentation on theme: "Ingenuity wins. State of the Market. Ingenuity wins. State of the Market What does the mortgage market currently look like? Pricing Value Property Types."— Presentation transcript:
Ingenuity wins. State of the Market What does the mortgage market currently look like? Pricing Value Property Types Lending Platforms Financial Structures Katrina-New Orleans/Atlanta Equity is the vision of the future, Debt reflects the past
Ingenuity wins. Pricing RATES In Basis Points (9/9)20042005 Short Term Libor175373 Prime450650 Long Term 5 yr334391 10 yr413411 SWAPS 5 yr4443 10 yr4444 SPREADS In Basis Points (10 yr) Multifamily105-11590-100 Commercial115-130100-120
Ingenuity wins. Pricing You could receive more loan dollars through debt service coverage this year unless you have value constraints Currently, 10-15BP lower coupon on 10- year term compared to last year
Ingenuity wins. Value CAP rates right now 300 BP premium over Treasuries Retail OfficeApartment Moodys Baa Corp Moodys Aaa Corp 10Y TBill5Y TBill
Ingenuity wins. Value Rating services feel market is frothy due to LTV at over 100% Use a stressed cap rate (i.e. 200 BP premium in office) Worst case scenario on rents – rollover or concessions If Cap rates go up, investor will need to depend on Positive changes in real estate fundamentals (rents, occupancy and expenses) Appreciation No current fear Cap rates down.5% over the last year First Qtr20042005 Retail7.77.2 Office8.27.6 Multifamily7.16.6
Ingenuity wins. Property Type Fundamentals appear to be improving as rent and occupancy are stable to slightly positive Potential issues on expenses with higher repair materials, insurance and taxes Market is getting better slowly OfficeIndustrialRetailMultifamily RatingWeak Fair OutlookImprovingStableImprovingStable Vacancy20.50%14.80%12%9.70% Total190/$2B56/$258M523/$2.97B406/$2,435B Foreclosure/REO1/$819K1/$4.9M2/$14.8M11/$89.5M Total Delinquent 4/$13.25M 2% /.6% 1/$4.9M 1.8% / 1.9% 3/$17.75M.6% /.6% 16/$123.4 3.9% / 5%
Ingenuity wins. Platforms Conduit Match investor with risk/return from super-senior AAA CMBS (30% subordination) to first loss Money is plentiful thanks to the yield crossover from investors wanting relief from the stock market and low bond yields Higher leverage available through property secured B piece or borrower secured Mez piece - 85% to 90% LTV stack is typical Structure to borrower cash flow needs Interest only Reserves waiver (springing) Relax warm body guarantees Forwards Early prepayment Dont be afraid to ask
Ingenuity wins. Platforms Agency Fannie Distracted-has not changed pricing matrix in a year Waivers are a necessity to compete in the market Watch List is growing Strong underwriting expertise in niche areas Senior Living, Manufactured Housing, Student Housing, Tax Exempt, Credit Facilities and Structured Debt Freddie One of the highest concentrations in Atlanta Very competitive pricing 85-95 BP on 9/1 fixed/float term and 200 BP on floater over reference rate Rate lock up to 24 months IO with small premium in pricing Still a force in the market but concern over Watch List and Concentration issues. Supplemental funding still an important loan feature.
Ingenuity wins. Platforms Life Company Converted from vanilla deals to structured transactions – A/B, float to fixed, flexible prepayment etc. For 60% LTV – 65 to 80 BP in spread Quality matter in pricing High Quality PricingCommercial100-125 BP Multifamily 95+/-BP Lesser Quality PricingCommercial 130-150 BP Multifamily 100+BP Forwards up to 18 months priced at 3 BP a month after the first 90 days Rate lock at application with or without third party reports IO 1-2 years for 70%-75% LTV... not the same old Life Companies
Ingenuity wins. Platforms Construction Recourse Corporate guarantees accepted Smaller guarantee percentages for right sponsorship (25-50%) Sub 200 BP pricing with.25 to.50% origination fees Mixed use finance Non Recourse 20-25% real equity High interest reserves 300-325 BP pricing with 1% front end and exist fees GMAX contract Condos with presales
Ingenuity wins. Platforms Rising costs, land shortage in desirable urban areas and spot over supply will prove challenging Much like todays cars and computers with many parts and components from a variety of sources, mortgages can have participants and piece buyers from all platforms - Liquidity
Ingenuity wins. Structures Grade A Office Refinance with concessions and occupancy in the 70% range Life Company Senior Debt on an A/B structure – up to 65% LTV A Fixed-Yield Maintenance B Floating-Fixed Prepayment Premium 18 months Term 3 years Mez from another Lender – up to 80% LTV Floating with Libor Cap Coterminous Term Cash Sweep for Debt Service and TI/LC
Ingenuity wins. Structures Grade B Office Acquisitions with concessions and occupancy in the 70% range Conduit Interim Floater with 3 year term and 2 (1) year extensions LTV 75% Libor Cap with progressive strike rate based on cash flow Springing cash flow sweep based on major tenant renewals Mez same lender but through new market tax credit investors Fixed rate 25% below typical conduits 88% loan to cost
Ingenuity wins. Structures Grade A Multifamily Acquisition with occupancy concessions in the 80% range Conduit 10 year fixed rate execution at below 100 BP pricing Individual SPE and carve out guarantees for TIC Investors up to 35 80% loan to cost with an additional B Piece of 5% at a 10% fixed rate – DSC 1.20 on A Piece and 1.15 on B Piece
Ingenuity wins. Structures Grade B Multifamily Refinance with physical occupancy at 93% and concession at 16% Conduit fixed rate execution for 5 years at 125 BP Guarantee from borrowers for loan amount difference between 1.10 and 1.20 DSC (8% of loan amount at closing) Release of Guarantee with trailing 3 months NOI at 1.20 DSC One year IO with 30 year amortization
Ingenuity wins. Katrina- New Orleans/Atlanta New Orleans may never be the same, at least not for a very long time. It will take at least a year before life can return to anything resembling normal in most of the city, and some of the worst-affected areas may never be rebuilt. Consequences for property owners in New Orleans could be very serious. In many parts of the city, insurance claims will be the only asset with any value. The economic implications are ominous in the near-term, since the city relies heavily on tourism that will not exist for at least several months, if not years. Damage to infrastructure for the Port of New Orleans and for the oil and natural gas industry will cause some temporary setbacks to the local economy. The labor markets in neighboring states are competitive. Displaced workers may need to travel longer distances to find jobs and housing. Nearby cities such as Houston, Dallas, Memphis and Atlanta may benefit from the relocation of thousands of people from New Orleans and other affected areas. Demand for apartments, retail space and office space is likely to increase in these markets.
Ingenuity wins. The End You are cordially invited to have a cocktail with me at dinner tonight…. to commiserate about the market!