1. Presentation by Harvey Kasin, Hypo Real Estate Bank International AG
Bank Funding of Retail property
November 2008

2. Introduction What is Property Lending? Retail Property Lending
An Example
Property Stats

3. What is property lending?
Lending a proportion of the cost of construction or value of a property
Senior lending 0 – 75%
Mezzanine lending 75 – 85%
Stretched mezzanine 85%+
How we earn money
Margin
Fees
Profit share
Key Terms
LTV
LTC
ISC
DSC
Exit Yield
Amortisation / Bullet
What happens when things go wrong?
Why?
LTV breach – market changes, income fall
ISC breach – centre / tenant failure, vacancy
More serious than other types of Real Estate
Receivership or administration

4. Retail Property London
Investment
Typical 75% LTV
Quality of Asset Manager / track record
Anchor tenants
Occupancy levels
Quality of scheme / mix of tenants
Retail hierarchy / competition
Rental income / value
Asset Management Opportunities
Development
Development experience and design team
Design / layout location position of key tenants
Procurement route
Cost management
Cost overrun guarantees
Period of loan / stabilisation
% pre let
Key Factors
Property on a ladder
Day 1 LTC/LTV
Cash flow assumptions made
Exit Yield

5. Retail Property London
Stand alone shop or parade
Quality of covenant
Rent & term of lease
Pitch & quality of town
In town shopping centre
Lot size
Competition
Condition, capex
Quality of Asset Manager etc
Asset Management opportunities
Out of Town
Planning
Environment
Car Parking
FOC Factory Outlet Centres
Demographic Profile
Quality of management
Partnerships of landlord & tenant

6. European Investment Market Prime Yields

7. European Investment Market Prime Rental Growth

8. An example
A well experienced client approaches us to fund his purchase of the main shopping centre in well established strong town. The centre is considered by the market as a prime shopping centre.
March 2007
Rent
£10m
ERV
£12.5m
Cap Yield 5%
Reversionary Yield
6.25%
Value
£188.5m
LTV
75%
Loan
£141.38m
5 yr cost of finance
5.5%
Margin
0.75%
Interest Bill
£8.85m
ISC
1.13
Bullet or Amort?
November 2008
6.25%
7.81%
£150.80m
94%
£141.38m
0.75%
£8.85m
1.13
Bullet or Amort?
November 2008
£10m
£12.5m
6.25%
7.81%
£150.8m
75%
£113.10m
3.7%
3.0%
£7.6m
1.31
Bullet or Amort?
June 2009
£10m
£7.5m
7.0%
5.25%
£134.65m
85%
£114.45m
3.0%
1.5%
£5.15m
1.95
Bullet or Amort?

9. Development is proceeding faster in maturing/emerging markets

10. Retail investment volumes have remained low into 2008

11. 2008 Shopping Centre openings
City / Town
Opening date
Total size of scheme sq ft
Total size of scheme sq m
Victoria Square
Belfast
March 2008
800,000
75,000
Houndshill
Blackpool
September 2008
398,000
37,000
Market Place
Bolton
276,000
25,000
Cabots Circus
Bristol
1,000,000
92,900
Grand Arcade
Cambridge
450,000
42,000
Eden
High Wycombe
51,000
High Cross
Leicester
560,000
52,000
Liverpool One
Liverpool
May 2008
1,700,000
160,000
The Elements
Livingstone
October 2008
375,000
35,000
Westfield
London
1,600,000
150,000
Trinity Square
Nottingham
November 2008
190,000
17,500
Eagles Meadow
Wrexham
400,000
Union Square
Aberdeen
Autumn 2009
700,000
65,000
Arc (formerly known as the cattle market)
Bury St Edmonds
Spring 2009
430,000
40,000
St David’s 2
Cardiff
970,000
90,000

12. Investment Market Summary
Change in buyer profile – low geared Opportunity Funds or Vulture buyers
Due Diligence and decision making significantly slower
Continued Outward shift in vendors price expectations
Distressed vendors and ‘Off market Discussions’
Return to the market of some familiar names
More attractive returns for property from lower Capital Value Base
Re-pricing of risk-increased discount for Secondary Property

13. Retail Investment – The next Few Months
Few buyers with access to significant equity
Valuations generally continuing to fall
Retailers Christmas trade will affect confidence in the sector
Debt buyers unlikely to return in the very short term
Opportunities exist for genuine buyers

14. Growth in shopping centre stock

15. Major retail investment deals Q1-3 2008