17/10/2015 by: Elena Dilara 1 CMBS and Servicing Hatfield Philips International An LNR company

17/10/2015 by: Elena Dilara 2 What is CMBS ?  CMBS are bonds sold through the capital markets, whose payments are backed by commercial loans  CMBS are a segment of structured finance markets (or securitised markets)  Other segments: ABS, RMBS, CDO etc.  CMBS are typically rated by one or more rating agency

17/10/2015 by: Elena Dilara 3 Volume Trends in Billion £’s In terms of issuance: 1998: : : : : : : : 43.1 Characterised by:  Majority of issuance has been in £  Maturity of notes an average of 5- 7yrs  Prepayment risk is high  Average prepayment in high Y loans is 2yrs  Above average returns for below average risk in across other investment types

17/10/2015 by: Elena Dilara 4 CMBS and un-Securitised Deal Volumes in U.S., U.K. and E.U.  U.S.A. 40% - 60%  U.K. 25% -75%  E.U. 11% - 89% More Growth in years to come !!!!!!!!!!!!!

17/10/2015 by: Elena Dilara 5 European 2005 Securitisation Platform  CMBS:13.4%  CDO’s: 14.4%  ABS: 26.2%  RMBS: 46.0%

17/10/2015 by: Elena Dilara 6 How does it work? Loan Trust Bonds Pooled and transferred Issues bonds Rated Bonds AAA to B-/B3 Rating Agenc’s CMBS bonds bought by investors Investors

17/10/2015 by: Elena Dilara 7 The parties involved  Originators  Rating Agencies  Trustees (Note and Security)  Issuer  Swap Counter-parties  Investors  Servicers  Liquidity Providers  Information Sources (Bloomberg and TREPP)  Associations and Federations

17/10/2015 by: Elena Dilara 8 Rating agencies  There will be a few as one and as many as four rating agencies  They provide an OPINION on FULL and timely receipt of INTEREST Ultimate receipt of PRINCIPAL to Noteholders for each class  Each have different methodologies  Each use different models  Assessment of Risk PROPERTY AS LOAN SECURITY LOAN LOAN POOL STRUCTURE of NOTES

17/10/2015 by: Elena Dilara 9 Rating agencies  DO NOT PROVIDE RECOMMENDATION to: BuySell Hold securities or Trade  Only Address CREDIT RISK Not marketability / liquidity of Notes Not advise on Prepayment risk and potential impact on Yield to investors

17/10/2015 by: Elena Dilara 10 Trustee and Servicer   Trustee The trustee’s primary role is to hold all the loan documents and distribute payments received from the master servicer to the bondholders. The trustee typically delegates its authority to either the loan Servicer or the Master servicer   Master Servicer’s responsibilities service the loan, collect the payments from the borrower report on the performance of the loan maintain all of the responsibilities and duties to the trust under the PSA (Pooling and Servicing Agreement)   Primary or Sub-servicer In some cases the borrower may deal with the primary servicer that may also be the Originator / Mortgage Bank

17/10/2015 by: Elena Dilara 11 Servicing   B-Piece buyer The investor in the most subordinate bond classes is commonly referred to as “B piece buyer”. Given that losses come out from lowest rated bonds, the PSA provides the Directing Certificate- holder the opportunity to play an active role in monitoring the performance of each loan, make decisions on key asset issues and appoint and/or terminate the Special Servicer.   Special Servicer Upon occurrence of certain specified events, primarily a default, the administration of the loan is transferred to special servicing. The Borrower receives notification from the master or special servicer if its loan has been transferred to special servicing. The special servicer must act to maximise the recovery of the loan to the bondholders by analysis of collection alternatives, i.e. (loan modification, foreclosure, deed in lieu, negotiated payoff or sale of the default loan) using NPV methodology.

17/10/2015 by: Elena Dilara 12 Payment Distribution The master servicer is responsible for collecting payments from the borrower Borrower Bondholders Special Servicer Master Servicer Trust The trustee distributes payment received from the Master servicer. The trustee acts by and through either the Master servicer or the special servicer Each month the interest received from all the pools loans is paid to investors

17/10/2015 by: Elena Dilara 13 Types of CMBS Transactions  Credit Tenant Lease Transactions  Single Borrower – Single Property  Single Borrower – Multiple Properties  Multiple Borrowers – Multiple Properties  Synthetic CMBS Transactions  Whole Business Securitisations

17/10/2015 by: Elena Dilara 14 LEI and HP LNR and Hatfield Philips

17/10/2015 by: Elena Dilara 15 LEI LEI is a pan-European real estate private equity investment vehicle, whose primary purpose is to evaluate, make and actively manage investments in real estate related debt instruments and securities. Who’s Who?Equity Investment LNR Holdings£180,000,00050% PSP£ 75,000,00021% Teachers Insurance£ 15,000,000 4% Bank of America£ 15,000,000 4% ABP£ 75,000,00021% Total equity investment is £360,000,000

17/10/2015 by: Elena Dilara 16 BREAKDOWN OF INVESTABLE FUNDS Investor Equity £360,000,000 Fund Leverage 55% Investable Funds£800,000,000 WHAT DOES LEI INVEST IN CMBS, Subordinate Notes, Mezzanine Debt, NPLs, R/E Equity

17/10/2015 by: Elena Dilara 17 LEI Investment Breakdown by Deal Type  CMBS 47% Bonds collateralised by a pool of 1 st charge mortgages on commercial real estate  Subordinate Notes 34% Secured note collateralised by a subordinate position in a 1 st charge mortgage on commercial real estate  Mezzanine Debt 19% Loan to a real estate holding company secured by a second mortgage or a pledge of the shares of the holding company

17/10/2015 by: Elena Dilara 18 Deal Breakdown by Property Type and Jurisdiction

17/10/2015 by: Elena Dilara 19 Hatfield Philips history  PTG - Lehman  Securitisation - other Originators  Investor Reporting  Special Servicing

17/10/2015 by: Elena Dilara 20 HP Deal Statistics  Market Share: 21 Deals 11 Billion Euros 100% CMBS  Servicing by jurisdiction: 36% U.K. 35% Germany 13% France 7% Italy 7% Italy 9% Other 9% Other  Competition: GMAC and Banks that service internally

17/10/2015 by: Elena Dilara 21 Structural Issues in European CMBS  PoP – Sequential Triggers  Multi- jurisdictional issues when enforcing security  Individual Loan PoP in Joint Contributor Transactions  Available Funds Caps  Release Amounts  A/B Noter Structure compared to Mezz joint Inter-creditor Agreement

17/10/2015 by: Elena Dilara 22 Servicing Issues  Transparency timely presentation of information so it can be communicated evenly across the market as is super sensitive when it comes to pricing  Originator - Servicer- B piece holder underwriting models, servicer reports, special servicing  Guidelines in Reporting CMSA  Value added reporting  Covenant compliance  Notification periods for Prepayments or Watchlists  Special Servicing