1. 2010 NC-CCIM Charlotte Commercial Real Estate Market Forecast “Commercial Real Estate Debt: Market, Availability, and Characteristics”

2. Review Where have we been?

3. 2005 -- 2007

4. 2009

5. What Happened? Capital adequacy questioned Liquidity evaporated True asset value incalculable Transactions stalled »Inability »Unwillingness

6. What Happened? 2007 - CMBS Issuance = $230 Billion 2008 - CMBS Issuance = $14 Billion 2009 – CMBS Issuance = nil

7. What Happened? 2007 – Insurance Company Commitments = $42.7 Billion 2008 – Insurance Company Commitments = $24 Billion 2009 – Insurance Company Commitments = $16 Billion

8. Can you finance multifamily and commercial real estate??

9. SURE! (cautiously…..) SURE! (cautiously…..)

10. MARKET

11. 2010

12. Lender Types Active Today Insurance companies Freddie Mac; Fannie Mae; FHA/HUD Bridge lenders Mezzanine lenders Preferred equity providers Banks CMBS Lenders Non-traditional lenders

13. Lending Activity Snapshot 2010 – CMBS Issuance = re-hiring, limited lending, priming the pump 2010 – Insurance Company Commitments (Expected) = $32 – 36 Billion Fannie/Freddie Market Share = +/- 80% Freddie2008 -- $24 B 2009 -- $17 B 2010 -- $12-14 B Expectation Expect Insurance Companies to Retake Share

14. AVAILABILITY

15. Loan Types Available Today Immediate funding interim and permanent loans »Acquisition, refinance »Fixed or variable rate »Bullet or self-amortizing »3 to 20 year terms (30-35 for multifamily) »Amortization 15-25 years with some 30- year schedules (FHA – 35) and limited interest- only

16. Loan Types Available Today Forward commitments are tough (3+ months) Credit tenant lease (CTL) Acquisition / bridge loans Mezzanine and preferred equity Note acquisition financing

17. CHARACTERISTICS

18. Loan Characteristics Borrower is key Primary and secondary markets Four major food groups Fundamentals must all be in place Amortization is critical Recourse is back in some instances

19. Loan Characteristics Tighter underwriting Submarket vacancy or actual Above-market rents may be adjusted downward Higher cap rates (what IS a cap rate?) Lower LTV, although some recovery Collections, debt coverage and debt yield are king 1.20 - 1.45x DCR 11% -- 14% debt yield

20. Loan Characteristics Debt Yield………what’s a Debt Yield? Combines cap rate and LTV ratio NOI (or net underwriting cash flow) divided by loan amount 7.90% cap; 65% LTV = 12% DY 8.125% cap; 70% LTV = 12% DY 9.00% cap; 75% LTV = 12% DY (75 bps less in cap rate = 11% DY)

21. CMBS Underwriting/Structuring $10 million minimum size range Four major food groups; will go to smaller markets 70% LTV (maybe higher with blended mezzanine) 1.30x DCR 12% debt yield 6.25% rate (10-yr) plus ½% loan fee 5/7/10-year term; 30-year am. NO interest-only Hard lock box; escrow for taxes, insurance, reserves May or may not reserve for TI and commissions

22. Rate Comparison Pre-meltdown 10 year Treasury = 5.26% Spread = 100 basis points Coupon = 6.26%

23. Rate Comparison Present day 10 year Treasury = 3.85% (as of 3/26/10) Multifamily Spread = 190 - 220 basis points Coupon = 5.75 - 6.05% Commercial Spread = 225 - 325 basis points (+/-) Coupon = 6 - 7%

24. Rate Comparison 5-year money in the 5’s 7-year money in the upper 5’s 5-year multifamily money, <55% LTV, in the upper 3’s INTEREST-ONLY

25. Conclusions Uncertain regulatory environment Banks may apply pressure or bifurcate loans Borrowers may be forced to choose asset capitalization Equity requirements greater and new construction will be slow

26. Conclusions BUT……. More capital sources returning to market LT debt more than twice the availability of 2009 Underwriting moving up the LTV, DCR curve Pricing getting more attractive/competitive

27. 201?