Breakout Session IX The Secondary Market and

Debt Refi Implications Studio D

10:45 am – 11:45 am

Thank you to our Alliance Partners

NADCO Spring Summit

Using the

SBA 504 1st mortgage lenders & secondary market

To market 504 Debt Refi

and win more

Presenters/Moderator Howard Anderson

SVP, National Sales Manager Zions National Real Estate

T: 801-844-8282 C: 801-699-1519 Howard.Anderson@zionsbank.com Ken Rosenthal

Sr. Advisor - CDC Capital Markets Representing Morgan Stanley

858-967-7817 krosenthal@cdcloans.com

David Frank SomerCor 504, Inc. - President

312.360.3300 cell (773) 255-6499 dfrank@somercor.com

Linda Reilly Chief, 504 Loan Program, SBA

202-205-9949 linda.reilly@sba.gov

504 Debt Refi

• Review statute by SBA – 50% rule, no refi of 7(a), subsidy requirements

• Refinance eligible conventional loans with new 504 • Find out if any existing PPP • Borrower existing equity = down payment • Split the loan balance (& cash out/improvements?)

between 1st and 2nd mortgages • Note, most 504 1st mortgage secondary market

players want to stay under 60% LTV on the first anyway

504 Debt Refi – Competitive Advantages

• 1st mortgage can be variable or fixed for 1, 3, 5, 10, or 25 years

• Combined with 20 year fixed rate 2nd mortgage

• Multiple options for borrower • Remember, all 504 1st mortgage secondary

market players allow 20% principal reduction per year with no penalty

504 Debt Refi – Out of the box Marketing Strategies

• Use of Co Star • Use of Title Companies • Marketing to industrial parks/directly to

owner users • Using Non Bank Lenders • Compete against banks holding on to loans • CPA Marketing • Refi Rollout meetings/webinars

504 Debt Refi – What could have been

• About six months ago, Zions refinanced a conventional loan in the amount of $1,800,000 so that the borrower could get a much reduced interest rate. This loan would have qualified for the SBA 504 refinance program if it had been available.

• Zions did a rate and term refinance on a conventional loan in

the amount of $1,025,000. The borrower’s cash flow was increased substantially because of the new term and the reduced interest rate. This loan met the qualifications of the previous SBA 504 refinance program.

Refi SBA 504 Existing 1st mortgages • Allow the 1st mortgage to be refinanced and leave the

debenture in place – SBA subordinates to new 1st mortgage • This is a defensive measure to keep the debenture rather than

having a conventional lender take out both the 1st & 2nd. • Morgan Stanley refinanced an existing 504 1st mortgage of

Harley Davidson dealer in Oregon that wanted better rates and terms. By keeping the debenture in place, the CDC kept the servicing income and MS gave the borrower a 25 year fixed rate 1st mortgage - rather than having the borrower use a conventional loan to pay off all existing debt.

• Zions refinanced a $740,000 existing 504 1st mortgage on a medical office building for a physician in southern California, which provided the borrower a much lower rate to go with the existing low debenture rate. The CDC retained the loan in its portfolio and the servicing income from it.

Marketing benefits to community banks

• Don’t lose customers’ deposits to competing banks just because you can’t perform on a particular loan request. Fund that loan with a lender in the secondary market instead and keep their deposits on your balance sheet.

• When a loan has a price reset coming up – say every five years – whether

it is your loan or that of another bank – you can have longer terms and lower rate options available to keep or win customers and their deposits by using the 504 first mortgage secondary market.

• Use the 504 Refi program to refinance conventional loans into a new 504 project offering the borrower better rates and terms

• Lenders in the secondary market are transactional and are not interested in a banking relationship with your customers. You keep and maintain your customer relationships at all times. They will never solicit your customers.

Why use SBA 504 1st mortgage secondary market?

• Rates and Terms of community banks vs regional/national banks

• Credit Box of local lender

• Refinance existing SBA 504 1st mortgages

• Keep the debenture in place and subordinate to new 1st

• 504 Debt Refinance

• Protect your customer base

• Out of market deals

• Local Lender legal lending limit

• Local lender Industry concentration

• Local Lender Borrower $ limit concentration

• Fee income to local lenders (or to CDC’s)

• Infinite return on investment to local lender and/or CDC

• Local lender ability to beat competition, maintain full relationship

• SBA 504 1st mortgage loan terms up to 25 years fully amortizing

• SBA 504 1st mortgage interest rates fixed for up to 25 years

SBA 504 1st mortgage secondary market players

Top Tier Pricing for Multi Purpose Collateral and Strong Credit Deals

CDC Capital Markets, representing Morgan Stanley

Nationwide SBA 504 1st mortgage with fixed rates up to 25 years

Nationwide SBA 504 1st mortgage with NMTC: 30 yr amort, fixed for 7 yrs at 5 libor + 175

Multi purpose properties only

Strong credit, 1.2 DSCR

Rates fixed up to 25 years, full amortizing for 25 years

One West Bank

California only – SBA 504 1st mortgage - mostly multi purpose properties, 1.2 DSCR

Some special purpose

Fixed rates up to 10 years

Zions Bank

41 states…started the secondary market in 1991

SBA 504 1st mortgages up to 65% LTV

Multi purpose properties only

Strong Credit, 1.2 DSCR

Rates fixed up to 10 years, fully amortizing for 25 years

SBA 504 1st mortgage secondary market players

Expanded credit box and collateral lenders

Avana Capital

Nationwide 504, Multi and Single purpose, interim and construction loans, wider credit box but higher rates

Business Loan Capital

EB 5 secondary market lender for 504

Fountainhead Capital

Nationwide 504, Multi and Single purpose, interim and construction loans, wider credit box but higher rates

Liberty SBF

Nationwide 504, Multi and Single purpose, wider credit box but higher rates

Thomas USAF

Rural 504 loan program, wider credit box but higher rates

Guidelines

• Direct Table Fund or Loan Purchase

• Most offer 25 year fully amortizing loan

• Variable or Fixed rates for 1, 3, 5, 10, & 25 years

• Pricing based on LIBOR Index Rates + spread

• Premium based on index rate + spread and prepay

• Max premium = first year PPP

5 year fixed rate example

$10MM SBA 504: $5MM 1st mortgage

5 Year Libor: 1.3% today

Par Spread: 225 basis pts

Par Rate: 3.55%

Increase rate: 50 basis points (2% premium)

Borrower Rate: 5 Year Libor Swap + 275 = 4.05%

Prepayment: 5/4/3/2/1 (Par)

Origination Fee: 1% to selling lender + .5% to SBA

Premium: 2%

Total Income: 3% = $150,000

25 year fixed rate Example

$10MM SBA 504: $5MM 1st mortgage

5 Year Libor: 1.75% today

Par Spread: 265 basis pts

Par Rate: 4.40%

Increase rate: 50 basis points (2% premium)

Borrower Rate: 10 Year Libor Swap + 315 = 4.9%

Prepayment: 10/9/8/7/6/5/4/3/2/1 (Par)

Origination Fee: 1% to selling lender + .5% to SBA

Premium: 2%

Total Income: 3% = $150,000

Logistics

• Email Credit Memo or Deal synopsis or call to discuss deal

• 24 hour pre qualification turnaround time

• Electronic processing to acquire package

• Formal Underwriting: 1 – 2 weeks

• Appraisal and Environmental coordination

• Fund 2 weeks after receipt of closing checklist items

Q & A

• Questions from the attendees • Discuss the value in following

through with these suggestions since this is what the successful CDC’s throughout the country have done for many years

12:00 PM – 1:15 PM • Diamond Awards Luncheon Esteban Escobar, CEO and Executive Producer 5:00 Films and Media

1:15 PM – 2:15 PM • Lessons Learned from the CDC Oversight Symposium Studio B • D&O/E&O Coverage: A Board & Management Perspective Studio D • Creative Uses for the Energy Initiative – Non Hotel/Motel Studio E • Debt Refi: Prepare Your Communications Strategy Studio F

What’s Up Next?