Real Estate Finance 301October 26, 2011

Tim Wright,Senior Managing Director

Page 2HFF, L.P.

Source: HFF

Life Companies• 50% to 70%  LTV (more going to 75% for multi-housing and higher quality deals)• Life Companies do have plenty of money beyond 10 year terms up to 30 years.• Interest rate floors have been instituted by most firms and are typically 4.00 to 4.50%. There

are some that will break 4.00% and stated floors for low leverage and shorter terms (7 yrs or less) and spreads are 200-250 bp with floors (3.50% to 4.00%).

• 25 to 30 Yr. Amort. (low leverage loans – some will quote full term I/O)• DSCR – 1.25x to 1.35x • Must increase allocation for next year and hit target for 2011

CMBS Aggregators• Up to 75% - May go higher as the focus is really on debt yields of <9% to 10% plus they now

can offer mezz to get them up to 85% LTV. • Up to 10 Years (5 to 10 years are typical - some are now offering 7 yrs but at higher spreads) • 30 Yr. Amort. (will offer 1 to 5 yrs. of interest only with LTVs of 65% or lower to win business)• CMBS spreads are 325-350 bp with all-in rates between 5.5% (best deals) - 6.0% – Pricing on 5

and 7 year deals is higher but still results in the same rate range.• DSCR – 1.25x to 1.35x

Debt Market Snapshot – Fall 2011

Page 3HFF, L.P.

Mortgage REITs and Debt Funds• 75% to 80%• Up to 10 Years• 30 Year Amort (will consider some 1 to 3 years of I/O)• Pricing 6.0% to 10% - want fees of 50 bps to 1% up-front as well as exit fees of 50 bps to 1%• DSCR – 1.00x to 1.25x• Good news money or structure

Commercial Banks – Bridge Lenders• 60% to 75% non-recourse in the 4% to 5% floating/fixed for 2 to 5 years for either stabilized

and/or transitional assets• Low Libor floaters popular with institutional buyers 50-60% LTV

Agencies• 70% to 80% LTV (lower LTVs & high quality assets with strong sponsors will break rates

below)• Requires 1.25x-1.30x DSCR (1.30x required for cash out)• Cheapest fixed rate spreads are Freddie CME execution• Freddie portfolio execution is roughly 50 bps higher than CME 4.25 vs 4.75%• Fannie roughly 15 bps higher than Freddie CME• Both compete well with each other buy losing some market share on high quality assets

Source: HFF

Debt Market Snapshot – Fall 2011

Page 4HFF, L.P.

Project: Circa 37 Apartments

Tactics:• Maximize cheaper first lien dollars, while still leaving enough mezz to be interesting to

mezz lender• Demonstrate a sensitized exit scenario showing the mezz could be readily taken out with a

permanent loan.

Issues:• Negotiating intercreditor such reporting and control could be done efficiently• Ability to exit out of Mezz early as possible while offering investor a reasonable multiple.

Current Trends:• More non-recourse debt available at higher leverage today, but still debt yield driven• Mezz money has come down in pricing • Structure becoming more common again in this cycle so pre-negotiated intercreditor

agreements are becoming easier to find.

Description:  306 Unit Class A Multi-Family  San Diego

Total Budget: $72MM - $235,000 per unit  Assignment:  Arrange maximum leverage non-recourse

construction financing

Challenges:  Limited number of banks offering non- recourse and those that were lower leveraged

Solution: Engineer a construction facility with a mezzanine piece to get to 80% LTV

Page 5HFF, L.P.

Project: Sheraton LAX

Tactics:• Demonstrate a very low exposure per key to Lender.• Touring the asset was a must because quality of the asset relative to peer group was readily

apparent.• Review of historical numbers reflected hotels performance is strong market and budgeted numbers

were inside of peak.• Articulate clear business strategy to modify demand mix to push rate (less crew, new corporate

contracts) to fall in line with the peer group.

Issues:• EBITA reflected operations at very high occupancy (90% plus)- lenders wanted to underwrite 80% or

less- exacerbating the sizing issue.• Airport sub-market perceived as limited with respect to rate growth.

Current Trends:• Bank lenders still looking for 11 to 12% debt yields on trailing 12 and properties with consistent

history.• Transitional properties remain difficult to finance at low life or bank rates (province of the debt

funds)- 4% vs. 7% plus• CMBS not competitive with life co’s or banks but provide reasonable fixed rate alternative again.

Description:  802 Key Full Service Hotel

Financing: $47.5MM  

Assignment: Refinance existing loan with flexible, low coupon, interest only debt

Challenges: • Hotel recovering from downturn and T-12

underwriting did not support requested financing.• Hotel running at very high occupancy but needed to

push rate.Solution: • Given tangible improvement in operating results, lender was able to provide aggressive initial

funding loan and offer a compelling earn out that could be realized in as little as 6 months.  Major bank financed at low spread over LIBOR for two years with two, one year extensions.

ULI Fall Meeting 2011Real Estate Finance 301

October 26, 2011

Gary GowdyManaging Director, UBS Global Asset Management, Real Estate

7

Gross assets – USD 16.1 billion

Overview of UBS Global Real Estate funds in the US

Assets by geographic region(USD in millions)

Assets by property type(USD in millions)

$567 4%

$1,380 10%

$838 6%

$2,694 18%

$4,147 28%

$5,025 34% Apartments

Office

Retail

Hotel

Industrial

FarmlandWest

4,98735%

South2,44717%

Midwest1, 47411%

East5,17737%

8

· San Diego, Class A townhome apartments

· TPI construction/permanent loan

· $40 million investment (90% LTV, $290 thousand per unit)

Participating mortgage structure

6.0%Interest

50% of remaining cash flow

8.0% IRR hurdleplus 50%of appreciation

=++ Total return

to TPI

Illustrative example

San Diego, CaliforniaFirst mortgage with sharing in cash flow and appreciation

9

Chicago Industrial

10

Meridian at Eisenhower StationAlexandria, Virginia

11

Hilton Carlsbad Oceanfront Resort & SpaCarlsbad, CA

12

Wythe ConfectioneryBrooklyn, New York

13

2011 ULI Fall Meeting

Douglas D. O’Donnell Los Angeles, CA

October 25-28th, 2011

Talking Points

14

1. Speculative

2. Value Added

3. Build To Suits

4. CORE

Equity & Debt For Industrial Projects

Speculative Projects

15

(Intentionally Blank)

Value Added Buildings

16

• 60% LTV

• 2 Year Term

• Tough Underwriting

• Recourse (LIBOR + 300)

• Non Recourse (6-8%)

• Buildings Bought Below

Replacement

• Pension Funds, REIT’s,

Advisors, Private Money

• +/- 20% Levered IRR’s

• 10% Co-Investment

EquityDebt

Build To Suits

17

• 70% LTC

• 2 Year Term

• LIBOR + 275 BPS (2.99%)

• Recourse

• Major Banks

• Strong Tenant Required

Debt

• Pension Funds, REIT’s,

Advisors, Private Money

• +/- 15% Levered IRR’s

Equity

CORE Assets

18

• 65% LTV

• Short & Long Term

Available

• 4.5-5% 10 Year Fixed

• Non-Recourse

• Life Insurance Companies,

Banks & CMBS

• Pension Funds, REIT’s,

Advisors, Private Money

• +/- 15% Levered IRR’s

EquityDebt

Real Estate Finance 301

Ken Kahan, Principal

California Landmark

Fall 2011

Fall 2005

For Sale

1817 Prosser

1303 Wellesley

Rent vs Buy    FHA 30 Yr Fix 30 Yr Fix 7/1 arm

    Princ. & Interest Princ. & Interest Interest Only

  Rate 4.125% 4.375% 3.875%

  Points 0.000 0.000 0.000

  Down Payment % 3.50% 20.00% 20.00%

Sales Price $ 500,000 $ 500,000 $ 500,000

Down Payment $ 17,500 $ 100,000 $ 100,000

Loan Amount $ 482,500 $ 400,000 $ 400,000

Base Loan + MIP $ 487,325    

Monthly Payment Information

Principal and/or Interest $ 2,362 $ 1,997 $ 1,292

Property Taxes $ 521 $ 521 $ 521

Mortgage Insurance Premium $ 467 $ - $ -

Ho-6 Insurance $ 40 $ 40 $ 40

HOA Dues $ 325 $ 325 $ 325

Total Payment $ 3,715 $ 2,883 $ 2,178

Estimated Tax Savings (35% bracket) $ (769) $ (693) $ (634)

Amortization Savings $ (703) $ (539) $ -

Estimated Economic Cost $ 2,243 $ 1,651 $ 1,543

Rent Equivalent $ 3,200 $ 3,200 $ 3,200

Savings via Ownership $ 957 $ 1,549 $ 1,657

Jerry RappaportCHR Investors

Opportunistic Distressed Recapitalization

Property Description

Opportunity

• Market: 86% occupied• 30,000 SF tenant signed at closing

Highlights

• Developer imputed equity disappears• Developer funds 10% of new equity• JV receives 20% after 15%

Southpoint Executive CenterMaitland Green I & IIOrlando, FL

• Three suburban office buildings; 330,000 SF• 50% occupied• Purchase price $55 PSF• Capital reserve $40 PSF• 50% of replacement cost

Property Description

Property: 11-story Class A office asset built in 2010 totaling 281,623 SF Pricing: $27.5M ($98 PSF) – 30% of development costs $43M ($152 PSF) – Projected all-in cost - 50% of replacement cost

Opportunity

• Purchased $56 million loan for $27.5 million• Signed 100,000 SF lease at closing• Provided $7 million in transaction costs at closing

Highlights

• Developer/Property manager kept in place• No initial debt recapture to Developer• 20% after 15% preferred IRR to equity; 20% after unlevered 12%

Opportunistic Distressed RecapitalizationOne Park Square at

DoralDoral, FL

Value-Add AcquisitionGut Renovation of Failed

Condo

Property Description

Property:

Original Developer Basis

Acquisition Cost: $120,000,000Capital Improvements: 45,000,000 Total: $165,000,000

Project Capitalization

Alden Tower at Longwood TowersBrookline, MA

• Unit Count: 86 of 260 in three building complex• Size: 90,000 SF

CHR Purchase Price: $18,000,000 Debt $18 MM

Renovations: 12,000,000 Dev. Equity $ 6 MM

Total Cost: $30,000,000 Mezzanine $ 6 MM

$6.0 million mezzanine at 10% current pay Total $ 30 MM

(60-80% of capital stack)

Alden Tower Basis: $55 million

Value-Add AcquisitionInfill Development

Property Description

Property:

Project Costs

Acquisition: $52,400,000New Construction: 8,400,000Capital Improvement Reserve: 2,200,000 Total $63,000,000

Sources

Norwest WoodsNorwood, MA

• Original units: 322• Phase 1: 45 units• Infill Units: 54

Debt: $38,100,000

Construction Debt: 8,400,000

Investor Equity: 8,250,000

CHR Subordinated Equity: 8,250,000

Total $63,000,000

Equi

ty C

hara

cter

istic

s

20% after 12%

Evolved to 50% after 8%

20% after 10%

50% after 17%

JVTe

rms

Equity Terms: 2006 vs. 2012

2006 2012 Debt replaced equity Value determined price

Minimum leverage No value add debt Cost equals value

Equity chasing deals Equity doesn’t want JV headache

Significant predevelopment dollars available/at risk dollars shared

Risk averse—all risk must be wrung out of deal

Trees grow to the sky—don’t want to lose opportunity

Lack of trust in projections

Guarantees by equity source are not real equity—price to play the game/access deal

No equity guarantees available

0-5% co-invest 10-20% co-invest

Dis

creti

on/

Appr

oval

s 2006 2012 Sponsor had leverage

Joint approval

Buy/sells

Hope certificate to Sponsor

Equity controls decisions

Avoid legal complications

Co-In

vest

Opportunity funds and value-add funds

Lehman leverage/bifurcated tranches of conduit debt/equity

85-97% leverage

Non-recourse debt

Fund of Funds to local operators/funds

Investment advisors of HNW family offices

65-75% leverage

RECOURSE debtSour

ce o

f Eq

uity

/Cap

ital

Stac

ksEquity Terms: 2006 vs. 2012