2010 NC-CCIM Charlotte Commercial Real Estate Market Forecast
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Transcript of 2010 NC-CCIM Charlotte Commercial Real Estate Market Forecast
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2010 NC-CCIM Charlotte Commercial
Real Estate Market Forecast
“Commercial Real Estate Debt: Market, Availability, and Characteristics”
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Review
Where have we been?
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2005 -- 2007
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2009
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What Happened?
• Capital adequacy questioned
• Liquidity evaporated• True asset value
incalculable• Transactions stalled
»Inability»Unwillingness
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What Happened?
• 2007 - CMBS Issuance = $230 Billion
• 2008 - CMBS Issuance= $14 Billion
• 2009 – CMBS Issuance= nil
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What Happened?
• 2007 – Insurance Company Commitments
= $42.7 Billion• 2008 – Insurance Company
Commitments= $24 Billion
• 2009 – Insurance Company Commitments
= $16 Billion
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Can you finance multifamily and
commercialreal estate??
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SURE! (cautiously…..)SURE! (cautiously…..)
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MARKET
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2010
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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
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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% • Freddie 2008 -- $24 B
2009 -- $17 B2010 -- $12-14 B Expectation
• Expect Insurance Companies to Retake Share
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AVAILABILITY
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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
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Loan Types Available Today
•Forward commitments are tough (3+ months)
•Credit tenant lease (CTL)•Acquisition / bridge loans•Mezzanine and preferred equity•Note acquisition financing
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CHARACTERISTICS
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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
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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
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Loan Characteristics
• Debt Yield………what’s a Debt Yield?• Combines cap rate and LTV ratio• NOI (or net underwriting cash flow)
divided by loan amount7.90% cap; 65% LTV = 12% DY8.125% cap; 70% LTV = 12% DY9.00% cap; 75% LTV = 12% DY (75 bps less in cap rate = 11% DY)
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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
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Rate Comparison
• Pre-meltdown10 year Treasury = 5.26%
Spread = 100 basis points
Coupon = 6.26%
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Rate Comparison
• Present day10 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%
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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
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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
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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
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201?