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Alternative Debt Financing Options October 14, 2014

Philip S. Rachels – Senior Vice President, Debt & Structured Finance CBRE | Capital Markets

Todd Trehubenko – Senior Vice President, Multifamily Finance

Walker & Dunlop

Chris Tokarski – Principal & Managing Director

Coastal Capital Partners

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TOPICS 1) Non-recourse high leverage bridge based on total capitalization.

• We are seeing 80-85% for multi-family at competitive rates

2) Higher leverage senior CMBS • Blended mezz into the senior trust

• Structured mezz above same senior lender

3) FHA • Structure

• Timing to close

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Alternative Debt Financing Options

Case Studies

1) Bridge, Conduit, and Mezzanine – Todd Trehubenko

2) Acquisition, Reposition, Earn Out – Chris Tokarski

3) FHA for Acquisition and Conversion – Todd Trehubenko

4) Broken Condo Sell Down – Chris Tokarski

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New Products in an Evolving Market • Interim Loan Program (bridge financing) created in 2013

• CMBS program created 2014

• Continuing to diversify – mezzanine, preferred equity, etc.

Can evaluate all opportunities across all channels

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Bridge, Conduit and Mezzanine • Gulf Coast portfolio acquisition

• 6 Properties in TX and LA

• 1,032 apartments

• Strong competition for portfolio

• $72.2 million in new financing:

o $35.4 million bridge loan over three properties, crossed

o $31.4 million CMBS loan, 10-year term (4 years IO)

o $5.4 million mezzanine loan

• Executed as a single transaction, one underwriting and one closing

Case Study 1

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Acquisition, Reposition, Earn Out

•$32,400,000 ($178,000/unit, $240/SF) for the acquisition of a 10 property portfolio consisting of 173 multifamily units (6 to 60 units per property).

• Funded $30,400,000 at closing $2MM of future funding for unit renovations and capital improvements.

•Earn-out of $15MM of additional proceeds upon achieving annually increasing DY hurdles:

• (6.25%, then 6.5%, then 6.75%)

•minimum DSCR (1.47x through month 12, increasing 6 bps every 12 months thereafter)

•maximum LTV of 75%

• In-place rents across the portfolio are 38.0% below market on average (subject to rent control).

First Mortgage

/ Mezz

Combination

Purpose Acquisition

Loan-to-Cost Initial

65%

Loan-to-Cost w/ Earnout

95%

Term 3+1+1+1

Amort IO

Rate L+4%

Fee 1% in

Call Protection 18 months

Starting DY 5.8%

Stabailzed DY 7.0%

Case Study 2

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Other Deal Terms Release Provisions:

•Properties can be released at the greater of 1. 110% of the allocated Loan Amount; or 2. a post-release debt yield on the remaining portfolio equal to the

greater of: a. 7.00%; or b. debt yield immediately prior to release

Cash Management:

• Event of Default • BK proceeding of Borrower, Guarantor or property manager • DSCR less than 1.35x during the Initial Loan Term • DSCR less than 1.55x during any Extension Term • Debt Yield less than 6.0% during Initial Loan Term • Debt Yield less than 6.75% during any Extension Term

Case Study 2

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FHA for Acquisition and Conversion-Hartford • Acquisition and conversion of vacant office tower

o 286 apartments, targeted LEED Platinum o $90 million TDC including commercial and garage

• Located in CBD, few comps but strategic, emerging area

• Developer seeking high leverage, long-term financing

Case Study 3

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FHA for Acquisition and Conversion (cont’d) • Arranged new $37.2 million 1st mortgage through FHA

Section 221(d)(4) o IO during construction period o Base permanent loan with 40-year term o Tranches for tax exemption and LRECs (15 years)

• Subordinated new state debt and equity of $21 million

• Tradeoffs for affordability set-aside, commercial/garage

Case Study 3

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Broken Condo Sell Down Loan

•$17,400,000 for the acquisition of a 25 out of 86 condominium units •Funded $16,000,000 at closing $1.4 MM of future funding for unit renovations

Sources Uses

Initial Funding $ 16,000,000 71% Acquistion Price $ 21,000,000

Future Funding $ 1,400,000 6% Cap Ex $ 1,400,000

Total Funding $ 17,400,000 78%

Sponsor Equity $ 5,000,000 22%

Total $ 22,400,000 100% $ 22,400,000

Purpose Acquisition

Loan-to-Cost Initial

78%

Loan-to-Sell Out 62%

Term 3+1+1

Amort IO

Rate L+4.75%

Fee 1% in/1% out

Call Protection 18 months

DY 4.75%

Case Study 4

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Broken Condo Sell Down Loan

Cap Stack

Amount % LTC Rate (L+) DY DSCR

First Mortgage $ 12,180,000 70% 54% 2.50% 6.79% 2.71

Mezz $ 5,220,000 30% 23% 9.25% 4.75% 1.05

Total $ 17,400,000 78% 4.53% 4.75% 1.05

•Cheaper First Mortgage Money is L +2.00 – 3.00%, maybe tighter if you can keep the LTV / DY / DSCR at attractive levels (in 1-1.5% over last 12 months)

•Mezz L+8-10% going up to 75-85% with low DY / DSCR

•Avoid “Dealer” Status for tax purposes by renting units for some period of time and only selectively selling units

Case Study 4

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Broken Condo Sell Down Loan

Unique Deal Terms Release Provisions: • 120% of allocated loan amount pay down until $500 psf is reached, after which

100% of allocated loan amount (leaks equity to Borrower to equity). 100% of sales proceeds pay down loan on last 5 units to protect against adverse selection.

Interest Rate Step Up: • Increase in rate equal to .35% if Debt Yield Drops below 4.5%

Case Study 4

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Thank You!

Philip S. Rachels

904-630-6363

phil.rachels@cbre.com

Todd Trehubenko

781-375-7527

ttrehubenko@walkerdunlop.com

Chris Tokarski

415-595-8210

tokarski@coastalcp.com