2010 nc-ccim charlotte commercial real estate market forecast
DESCRIPTION
2010 NC-CCIM Charlotte Commercial Real Estate Market Forecast “Commercial Real Estate Debt: Market, Availability, and Characteristics”. Review. Where have we been?. 2005 -- 2007. 2009. What Happened?. Capital adequacy questioned Liquidity evaporated True asset value incalculable - PowerPoint PPT PresentationTRANSCRIPT
2010 NC-CCIM Charlotte Commercial
Real Estate Market Forecast
“Commercial Real Estate Debt: Market, Availability, and Characteristics”
Review
Where have we been?
2005 -- 2007
2009
What Happened?
• Capital adequacy questioned
• Liquidity evaporated• True asset value
incalculable• Transactions stalled
»Inability»Unwillingness
What Happened?
• 2007 - CMBS Issuance = $230 Billion
• 2008 - CMBS Issuance= $14 Billion
• 2009 – CMBS Issuance= nil
What Happened?
• 2007 – Insurance Company Commitments
= $42.7 Billion• 2008 – Insurance Company
Commitments= $24 Billion
• 2009 – Insurance Company Commitments
= $16 Billion
Can you finance multifamily and
commercialreal estate??
SURE! (cautiously…..)SURE! (cautiously…..)
MARKET
2010
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
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
AVAILABILITY
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
Loan Types Available Today
•Forward commitments are tough (3+ months)
•Credit tenant lease (CTL)•Acquisition / bridge loans•Mezzanine and preferred equity•Note acquisition financing
CHARACTERISTICS
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
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
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)
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
Rate Comparison
• Pre-meltdown10 year Treasury = 5.26%
Spread = 100 basis points
Coupon = 6.26%
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%
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
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
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
201?