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Today’s Capital MarketsSenior Debt Panel

Moderator:Jordan Ray, Mission Capital Advisors

Panelists: Wayne Brandt, Wells Fargo BankEd Coco, GE Capital Real EstateRichard Coppola, TIAA CREFJamie Fox, Bank of America Merrill Lynch

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Jordan RayMission Capital Advisors

• Managing Director of the Debt and Equity Finance Group

• Oversees business development, strategy, placement, and execution of real estate capital on behalf of major owners, investors, and developers.

• New York University master’s degree in real estate finance and from American University with a B.A. in finance.

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Please silence all cell phones.This session is being recorded.

Today’s Capital MarketsSenior Debt Panel

Moderator:Jordan Ray, Mission Capital Advisors

Panelists: Wayne Brandt, Wells Fargo BankEd Coco, GE Capital Real EstateRichard Coppola, TIAA CREFJamie Fox, Bank of America Merrill Lynch

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Wayne BrandtWells Fargo Bank

• Managing Director and the National Originations Director of the Real Estate Capital Markets Group

• Oversees CMBS and balance sheet lending

• M.S. from Massachusetts Institute of Technology (MIT) in Real Estate and an undergraduate degree from Stanford University

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Edward CocoGE Capital Real Estate

• Senior Managing Director, National Sales Leader with GE Capital Real Estate

• Ed began his career in 1996 as a relationship manager and has since held increasingly responsible positions within sales management.

• His 18-year career has been distinguished by building and leading top producing commercial teams, driving growth for the company’s U.S. lending business.

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Richard CoppolaTIAA CREF

• Managing Director and Head of Real Estate Transactions

• Responsible for the acquisition of real estate equity investments, disposition of assets, joint venture co-investments, the financings of owned and managed real estate and for commercial mortgage investments

• New York University M.B.A in finance and holds a B.B.A from Hofstra University

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Jamie FoxBank of America Merrill Lynch

• Commercial Real Estate Banking Southwest Market Executive at Bank of America Merrill Lynch.

• Before joining Bank of America, Fox served in the U.S. Army for eight years as an engineer officer.

• He earned a Bachelor of Science in civil engineering from the U.S. Military Academy, a Master of Science in engineering management from the Missouri University of Science and Technology, and a Master of Business Administration from Vanderbilt University.

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Session Objectives

• Update on the State of the Debt Market• What are Current Lending Parameters?• Recent and Projected Underwriting Standards• Trends for Permanent, Bridge and Construction Lending• Differences between Balance Sheet and CMBS Lenders

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State of the Debt Market

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State of the Debt Market

• Fed policy continues to be very influential to the market with continued anticipation of tapering.

• At the end of 2013, the 10-yr Tsy was equal to 3.00%. Year-to-date rates are down 80bps to 2.20%.

• As a result, significant capital has shifted focus to CRE due to lack of other fixed-income products.

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State of the Debt Market

• Less than impressive economic improvement has created significant reliance on returns being generated by cheap financing.

• How will cap rates move when interest rates rise?

• Origination volumes from banks, life companies, and CMBS lenders are still well below last cycle levels.

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Commercial Banks

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State of the Commercial Bank Lending Market

• Commercial Banks are flush with cash and have exposure levels to commercial real estate significantly below last cycle.

• Banks are actively financing a variety of deals from construction to transitional assets to strong, cash flowing deals.

• Banks do not usually provide loan terms longer than five years. As such, if you are looking to lock in a low interest rate today for as long as possible, not likely the best capital source.

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State of the Commercial Bank Lending Market

• Generally lending up to 65% Loan-to-Value with significant focus on cash flow.

• For larger deals, may need to partner with other banks to limit exposure levels.

• Many banks are not transaction focused, but instead relationship focused.

• Often the case that banks will look to the Sponsor for recourse.

• While German Banks have virtually entirely exited the US market, Canadian and several Asian Banks remain active.

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Life Insurance Companies

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State of the Life Insurance Company Market

• Life Insurance Companies continue to actively lend!• Primarily focused on non-recourse, five to ten year fixed rate

loans, however, also have appetite for longer-term product up to 30 years.

• Several groups can also provide floating rate products.• Select life companies providing construction-to-perm

financing options.

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State of the Life Insurance Company Market

• Typically, focus on newer, higher quality assets located in primary markets.

• Maximum Loan-to-Value ratios are usually below CMBS lenders and top out at 65%.

• Do not typically allow mezzanine or subordinate debt behind first mortgages.

• Larger players willing to originate up to $400 million on a single deal.

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State of the Life Insurance Company Market

• Typically are not fond of single tenant deals.• Usually have fewer required reserve requirements than

banks and CMBS lenders.• Due to continued tightening in spreads and increased

leverage from CMBS lenders, life companies have witnessed increased competition.

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State of the Life Insurance Company Market

• In order to achieve targeted origination volumes as an industry of approximately $60 billion/year, life companies have begun to:– Consider lending in secondary markets, but usually only on the

best assets in those markets– Lower required in-place debt yields– Acceptance of subordinate debt junior to mortgage

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CMBS Lenders

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State of the CMBS Lending Market

• Nearly 40 lenders are now competing to finance CMBS deals.

• Year-to-date 2014 - $67 billion of CMBS deals.• Predictions for $100 billion of originations at the beginning of

the year are feeling out of reach, but not too far off.• 2013 CMBS originations totaled $84 billion, up 89% over

2012.• Volumes continue to pale in comparison to 2007 levels which

reached $230.2 billion!

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State of the CMBS Lending Market

• CMBS lenders are actively and aggressively financing conduit (small balance) and large-loan deals on both a fixed and floating rate basis.

• The bulk of floating rate financing until recently was done only on large, stand-alone deals, however, several groups have begun to aggregate floating rate loans with loan amounts as low as $25 million.

• Willing to go to secondary and tertiary markets.

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State of the CMBS Lending Market

• Able to provide higher leverage options than banks and life companies and do not require recourse other than bad-boy carve-outs. Max leverage of 75% LTV.

• Less averse to allowing mezzanine or subordinate debt behind first mortgage.

• For very large deals, can be very competitive due bank and life company need to partner.

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Bridge Lenders, Debt Funds, Mortgage REITs and Specialty Finance Companies

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State of the Bridge, Debt Fund, Mortgage REIT, and Specialty Finance Lending Market

• Competitive on more transitional deals with lease-up and/or renovation and where Sponsors are seeking higher leverage and non-recourse debt.

• Generally will sell-off a senior position in the loan and hold the subordinate debt piece in order to generate higher returns.

• Due to increased availability of senior financing from banks, pricing has compressed and nonbank lenders are becoming more and more competitive.

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State of the Bridge, Debt Fund, Mortgage REIT, and Specialty Finance Lending Market

• Able to structure future fundings for TI, LC, and CapEx to reduce total required equity from Sponsor at close and going forward.

• In some instances, willing to include debt service reserve to fund interest shortfalls during the initial term of the loan.

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State of the Bridge, Debt Fund, Mortgage REIT, and Specialty Finance Lending Market

• Several groups have begun to target providing construction loans due to – Banks needing to “club”– Able to close significantly faster than bank syndicate– Banks requiring recourse and/or more equity

• Loans are usually structured as floating rate, short term deals.

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Q&A

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Thank You!

Jordan RayManaging DirectorMission Capital Advisors646-470-2001jray@missioncap.com

Edward CocoSenior Managing DirectorGE Capital Real Estate770-772-2213edward.coco@ge.com

Wayne BrandtManaging DirectorWells Fargo Bank213-253-3727wayne.brandt@wellsfargo.com

Jamie FoxCRE BankingSouthwest Market

ExecutiveBank of America Merrill Lynch214-209-9389jamison.l.fox@baml.com

Richard CoppolaManaging DirectorTIAA-CREF212-916-5641rcoppola@tiaa-cref.com