PowerPoint Presentation

Annual ConferenceHaberdashers Hall, London21st May 2014

Please be aware that these training notes contain general information relating to issues affecting LPA Receivership law and practice only and do not constitute legal advice. For any specific issues you are recommended to consult a solicitor or other appropriate professional adviser.NARA DevelopmentsPaul BathoNARA Chief Executive

Please be aware that these training notes contain general information relating to issues affecting LPA Receivership law and practice only and do not constitute legal advice. For any specific issues you are recommended to consult a solicitor or other appropriate professional adviser.Recovery and EvolutionRecoveryImpact on NARA and the work of receiversBad news?

Evolutionof the role of property receiversof NARAThe RecoverySince May 2013Recovery of the marketConfidence returnsInvestors, lenders, occupiers activeA genuine recovery?Economic basis, interest ratesA new market or the next boom/bust?

The Recovery implications for recovery specialistsReceivership appointments slowing demand reportedA recovery-based mini-boom?Impact of rising interest rates?A new marketNew lendingNew approachesTiming?NARA 2013/4 developmentsGrowing RPR membership (23 in 2014)New Council structureImproved web siteFinancial positionExams, regulation and the JRCMembership numbers

NARA EvolutionThe number of appointments will decline but..NARA EvolutionPolicies for 2014/5Promote and supporting receiversTo lendersTo opportunity fundsTo government and other institutionsWork with Association of Property LendersA receivers skills relevance to the new lending marketContinuing relevance of RPR membersEncouraging Associate and Affiliate membershipNARA - FutureNARAMembership expertise in property and financeFocussed Council structureWell funded

The skills and ingredients to serve a changing market

Thank you

Spinning Planet PropertyPeter BillEvening Standard Columnistwww.planet-property.net

Please be aware that these training notes contain general information relating to issues affecting LPA Receivership law and practice only and do not constitute legal advice. For any specific issues you are recommended to consult a solicitor or other appropriate professional adviser.A cracking good read

- David Sleath, Segro chief executive

Sycophantically arse-licking

- Mr. Waterstone, anonymous bastardWWW.PLANET-PROPERTY.NET

13LESSONS FROM BOOK-LEARNING

Beware of linked equity & debt deals

Beware of tall dark strangers

Beware of bright young things

14WHERE ARE WE NOW?Starting from June 2007Capital growth stands at two-thirds of peak values Rental values are stuck at 91% of June 2007 figures

Starting from June 2009Capital growth is up 20% Rents remain four percent below pit levels 15BANG

Dear God, just let there be one more property boom. I promise I wont piss it all away this time

Harvey Soning, property veteran

16BOOM

Bull markets are born on pessimism, grow on scepticism, mature on optimism, and die on euphoria Sir John Templeton

17

MONEY, MONEY, MONEYA billion here, a billion there, and pretty soon youre talking about real money

Everett Dirksen

18HOW MUCH MONEY COSTSFINANCE COST FOR PURCHASING PRIME OFFICE PROPERTY

19THE FIRST SIGN OF THE JITTERSLOAN TO VALUE RATIOS FOR PRIME OFFICE PROPERTY

20

PLANET PROPERTYInside every working anarchy, theres an old boy network

Mitchell Kapor

21

DEVELOPERSS WORLDPeople who enjoy meetings should not be in charge of anything

Thomas Sowell

22WHEN DEBT MATCHED NET ASSETSLand Securities, British Land and HammersonCombined assets and debt

23

BIG THINKERSYou have to think anyway, so why not think big?

Donald Trump

24

AGENTSThe propensity to truck, barter and exchange one thing for another is common to all men, and to be found in no other race of animals

- Adam Smith

25 AUCTIONSLarge groups of people are smarter than a few experts- James Surowiecki, author of The Wisdom of Crowds

26

AFTERMATHExperience is the one thing you cant get for nothing

- Oscar Wilde

27 HERE WE GO AGAIN?The reality is that a new generation comes along very quickly with lots of ideas. Then we get back into the same cycle once again.

Ian Coull, former chief executive, Segro

BUT WHEN, HOW, WHERE...

28Thank you

Recovery & EvolutionJohn Muldoon, MRICSHatfield Philips International

Please be aware that these training notes contain general information relating to issues affecting LPA Receivership law and practice only and do not constitute legal advice. For any specific issues you are recommended to consult a solicitor or other appropriate professional adviser.Recovery and EvolutionLoan servicing and CMBSThe Role of the Special ServicerEvolving Real Estate Debt MarketThe Light Touch Approach to RE WorkoutsNon-Performing Loans Sales A New Client Base?

Hatfield Philips Loan Servicing & CMBSHPI Active Servicing PortfolioHatfield Philips International (HPI) is Europes longest serving commercial real estate loan Servicer, having managed over 61 billion of assets since its inceptionWith a staff of over 120 based in London and Frankfurt, HPI has active workout exposure in 16 European jurisdictions and has worked out over 5 billion of distressed debtHPI is owned by Starwood Property Trust, which is the largest mortgage REIT in the U.S. with a market capitalization of $4.8 billion (NYSE: STWD)Active servicing portfolio consists of 3,000 properties (286 loans) totalling AUM of 19 billion HPI is the largest Special Servicer in EuropeMoodys EMEA Servicing Report January 2014 / *Securitised loan balance is in MM as per transfer date Data as of 31 December 2013

32Apply Funds through WaterfallTake ControlPrimaryServicerMarket Propertyw/FinancingModify LoanNew SponsorOption 4ENFORCEOption 3LOAN SALE DPOOption 1LOAN CORRECTIONShare PledgeFixed and Floating ChargesOption 2LOAN MODIFICATIONAsset ManagementQuick SalesSale of Stabilised PropertyOption 3aBorrower Led SaleThe Role of the Special ServicerEvaluating the options to maximise returns33Back to the special servicerThis is our toolshed how does it work in practiceEvolving Real Estate Debt Market The peak years for European CMBS issuance were 2006 & 2007 which saw 60bn and 45bn originated respectively. Post the collapse of Lehman's in 2008 origination virtually ceased. (Source: Commercial Mortgage Alert May 2011)

Estimates for 2014 CMBS Issuance vary but point towards a range between 7bn -15bn of new originations in 2014 (Source: James Wallace, Costar, 12th December 2013)

New sources of finance have emerged to fill the void left by the reduced CMBS issuance and the continuing absence of many bank/balance sheet lenders:Private Equity Debt FundsListed Debt VehiclesInsurance CompaniesMezzanine LendersCorporate Bonds

Despite the slow recovery of the CMBS Market and many banks still focusing on deleveraging their books, liquidity is returning and there is increasing Real Estate debt available.

To illustrate this, HPI have boarded 177 loans totalling 4.1 billion for six new clients within the last 18 monthsThe Light Touch Approach to RE Workouts

Collegiate approach verses One Stop Shop instruction

A continual and active line of communication between Special Servicer and Fixed Charge Receiver/Administrator

Multi-disciplinary teams from different practices and service providers

Asset Management placed at the centre of workout process

Robust Business Plans regularly reviewed

Hold, Asset Manage then sell verses sell now - Capex requirements/Capex availability?

Market driven exit strategies

Non-Performing Loans Sales A New Client Base?

Since 2011, HPI have underwritten NPL Projects with a UPB of circa 34.1bn

Cushman & Wakefield research suggests that European loan sales will exceed the 40bn mark in 2014 a 32% increase on the 2013 level. (source: C & W, 05.02.2014)

Active PE buyers include Apollo, Blackstone, Cerberus, Colony Capital, Deutsche Bank, Kennedy Wilson, Lone Star, Marathon and Oaktree....and there are new entrants still looking to join upcoming bid processes.

PE buyers typically adopt a hands on approach and understand the loan and real estate metrics.

Cost of capital and NPV analysis drive their workout strategies speed of execution is key.

PE NPL buyers have more flexibility than the vendor banks - Strategies range from DPOs, Enforcement to Loan to OwnIn SummaryThe markets for debt and workout services are evolving as the economic recovery gains pace:

Liquidity has returned to real estate markets from new sources

There are potentially new clients for workout specialists

A dynamic client base will require advisors to adopt greater degrees of flexibility

Thank you

David MarksCo-Managing Partner, Brockton Capital LLP and President, British Property Federation

Please be aware that these training notes contain general information relating to issues affecting LPA Receivership law and practice only and do not constitute legal advice. For any specific issues you are recommended to consult a solicitor or other appropriate professional adviser.1. Market Conditions: 2005 2008

2. Market Conditions: 2009 2014

3. What happens when the sardine cans are opened up? (Sam Zells dictum)

4. UK Outstanding Property Debt, 2014Table of contents#Confidential, Proprietary and trade secretMarket Conditions: 2005 2008The leverage in the system was akin to cocaine; Lehman bought it to an abrupt end.

#Confidential, Proprietary and trade secret412. Market Conditions: 2009 2014QE, six years of ZIRP, Help to Buy, is akin to heroin. But policy makers dont want an abrupt end, more a gradual come down via tapering, signaling and gradual rate rises.

#Confidential, Proprietary and trade secret3. What happens when the sardine cans are opened up? (Sam Zells dictum)

After 12 months of inadvertent ownership, nothing much changes. After 7 - 8 years, leases are expiring, M + E is shot, obsolescence has kicked in and the capex has been deferred. And deferred again. And the sardines begin to stink. #Confidential, Proprietary and trade secret4. UK Outstanding Property Debt, 2014The banks: perhaps halfway through their bad books?LENDERESTIMATED 2013 UK LOAN BOOK% OF OVERALL UK MARKETRBS(2)c.30bn9%LBG(3)c.27bn8%NAMA(4)c.7bn2%CMBS (generally)(5)c.35bn11%TOTALc.99bn30%The legacy problems are being resolvedthe equivalent figure was c.172 billion last year, a reduction of c.42% through a combination of repayment, amortisation, loan sales, asset sales, and write-downs. But what is left and what is the clearing price for these remaining assets that have not yet been worked out?Total uk Property Debt2013c.325bn(1)NAMAc.7bnCorporate property AND covered bondsc.39bnRBS loan bookc.30bnLbg loan bookc.27bnTOTAL UK CMBS OUTSTANDINGc.35bnDTZ estimate there is around 541 billion of UK commercial real estate in total invested stock, resulting in around 60% LTV leverage overall. (Overall is key. Some investors are all equity. Some are 100%+ LTV.)The UK CRE debt market is (still) highly concentrated. The four elephants in the room (still) comprise(1):The size of each circle represents its portion ofthe total UK CRE loans outstanding (2013)(1)Source: Brockton Capital estimates using multiple sources inc. DTZ Money Into Property, De Montfort University research, Savills Debt Market Research, and company annual reports(2)RBS Annual Results, 2013(3)The UK Loan Book for LBG is for financial year ending 2013(4)NAMA Annual Report 2012(5)De-Montfort University Commercial Property Lending Market Report: Mid-Year 2013Total (2013) UK Property Debt(1)#Confidential, Proprietary and trade secretThank you

A Developers PerspectiveDaniel Van GelderCo-founder ExemplarChairman, the Westminster Property Association

A few key messagesnot enough construction activity to satisfy demandoffices still under attack from residentialoccupier demand increasesconstruction costs going upmarket risk abounds, but likely to sustain

Source: CBREWest End Take Up Annual Take-up (million sq ft)20042005200620072008200920102011201220134.44.44.74.93.63.14.74.33.54.0London very resiliantDidnt fall off a cliff4m sq ft pa take up.remember that for later

Focus on 2nd hand to new built accommodation

51West End speculative developments, >50,000 sq ftTotals reflect schemes in chartSource: CBRE2014:0.4m sq ft2015:0.7m sq ft2016:1.9m sq ft2017:1.0m sq ft2018:1.1m sq ft000 sfJust >50k sq ft schemes,2015 just under 2m sq ft2016 3m sq ft45% of space under construction is already let.

Vacancy rate 4% @ 7% in the city - Lowest availability for 6 years

we need to be building more offices, larger offices, larger floorplates. demand is 4m sq ft pa take up most demand wants this new space

52

Offices to Residential Every week another site is lost to residentialI say lost as once its gone to resi, it can never come back.

Amazing prices:Canadian Chancery 306.00m / (1,916)

Resi not all bad, but not all good either

Who is buying?If you believe Daily Mail & 1 Hyde Park..

London has always been a world class city and the capital of investment, both from national and overseas players, and of course its a very cyclical one. When I started in real estate in the early 90s the Japanese were the big investors, followed by the Germans, Middle Easterns, Americans, then Canadians and of course now investors from South East Asia.

Real struggle at the 1-2k psf mark.

Bubble? Availability of flats to let.

53

Occupiers arriving in Central LondonNokia from farnborough to Paddington O2 from slough to Regent StreetCoca cola hammersmith to MaryleyboneNews UK wapping to The PlaceAmazon Slough to HolbornOgilvy Canary Wharf to Southwark54

Commuters coming in to Central London55

Pressures on Construction CostsStaffing finite resource / contractors at capacity declining to tender tender at inflated prices

Concrete contractors are at capacity prices 30-40% higher than last yearresi pushing this up concrete frames Burn Brothers / PC Harrington

Pressure on Bricks hard to source lead times some UK Danish in favour56

Construction Cost Inflationthinking about risks:political risks mayoral & general elections 2015

economic risks interest rates etc

global risks London compared to other locations

building specific risks obsolesenceA few key messagesnot enough construction activity to satisfy demandoffices still under attack from residentialoccupier demand increasesconstruction costs going upmarket risk abounds, but likely to sustain

Thank youDaniel Van GelderCo-founder ExemplarChairman, the Westminster Property Association