Capital Markets Master DeckAugust 2009

Debt Market Overview

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U.S. Commercial & Multifamily Outstanding

Source: Mortgage Bankers Association May 2009

BY CAPITAL SOURCETotal $3.5 Trillion

9.2%5.5%

4.4%

21.4%

7.3%

5.4% 2.4%

44.5%

Commercial Banks Life Insurance Companies

Savings Institutions Agency- and GSE-back mortgage pools

CMBS, CDO, and other ABS issues Other

Government-sponsored enterprises State and Local Government

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$0

$50

$100

$150

$200

$250

$300

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Later

Billions

CMBS, CDO or other ABS Commercial Bank/ThriftsFannie, Freddie, FHA, and Ginnie Mae Credit Companies, Warehouse, and OtherLife Insurance Companies

Loan Maturities By Lender Type

Source: MBA

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Source: Realpoint

Maturing CMBS Mortgages By Property Type

$0

$20

$40

$60

$80

$100

$120

$140

$160

2009 2010 2011 2012 2013 2014 2015 2016 2017

Billion

s

Retail

Office

Mixed (Other)

Multifamily

Industrial

Hotel

Health Care

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$0

$50

$100

$150

$200

$25019

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

YT

D 2

009

Vintage Loans: High % Interest OnlyHigh LTVLower DCR

’05 – ’08 ($615 Billion total Volume) Seven years of business in three years!

The Boom n’ Bust Led by CMBS Issuance

Billions

Source: Commercial Mortgage Alert August 2009

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Commercial Real Estate Transaction Volume…Debt Spawns and Stalls Activity

Source: Real Capital Analytics, Commercial Mortgage Alert

$0

$50,000,000,000

$100,000,000,000

$150,000,000,000

$200,000,000,000

$250,000,000,000

$300,000,000,000

$350,000,000,000

$400,000,000,000

$450,000,000,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 YTD

Value

w/o privatization w/privatization US CMBS

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Delinquencies

Source: Mortgage Bankers Association

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CMBS Spreads…

Source: Commercial Real Estate Direct

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Source: Mortgage Bankers Association

Little Help on the Originations Side

Commercial/MH Mortgage Bankers Originations Index by Investor Group

0

100

200

300

400

500

600

70020

03Q

1

2003

Q2

2003

Q3

2003

Q4

2004

Q1

2004

Q2

2004

Q3

2004

Q4

2005

Q1

2005

Q2

2005

Q3

2005

Q4

2006

Q1

2006

Q2

2006

Q3

2006

Q4

2007

Q1

2007

Q2

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

Total ConduitsCommercial Banks Life Insurance CompaniesFannie Mae/Freddie Mac

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2009: What’s In & What’s Out

IN OUT

On-Book Lending CMBS

Conservative Leverage High Octane Capital Stack

Equity In-Deal Cash Out Financing

Risk Based Pricing Inefficient Pricing of Capital

Correspondent & Relationship Lending Loan Brokerage

High Touch Loan Servicer Securitized/Impersonal Servicer

Amortization- 25-30 Year Schedule Interest Only

Reserves Funded in Cash No Funded Escrow

450+/- Spreads 100+/- Spreads

Floor Rates Unlimited Float

DCR’s In-Place Proforma DCR’s

Recourse Non-recourse

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Source: Mortgage Bankers Association

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008Loan Breakout

Percenta

ge LTV

Equity

Pref. EquityMezzanine

B-NoteA-Note

Market is De-Leveraging

Yesterday and Today

Equity, 2 %

Pref. Equity, 8%

Mezzanine, 10%

B-Note, 15%

A-Note, 65%$80 Million

1st Trust

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008Loan Breakout

Percentage LTV

Equity

Pref. EquityMezzanine

B-NoteA-Note

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008Loan Breakout

Percentage LTV

Equity

Pref. EquityMezzanine

B-NoteA-Note

2007 Loan Breakout 2009

$100

$90

$80

$70

$60

$50

$40

$30

$20

$10

$0

Valu

e

A-Note, 45%

B-Note, 15%

Mezzanine, 15%

Equity, 25%

$45 Million1st Trust

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Capital Markets in Perspective

* For multifamily product amortization schedule will usually be spread over 30 years.

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Current Retail Transaction

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Rent RollRent Roll               

TenantRentable Area

(SF) % Total Rent/SF Monthly Rent Annual Rent Lease Start Lease Expire  

Lowes   0% $0.00 $0.00 $0 NA NA  

Dollar General 11,416 12% $7.00 $6,659.33 $79,912 Aug-04 Aug-14  

Stage 22,400 24% $3.56 $6,645.33 $79,744 Oct-04 Jan-15  

Furniture Gallery 15,000 16% $7.25 $9,062.50 $108,750 Jul-08 Jul-18  

Snap Fitness 4,000 4% $15.50 $5,166.67 $62,000 Oct-07 Jan-12  

Woksom, Brown 2,000 2% $9.50 $1,583.33 $19,000 Dec-05 Dec-10  

Verizon 2,080 2% $13.00 $2,253.33 $27,040 Aug-09 Sep-12  

GNC 1,770 2% $9.00 $1,327.50 $15,930 Sep-06 Aug-11  

Subway 1,800 2% $12.00 $1,800.00 $21,600 Nov-09 Oct-14  

Blockbuster 6,720 2% $9.00 $5,040.00 $60,480 Jul-89 Jul-10  

Army National Guard 1,622 7% $11.63 $1,571.99 $18,864 Jun-06 May-10  

Agilus Health 4,520 2% $11.50 $4,331.67 $51,980 Sep-06 Sep-09  

Little Ceasers 1,400 5% $12.75 $1,487.50 $17,850 Apr-89 Jul-13  

Affordable Dentures 2,846 1% $8.00 $1,897.33 $22,768 Nov-05 Nov-10  

Computers 2 suit 1,153 3% $13.50 $1,297.13 $15,566 May-08 Jun-13  

Money to Lend 2,160 1% $9.38 $1,688.40 $20,261 Nov-04 Nov-14  

Dillon's Rest. LOI 4,002 2% $14.00 $4,669.00 $56,028 Apr-10 Mar-20  

CENLA Dentistry 1,800 4% $17.50 $2,625.00 $31,500 Sep-09 Sep-07  

Wing Stop 1,501 2% $17.50 $2,188.96 $26,268 Apr-09 Apr-14  

Firestone 6,121 6% $12.52 $6,386.24 $76,635 May-88 May-13  

Occupied Total 94,311 100.0% $8.61 $67,681.22 $812,175      

Vacant1 0 0.0% $10.00 $0.00 $0  

Totals 94,311 100% $8.61 $67,681.22 $812,175     

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Operating StatementOperating Statement          

Income

Base Rental Revenue $ 812,175

Tenant Expense Reimbursements 165,044

Gross Rental Revenue $ 977,219

Less: Economic Vacancy & Collection Loss 10% (97,722)

Effective Rental Revenue $ 879,497

Other Income $ -

Effective Gross Income $ 879,497

Expenses Per SF

CAM 0.80 75,685

Insurance 0.22 21,192

Real Estate Taxes 0.79 74,513

Administrative     0.03   3,000

Non-Reimburseable OpEx   0.18   17,373

Management 4.00% 0.37   35,180

Total Operating Expenses 2.41 226,943

Replacement Reserves $0.15 0.15 14,147

Net Operating Income $ 638,407

               

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Loan Analysis 2009Loan Analysis          

Income Capitalization

2008 Net Operating Income1 $ 638,407

Capitalization Rate 9.25%

Estimated Value-Building & Primary Site Area $ 6,901,699

Rounded $ 6,900,000

Per Square Foot $ 73.16

Loan Request $ 4,500,000

Per Square Foot $ 47.71

Loan to Value Ratio 65%

Loan Terms

Term 10 years

Interest Rate Type Fixed

Index Yield 3.50%

Interest Rate Spread 3.50%

Effective Interest Rate 7.00%

Requested Amortization 25 years

Monthly Debt Service ($31,805.06)

Annual Debt Service ($381,660.77)

Debt Service Coverage Ratio 1.67x

Debt Constant 8.48%

Debt Yield 14%

               

1Brought forward from Operating Statement

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Loan Analysis 2007Loan Analysis          

Income Capitalization

2008 Net Operating Income1 $ 638,407

Capitalization Rate 7.25%

Estimated Value-Building & Primary Site Area $ 8,805,617

Rounded $ 8,810,000

Per Square Foot $ 93.41

Loan Request $ 7,048,000

Per Square Foot $ 74.73

Loan to Value Ratio 80%

Loan Terms

Term 10 years

Interest Rate Type Fixed

Index Yield 4.63%

Interest Rate Spread 1.20%

Effective Interest Rate 5.83%

Requested Amortization 30 years

Monthly Debt Service ($41,489.10)

Annual Debt Service ($497,869.19)

Debt Service Coverage Ratio 1.28x

Debt Constant 7.06%

Debt Yield 9%

               

1Brought forward from Operating Statement

Distressed Market Overview

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Distressed Market

Source: RCA Troubled Assets Radar – US, As of June 26, 2009

$83.6 BTroubled

$15.8 BRestructured

Modified

$10.5 BLender REO

$109.9 BCurrent Distressed

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The Volume of Distressed Deals is Rising Rapidly

Source: RCA Troubled Assets Radar, June 2009

$0

$20

$40

$60

$80

$100

$120

2008Q1 Q2 Q3 Q4 2009Q1 Q2

$ B

illio

ns

Lender REO

Troubled Deals

Lender REO now accounts for 9.4% of total Distressed Assets

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Largest Owners of Distressed Properties

Source: RCA Troubled Assets Radar and TWR, June 2009

Owner Value (in Millions)General Growth Properties $ 15,113

Centro Properties Group $ 6,064

Lightstone Group JV $ 5,925

Macklowe Properties $ 3,848

Centro Properties JV Watt Cmmcl Props $ 2,318

Broadway Partners $ 1,741

Cabi Developers (GICSA) $ 1,606

American International Group (AIG) $ 1,402

Sunwest Management $ 1,279

Columbia Sussex Group $ 1,136

Bethany Group $ 1,124

Deutsche Bank AG $ 1,000

DBSI Group $ 839

Boca Developers $ 835

Glen Smith & Glen Development $ 800

Sault Ste. Marie Tribe $ 755

Babcock & Brown $ 748

Elad Properties JV IDB Group $ 625

Tarragon Corporation $ 607

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Largest Holders of REO Properties

Source: RCA Troubled Assets Radar and TWR, June 2009

Holder Value (in Millions)Deutsche Bank $ 1,000

Wachovia $ 726

Corus Bank $ 656

iStar Financial $ 450

JP Morgan Chase $ 407

GE Capital $ 323

Goldman Sachs $ 222

Bank of America $ 192

Eurohypo AG $ 189

UBS Bank Corp. $ 158

Fremont Investment and Loan $ 141

LaSalle Bank $ 127

Lehman Brothers $ 111

Credit Suisse $ 110

Colonial Bank $ 100

UMB Bank NA $ 98

Legg Mason Real Estate $ 81

Allianz SE $ 72

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Trouble Was Brewing in the Most Recent Quarter

-5

0

5

10

15

20

25

30

35

40

$ B

illi

on

2008Q3 2008Q4 2009Q1 2009Q2

Net Flow of Troubled Assets

LenderREO Resolved Restructured/Extension Troubled

Source: RCA Trouble Assets Radar, June 2009

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Metros with Most Distressed and Potentially Troubled Assets

0 5000 10000 15000 20000 25000 30000

New York

Las Vegas

South Florida

Los Angeles

Philadelphia

Boston

Washington, DC

SF Metro

Chicago

Phoenix

Atlanta

Dallas/Ft. Worth

Houston

Detroit

Honolulu

Orlando

Tampa

Seattle

Estimated Asset Value $ millions

Distressed

Potentially Troubled

Source: TWR, RCA Troubled Assets Radar, June 2009

The Metros below account for 63.5% of Distressed and Potentially Troubled Assets

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Implications: What does this all mean?

• Lack of trades creates a question of an asset’s value.

• Without comparable data points, sellers do not feel the pressure to realize losses.

• As a result of high loan to value (LTV) ratios for maturities in 2010–12 and a high absolute volume of maturities, the catalysts for acquisition opportunities is expected to be front-loaded in the 2009–14 window.

• Once incentives to trade are reinstated and banks’ balance sheets are cleared of toxic assets via government programs, the commercial real estate market will be poised for a high volume of transactions and financing opportunities.

Equity Overview

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Commercial Real Estate Transaction Volume…Debt Spawns and Stalls Activity

Source: Real Capital Analytics, Commercial Mortgage Alert

$0

$50,000,000,000

$100,000,000,000

$150,000,000,000

$200,000,000,000

$250,000,000,000

$300,000,000,000

$350,000,000,000

$400,000,000,000

$450,000,000,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 YTD

Value

w/o privatization w/privatization US CMBS

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*Includes PrivatizationsCapital Markets Activity includes all investment sales and financings in said period. Investment Sales data from Real Capital Analytics

1st Half 2009 Production ActivityUS Capital Markets Activity Levels

Property Type CBRE Total Market*

1st half 09 1st half 08 % chg 1st half 09 1st half 08 % chg

Office $1.1B $7.0B -84.3% $5.7B $30.9B -81.6%

Retail $0.4B $1.1B -63.6% $3.5B $12.7B -72.4%

Industrial $0.5B $2.8B -82.1% $3.6B $13.7B -73.7%

Multi-Housing $1.3B $4.0B -67.5% $4.8B $23.4B -79.5%

Hotels $0.1B $0.5B -80.0% $1.2B $7.8B -84.6%

Land $0.1B $0.4B -75.0% N/A N/A N/A

Inv. Sales Volume $3.5B $15.8B -77.8% $18.8B $88.5B -78.8%

Loan Origination Volume $3.2B $5.6B -43.9% N/A N/A N/A

US Capital Markets Activity $6.7B $21.4B -68.7% $18.8B $88.5B -78.8%

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Transaction Volume – YTD 2009

* Through July 2009Source: Real Capital Analytics

Transaction Volume - By Seller

6%7%

17%

35%

19%

12%4%

Crossborder

Equity Fund

Inst'l

Private

Public

User/other

Unknown