real estate financing and refinancing: environmental risks for borrowers and lenders

Download Real Estate Financing and Refinancing: Environmental Risks for Borrowers and Lenders

Post on 19-Jul-2015

76 views

Category:

Real Estate

4 download

Embed Size (px)

TRANSCRIPT

  • REAL ESTATE FINANCING AND REFINANCING: ENVIRONMENTAL RISKS FOR BORROWERS AND LENDERS MAY 13, 2015

  • MARSH 1

    Primary InformationSecondary Information

    Bulleted text in Arial left aligned

    Paragraph spacing 0.6 lines before bullets Second level copy with 0.2 lines before

    - Third level- Fourth Level

    - Fifth level

    ED MORALESSENIOR VICE PRESIDENTGLOBAL ENVIRONMENTAL PRACTICE

  • MARSH 2

    AGENDA Market Overview

    Risks borrowers and lenders

    Solutions borrowers and lenders

    Q&A

  • MARSH 3

    Panelist Introductions

    DIANNE CROCKEREDR InsightPrincipal Analyst+1 203 783 8156DCrocker@edrnet.com

    SAMANTHA RUNYONSenior Vice PresidentMarshs Global Environmental Practice+1 213 346 5759samantha.j.runyon@marsh.com

    JARED DUBROWSKYVice PresidentMarshs Global Environmental Practice+1 212 345 4641jared.dubrowsky@marsh.com

  • MARSH 4

    ENVIRONMENTAL RISKS ON PORT & TERMINAL FACILITIES

    DIANNE CROCKER PRINCIPAL ANALYSTEDR INSIGHT

  • 5 COMMERCIAL REAL ESTATE IN 2015 THE STORY IN PROPERTY LENDING NEAR-TERM FORECAST

    1Q15 MARKET UPDATE

  • 6ALL THE KEY DRIVERS FOR PROPERTY DEMAND ARE TRENDING IN THE RIGHT DIRECTION: HOUSING MARKETS RECOVERING NICELY. JOBS ARE BACK PAST PRIOR PEAK LEVELS. INTEREST RATES STILL EXTREMELY LOW. PROPERTY INVESTMENT CONTINUES ITS SLOW CLIMB. MORE NEW CONSTRUCTION/DEVELOPMENT. NEW ACTIVITY IN A NUMBER OF SECONDARY MARKETS.

    THOUGHTS ON REAL ESTATE IN 2015

  • 7Small cap property sales:+22% in 2014: 7-year high

    Large property sales: +45% in 1Q2015 (YonY)

    PROPERTY TRANSACTIONS GROWTH

  • 8EXPANDING UNIVERSE OF U.S. BUYERS

    THREE TIMES AS MANY BUYERS IN 14 VS 09 IN THE DEPTHS OF THE CRISIS.

  • 9 SMALLER SECONDARY MARKETS WITH STRONG GROWTH PROFILES ARE SEEING INVESTOR INTEREST.

    COMMON DENOMINATORS: Strong job growth Growing technology sectors, healthcare and financial services

    industries

    BEYOND NYC AND SF: MIGRATION TO SMALLER METROS

  • 10

    MIGRATION TO SECONDARY METROS

    TOP 10 HIGH-GROWTH METROS FOR PHASE I ESA GROWTH:

    1Q2015 (YonY)

    Las Vegas, NV 52%

    Columbia, SC 42%

    San Antonio, TX 38%

    Charleston, SC 26%

    Milwaukee, WI 22%

    San Francisco, CA 19%

    Sacramento, CA 19%

    Stamford, CT 16%

    Portland, OR 14%

    Raleigh, NC 13%

  • 11

    THE STORY IN LENDING

  • 12

    2015 FINANCING MARKET IS INCREASINGLY COMPETITIVE.

    REGIONAL/LOCAL BANKS ARE GAINING MARKET SHARE.

    LENDING STANDARDS HAVE NOT CHANGED MUCH IN THE LAST YEAR.

    UPTICKS IN LENDING VOLUMES SUPPORT POSITIVE INVESTMENT TRENDS

    LENDING TRENDS THIS YEAR

  • 13

    A POSITIVE TRAJECTORY IN LENDING. 6.5% GROWTH IN 2014 (FDIC) ORIGINATIONS IN 2014 ABOUT 25% PERCENT BELOW

    2007 PEAK. Multifamily 25% higher than those 2007 volumes. Absolute levels of multifamily lending should remain

    strong.

    LENDING: SLOW PACE OF GROWTH IN ORIGINATIONS

  • 14

    WIDE VARIATION IN LENDING BY BANK SIZE. STRONGEST GROWTH AT THE LARGEST REGIONAL BANKS AND

    MID-SIZED BANKS. SIGNIFICANT PULLBACK BY COMMUNITY BANKS. GROWTH ESPECIALLY STRONG IN CONSTRUCTION/DEVELOPMENT

    AND MULTIFAMILY CATEGORIES.

    LENDING BY BANK SIZE

    Growth in CRE Loan Portfolios (2014 vs. 2013)

    All banks 6.5%Assets >$50B 4.1%$10B-$50B 16.8%$1B-$10B 10.5%

  • 15

    HEADING INTO NEW ROUND OF REFINANCING, PEAKING IN 2017 LENDERS VIEW THIS WAVE OF MATURITIES AS OPPORTUNITY TO

    INCREASE VOLUMES. EXCESS CAPITAL LOOKING TO FINANCE SOLID REAL ESTATE

    DEALS. EXPECTED TO FUEL A SURGE IN REFINANCING ACTIVITY FROM

    NOW THROUGH 2017.

    NEW ROUND OF REFIS

  • 16

    VYING FOR A PIECE OF THE REFI MARKET: Traditional lenders Life companies Conduits Private equity (non-bank lenders, new this refi cycle)

    NEW REFI PLAYERS

  • 17

    CONSTRUCTION AND DEVELOPMENT LENDING WAS THE FASTEST GROWING CATEGORY OF CRE LOANS ACROSS BANKS OF ALL ASSET SIZES.

    TOTAL CONSTRUCTION SPENDING IN 2014 HIGHEST SINCE DOWNTURN.

    BEYOND KEY METROS (NY, SAN FRAN, BOSTON):

    2015: THE YEAR FOR CONSTRUCTION LENDING

    HOT SPOTS: CONSTRUCTION AND DEVELOPMENTDenver

    Raleigh-Durham

    Suburban VA

    Oakland

    Las Vegas

    Austin

    San Jose

    Miami

    Seattle

    Portland

  • 18

    NEAR-TERM FORECAST

  • 19

    STILL A LOT OF ROAD TO RUN IN THIS RECOVERY. RETURN TO HEALTHY 2005/6 LEVELS. MODERATE GROWTH IN NEW ORIGINATIONS. CONTINUED MIGRATION TO SECONDARY AND TERTIARY

    MARKETS.

    2015 WILL BE ONE OF THE STRONGEST YEARS WEVE SEEN IN COMMERCIAL REAL ESTATE SINCE THE CREDIT CRISIS AND ITS FOR

    ALL THE RIGHT REASONS. KEN RIGGS, RERC

    OPTIMISM IS HIGHEST ITS BEEN SINCE THE DOWNTURN. RYAN SEVERINO, REIS

    THE MARKET FORECAST

  • 20

    MUCH GREATER AWARENESS OF ENVIRONMENTAL DUE DILIGENCE.

    RISK MANAGEMENT IS NOW EVERYONES BUSINESS.

    PAST DEAL KILLERS ARE NOW BEING MANAGED.

    PROPERTIES AND PROJECTS THAT FAILED ARE COMING BACK INTO THE MARKET.

    MORE DEFERRED MAINTENANCE ISSUES ARISING ON REFIS OR NEGLECTED PROPERTIES.

    PROPERTY CONDITION ASSESSMENTS GROWING IN IMPORTANCE.

    THE FORECAST FOR RISK MANAGEMENT

  • MARSH 21

    ENVIRONMENTAL RISKS ON PORT & TERMINAL FACILITIES

    JARED DUBROWSKYVICE PRESIDENTGLOBAL ENVIRONMENTAL PRACTICE

  • MARSH 22

    Framework for Addressing Environmental Risks and Solutions

    Individual Interests

    Aligned Interests

    Addressing Conflicts

    Owner-Borrowers Lenders

  • MARSH 23

    Common Environmental Exposures and Losses From an Individual Pollution Condition

    Third Party

    Offsite cleanup Property Damage

    Bodily Injury Loss of value

    Regulatory and Legal

    Natural Resource Damage

    Toxic Tort Claims Legal Defense

    Costs *

    Off-site Disposal Legacy

    Fines and Penalties Governmental re-

    openers

    Divested Properties

    Business Risks

    Borrow Default Business interruption

    Loss of Rents Increased

    development costs

    Defense can be important defending against frivolous and non-meritorious actions.

    1st Party Cleanup Known

    Conditions: cost overruns for pre-

    existing conditions Discovery of unknown pre-

    existing conditions New Conditions

    from operations Re-opener of closed issues

  • MARSH 24

    Spills (Sudden)

    Leaks (Gradual)

    Contractor Tasks

    Expansion/Mods/Maint.

    Legal Reqments

    Business Interruption

    Lease terms Acquisitions Construction

    Spills (Sudden)

    Leaks (Gradual)

    Legal Reqments

    Contract Reqments

    Material Arrival On-Site

    Material Handling On-site

    On-site Mgmt Spills (Sudden) Leaks

    (Gradual) Air/Water Legal

    Reqments 3d Party BI/PD

    Wastes

    Spills (Sudden) Leaks

    (Gradual) Legal

    Reqments 3d Party BI/PD Chemical

    Content Emerging

    Issues

    Product

    Waste Disposal Liability

    Natural Resource Damages

    3d Party BI/PD Legal Defense Emerging Issues Off-site

    contractors

    Off-Site Exposures

    Process/Site

    Pollution Conditions Driven by Site UseWhat goes on now? What went on in the past?

  • MARSH 25

    Risks Profile Vary Significantly based on Industry

    Agriculture Healthcare

    Automotive Industry

    Aviation Manufacturing

    Chemical Marine

    Education Tech & Telecom

    Forestry Products Transportation

    General Industry

  • MARSH 26

    Environmental Issues in Real Estate Transactions

    Storage Tanks

    Aboveground and underground

    Asbestos

    Asbestos is a mineral fiber that was commonly used in many building materials prior to being banned in the early 1980s.

    Lead Paint

    Lead was a common ingredient in paint prior to it being banned in 1978.

    Mold

    Cleanup and health impacts

  • MARSH 27

    Environmental Due Diligence

    Has evolved for risk identification and to facilitate some protections toinnocent landowners

    All Appropriate Inquiries (AAI)

    Transaction Screen Reports

    Phase I Environmental Site Assessment

    Phase II limited subsurface investigation report. To do or not to do. That is the question

    Baseline for insurance solutions

  • MARSH 28

    Regulation

    Various governmental agencies either require that banks conduct environmental due diligence or have a procedure in place for addressing environmental issues.

    Office of the Comptroller of the Currency (OCC)

    Federal Deposit Insurance Corporation (FDIC)

    United States Small Business Association (SBA)

  • MARSH 29

    Borrower Objectives

    Unnecessary discovery, action and costs Governmental reporting

    Minimize due diligence particularly Phase II investigations

    Minimize environmental costs to operating financials Eliminate risks that could be enterprise threatening

    Operating portfolio risks

    Initial financing Refinancing Securitization impacts

    Secure favorable financing

    Costs and Uncertainties Indemnities

    Address environmental obstacles to enable successful acquisitions and divestitures

  • MARSH 30

    Lender Objectives

    Dealing with Outstanding Bad Loans

    Minimize Loan Credit Risk Environmental costs to borrower could result in default. In the event of default, Lender can be responsible for the cleanup .Exercised

    significant manage

Recommended

View more >