CONFIDENTIAL This document contains proprietary strictly confidential information

  • Slides: 26
Download presentation
CONFIDENTIAL This document contains proprietary, strictly confidential information and is subject to the non-disclosure

CONFIDENTIAL This document contains proprietary, strictly confidential information and is subject to the non-disclosure agreement between the client and Property and Portfolio Research. This document, or any of its parts, may not be copied, distributed or cited in any manner without Property and Portfolio Research’s written permission. The Current CRE Lending Environment – 2012 UConn CRE Conference Mark Fitzgerald PROPERTY AND PORTFOLIO RESEARCH NORTH AMERICA March 6, 2012 EUROPE ASIA-PACIFIC 1

chapter 1 page 2 Excess Leverage

chapter 1 page 2 Excess Leverage

BANKS HAVE CUT EXPOSURE TO REAL ESTATE SINCE 2007 REAL ESTATE LOANS AS A

BANKS HAVE CUT EXPOSURE TO REAL ESTATE SINCE 2007 REAL ESTATE LOANS AS A PERCENT OF TOTAL ASSETS, FDIC UNIVERSE page 3

REAL ESTATE IMBALANCES REMAIN CHANGE IN OUTSTANDING BALANCE BY LOAN TYPE, U. S. BANKS

REAL ESTATE IMBALANCES REMAIN CHANGE IN OUTSTANDING BALANCE BY LOAN TYPE, U. S. BANKS Source: PPR, FDIC page 4

REMOVING LEVERAGE FROM THE SYSTEM CHANGE IN COMMERCIAL REAL ESTATE DEBT OUTSTANDING BY LENDER

REMOVING LEVERAGE FROM THE SYSTEM CHANGE IN COMMERCIAL REAL ESTATE DEBT OUTSTANDING BY LENDER CATEGORY Sources: Federal Reserve; Moody’s Analytics; PPR page 5 As of 11 Q 3

CAN LENDERS HANDLE THE TIDAL WAVE OF MATURING LOANS? CRE MATURING LOANS BY YEAR

CAN LENDERS HANDLE THE TIDAL WAVE OF MATURING LOANS? CRE MATURING LOANS BY YEAR Sources: PPR; Federal Reserve; Trepp; ACLI page 6 As of 11 Q 1

THE CAN BEING KICKED CONTINUES TO GROW FORECAST 2011 CRE MATURITIES, AS OF DECEMBER

THE CAN BEING KICKED CONTINUES TO GROW FORECAST 2011 CRE MATURITIES, AS OF DECEMBER OF REFERENCED YEAR Sources: PPR; Federal Reserve; Trepp; ACLI As of 11 Q 1 page 7

CONSTRUCTION LOANS ARE BEING DEALT WITH FIRST BANK CRE PORTFOLIO NONPERFORMING LOANS page 8

CONSTRUCTION LOANS ARE BEING DEALT WITH FIRST BANK CRE PORTFOLIO NONPERFORMING LOANS page 8

REGIONAL & COMMUNITY BANKS FACE MORE DIFFICULTY IN “EARNING THEIR WAY OUT”…. ROE BY

REGIONAL & COMMUNITY BANKS FACE MORE DIFFICULTY IN “EARNING THEIR WAY OUT”…. ROE BY BANK ASSET SIZE page 9

BANK FAILURES ARE BEING DRIVEN BY THE CRE PORTFOLIO COMMERCIAL REAL ESTATE AS A

BANK FAILURES ARE BEING DRIVEN BY THE CRE PORTFOLIO COMMERCIAL REAL ESTATE AS A PERCENT OF TOTAL ASSETS FOR FAILED BANKS Sources: PPR; FDIC page 10 As of 11 Q 4

chapter 2 page 11 Lender Modification & Disposition of Nonperforming Assets

chapter 2 page 11 Lender Modification & Disposition of Nonperforming Assets

“TRUE” MODIFICATIONS CONTINUE TO RAMP UP…. SPECIAL SERVICER MODIFICATIONS BY QUARTER Sources: PPR; Trepp

“TRUE” MODIFICATIONS CONTINUE TO RAMP UP…. SPECIAL SERVICER MODIFICATIONS BY QUARTER Sources: PPR; Trepp As of 11 Q 4 page 12

CMBS LIQUIDATION ACTIVITY IS INCREASING LIQUIDATION ACTIVITY & LOSS SEVERITY ON CMBS LOANS, BY

CMBS LIQUIDATION ACTIVITY IS INCREASING LIQUIDATION ACTIVITY & LOSS SEVERITY ON CMBS LOANS, BY QUARTER Sources: PPR; Trepp As of 11 Q 4 page 13

BIFURCATION IN LIQUIDATION: LARGE COASTAL METROS GETTING BETTER EXECUTION CMBS LOSS SEVERITY AT LIQUIDATION,

BIFURCATION IN LIQUIDATION: LARGE COASTAL METROS GETTING BETTER EXECUTION CMBS LOSS SEVERITY AT LIQUIDATION, BY METRO, ON 2009 & 2010 LIQUIDATIONS Sources: PPR; Trepp page 14

2012 CMBS MATURING LOANS WILL CONTINUE TO STRUGGLE PERCENT OF LOANS ABLE TO SECURE

2012 CMBS MATURING LOANS WILL CONTINUE TO STRUGGLE PERCENT OF LOANS ABLE TO SECURE TAKE-OUT PROCEEDS UNDER VARIOUS ECONOMIC SCENARIOS Source: PPR, Trepp Note: Underwriting standards at refinance vary based upon economic outlook. As of 12/31/2011 page 15

BANKS BEGINNING TO MOVE LEGACY LOANS OFF THE BOOKS BANKS’ NON-PERFORMING LOAN SALES BY

BANKS BEGINNING TO MOVE LEGACY LOANS OFF THE BOOKS BANKS’ NON-PERFORMING LOAN SALES BY QUARTER page 16

WHAT DISTRESSED OPPORTUNITY LOOKS LIKE BANKS’ CRE OREO SALES BY QUARTER Source: PPR, Co.

WHAT DISTRESSED OPPORTUNITY LOOKS LIKE BANKS’ CRE OREO SALES BY QUARTER Source: PPR, Co. Star Group, Inc. As of 11 Q 4 page 17

chapter 3 page 18 Relative Value in Today’s Environment

chapter 3 page 18 Relative Value in Today’s Environment

LENDING ON SMALLER CRE ASSETS REMAINS CONSTRICTED CHANGE IN TOTAL BANK CRE LOANS OUTSTANDING

LENDING ON SMALLER CRE ASSETS REMAINS CONSTRICTED CHANGE IN TOTAL BANK CRE LOANS OUTSTANDING BY LOAN SIZE 80% 60% 40% 20% 0% (20%) (40%) <$100 K $100 -$250 K 2003 -2008 -2011 Sources: PPR; FDIC $250 K-$1 M >$1 M As of 11 Q 3 page 19

CRE LENDERS HAVE TURNED THE CORNER CRE LENDING INDEX BY SOURCE OF CAPITAL Sources:

CRE LENDERS HAVE TURNED THE CORNER CRE LENDING INDEX BY SOURCE OF CAPITAL Sources: ACLI; Moody’s Analytics; Commercial Mortgage Alert; MBA; PPR page 20 As of 11 Q 4

NORTHEAST BANKS ARE LENDING AGAIN 2011 CHANGE IN CRE LOANS OUTSTANDING, BY STATE OF

NORTHEAST BANKS ARE LENDING AGAIN 2011 CHANGE IN CRE LOANS OUTSTANDING, BY STATE OF BANK HEADQUARTERS Sources: PPR; FDIC Note: Banks with greater than $50 billion in assets excluded from analysis. page 21 As of 11 Q 4

LENDERS PULLED BACK IN 2 H 2011 DEBT YIELD BREAKOUT BY DEAL ISSUANCE TIMEFRAME

LENDERS PULLED BACK IN 2 H 2011 DEBT YIELD BREAKOUT BY DEAL ISSUANCE TIMEFRAME Sources: PPR; Trepp As of 11 Q 4 page 22

LENDING SPREAD DIFFERENTIALS BETWEEN LARGEST MARKETS AND REST OF U. S. REMAIN WIDE LENDING

LENDING SPREAD DIFFERENTIALS BETWEEN LARGEST MARKETS AND REST OF U. S. REMAIN WIDE LENDING SPREAD DIFFERENTIAL FOR LARGEST SIX U. S. MARKETS VERSUS REST OF U. S. Sources: PPR; ACLI page 23 As of 11 Q 4

LENDERS CATERING TO SMALLER ASSETS CAN FIND ATTRACTIVE RETURNS COMPARED TO LOANS GREATER THAN

LENDERS CATERING TO SMALLER ASSETS CAN FIND ATTRACTIVE RETURNS COMPARED TO LOANS GREATER THAN $25 MILLION, LENDING SPREADS BY LOAN SIZE Sources: PPR; ACLI page 24 As of 11 Q 4

LENDERS CAN GET PAID FOR INCREMENTAL RISK IN TERTIARY MARKETS ADDITIONAL SPREAD AND SPREAD

LENDERS CAN GET PAID FOR INCREMENTAL RISK IN TERTIARY MARKETS ADDITIONAL SPREAD AND SPREAD PER UNIT OF YIELD DEGRADATION, COMPARED TO 65% LTV LOAN IN TIER I MARKET 20. 0 Spread/YD Add'l Spread 2. 50% 18. 0 16. 0 2. 00% 14. 0 12. 0 1. 50% 10. 0 8. 0 1. 00% 6. 0 4. 0 0. 50% 2. 0 0. 00% Tier I 75% LTV Spread/YD 75% LTV Add'l Spread Tier 2 Tier 3 85% LTV Spread/YD 85% LTV Add'l Spread Sources: PPR; ACLI Note: This analysis captures office loans and assumes 2012 Q 1 PPR cap rates for each asset. As of 11 Q 4 page 25

A GOOD TIME TO BE A LENDER Sources: Snyderman/Esaki; Fitch. Ratings; Giliberto-Levy; PPR; Trepp;

A GOOD TIME TO BE A LENDER Sources: Snyderman/Esaki; Fitch. Ratings; Giliberto-Levy; PPR; Trepp; NCREIF Note: Purple bars combine actual to date & Compass projected defaults page 26 As of 11 Q 2