FEDERAL RESERVE BANK OF ATLANTA REAL ESTATE CONFERENCE DECEMBER 2015 - PowerPoint PPT Presentation

CRE DEBT MARKETS RESEARCH /DATA/TRENDS/RISK ANALYTICS FEDERAL RESERVE BANK OF ATLANTA REAL ESTATE CONFERENCE DECEMBER 2015 • NEW ORLEANS SAM CHANDAN PhD Chandan Economics & The Wharton School of the University of Pennsylvania www.chandan.com www.samchandan.com chandanomics samchandan 7 World Trade Center 46 th Floor 250 Greenwich Street New York NY 10007 CHANDAN ECONOMICS

P2 APARTMENT & COMMERCIAL INVESTMENT $508 $500 Mortgage-Financed Apartment & Model Projected Commercial Property Sales In Billions Volume for 2015 $450 $421 $400 Commercial Multifamily $350 $300 $250 $200 $150 Q1–Q3 Multifamily Volume $100 $93 B $50 $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q1–Q3 CHANDAN ECONOMICS Source: Chandan Economics; Model Based on Mortgage-Backed Sale Transactions and Refinancing Activity

P3 APARTMENT CAPITAL MARKETS $1.04 T Multifamily Mortgages Outstanding by Lender Group Excludes Construction Loans; In Billions $1,000 Change in Multifamily Debt Outstanding Other $800 Since EOY 2014 Agency CMBS $600 Life Companies +4.5% +$45.5 B Banks $400 $200 YOY Since Q2 2014 $0 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 +9.8% +$92.7 B 100% YOY Change in GSE Debt 80% +11.4% 60% Q2 2015 GSE Market Share 40% 20% 41.9% 0% 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 CHANDAN ECONOMICS Source: Chandan Economics; Federal Reserve, FDIC; 2015 Through Q2; Measure are total debt outstanding

P4 APARTMENT CAPITAL MARKETS Default Rate for Bank Commercial and Multifamily Mortgages 5.0% 4.5% 4.0% 3.5% 3.0% Commercial 2.5% Multifamily 2.0% 1.5% 1.0% 0.33% 0.5% 0.0% Q 2 3 4 Q 2 3 4 Q 2 3 4 Q 2 3 4 Q 2 3 4 Q 2 3 4 Q 2 3 4 Q 2 3 4 Q 2 3 2007 2008 2009 2010 2011 2012 2013 2014 2015 CHANDAN ECONOMICS Source: Chandan Economics; Federal Reserve, FDIC; 2015 Through Q3

P5 APARTMENT INVESTMENT Implied Debt-Income Cap Rate Debt Yield Leverage3 Ratio Q1 2015 Q3 2015 Q1 2014 Q3 2015 Q3 2014 Q3 2014 Balance & Q2 2015 & Q4 2015 & Q2 2015 & Q4 2015 & Q4 2015 & Q4 2015 $1 – $5 6.2% 6.0% 9.1% 9.0% 67% $11.10 $5 – $10 6.0% 6.0% 8.7% 8.7% 69% $11.49 $10 – $25 5.7% 5.6% 8.0% 8.0% 70% $12.50 $25 – $50 5.3% 5.3% 7.4% 7.4% 72% $13.51 $50 + 4.7% 4.6% 7.1% 7.0% 66% $14.29 CHANDAN ECONOMICS Source: Chandan Economics; Based on Mortgage-Backed Sales and Refinancing; Q4 2015 is Partial

P6 APARTMENT INVESTMENT 2015 YTD Market Average Cap Rates For Selected Markets New York 4.5% Denver 5.7% San Francisco 4.8% Miami ▼ 5.7% San Jose ▼ 4.9% Houston 6.1% San Diego ▼ 5.1% Philadelphia ▼ 6.2% Boston 5.1% Chicago ▼ 6.2% Inland Empire 5.2% Atlanta ▼ 6.2% Seattle 5.3% Dallas 6.3% Austin ▼ 5.5% Los Angeles 5.6% Washington DC ▼ 5.7% CHANDAN ECONOMICS Source: Chandan Economics; Based on Mortgage-Backed Sale Transactions and Refinancing Activity

P7 REAL ESTATE CYCLE Shares of Sampled When Will Loan Production Amortizing Mortgage Pool 59% Reach its Cyclical Peak? Partial IO 34% 2018+ 2015 IO 7% Q4 2013 Amortizing 2016 32% Partial IO 2017 39% IO Q4 2014 29% CHANDAN ECONOMICS Source: Chandan Economics, Real Estate Lenders Association; Through Summer 2015

P8 APARTMENT FINANCING TRENDS Credit Migration Flags and Value Pressures in Underwriting 35% Apartment Income Underwriting Ratio Underwritten NOI as a Share of Most Recently Reported NOI 30% 25% 20% 8% 15% 2013 2014 2% 10% 5% 0% < 70% 75% - 79% 80% - 84% 85% - 89% 90% - 94% 95% - 99% 100% - 105% - 110% + 104% 109% CHANDAN ECONOMICS Source: Chandan Economics