RealCapital 2013 Session C2: Alternative Sources of Capital: How - - PDF document

2/27/2013 1

CMLS FINANCIAL RealCapital 2013 / February 26, 2013

RealCapital 2013

Session C2: Alternative Sources of Capital: How Are Mortgage Funds and Private Equity Meeting the Needs of Investors and Borrowers Mortgage Funds and Private Equity Market Size

Presented by Chris Brossard, CEO

CMLS FINANCIAL RealCapital 2013 / February 26, 2013 /1

Mortgage Funds & Private Equity

2011 Market Size, Outstandings: $12.8 Billion, 7.7%

2011 Total Commercial Mortgage Market: $166 billion

~$7.6 billion ~$5.2 billion

3.1% 4.6% 92.3% Mortgage Funds & P/E - Alternative mandates Mortgage Funds & P/E - Conventional mandates FI, Public Sector, Securitization

2/27/2013 2

CMLS FINANCIAL RealCapital 2013 / February 26, 2013 /1

Mortgage Funds & Private Equity

2011 Market Size, Origination: $4.3 Billion, 14.7%

2011 Total Commercial Mortgage Market: $28 billion

~$1.5 billion ~$2.6 billion

9.3% 5.4% 85.4% Mortgage Funds & P/E - Alternative mandates Mortgage Funds & P/E - Conventional mandates FI, Public Sector, Securitization CMLS FINANCIAL RealCapital 2013 / February 26, 2013 /1

Mortgage Funds & Private Equity

2012 Market Size, Outstandings: $14.6 Billion, 8.6%

2012 Total Commercial Mortgage Market: ~$172 billion

~$8.3 billion ~$6.3 billion

3.7% 4.9% 91.5% Mortgage Funds & P/E - Alternative mandates Mortgage Funds & P/E - Conventional mandates FI, Public Sector, Securitization

2/27/2013 3

CMLS FINANCIAL RealCapital 2013 / February 26, 2013 /1

Mortgage Funds & Private Equity

2012 Market Size, Origination: $4.8 Billion, 16.6%

2012 Total Commercial Mortgage Market: ~$29 billion

~$1.7 billion ~$3.1 billion

10.7% 5.9% 83.4% Mortgage Funds & P/E - Alternative mandates Mortgage Funds & P/E - Conventional mandates FI, Public Sector, Securitization CMLS FINANCIAL RealCapital 2013 / February 26, 2013 /1

About CMLS Financial

Commercial Mortgage Lending New: Single Family Mortgage Lending Securitization & Fund Management Mortgage Valuation

• $2.2 billion of new

commercial origination 2012

• $250 million CMBS Oct ’12
• Single family launches this

month

• $8 billion per annum

2/27/2013 4

KingSett Capital

KINGSETT FUNDS (active management creating premium risk weighted returns):

 Legal structure: limited partnerships  Growth : 5 closed end, finite life funds - institutional investors  Income: 1 open ended, indefinite life fund - high net worth retail investors  $4.0 billion of equity raised since 2002  $12.5 billion of transactions - acquisitions, dispositions & mortgages  $4.0 billion of assets under management today  $1.0 billion investment program for 2013 – real estate & mortgages

MORTGAGE LENDING:

 Over $1.0 billion invested so far and growing  Over $500 million repaid to-date  Over $500 million outstanding today  69% Ontario; 13% Alberta; 10% BC; 5% Quebec; 3% Other  40% residential; 29% retail; 21% office; 11% industrial  59% income producing; 33% construction; 8% land development  $75 million is largest and $770,000 is smallest loan to-date

2/27/2013 5

Junior Debt – To Acquire Existing Apartment Building

Location: Toronto Property Type: 150 Unit Apartment Building (3.3% Vacancy) Loan Amount: $5,300,000 Second Mortgage Loan Exposure: $16,000,000 ($107,000 per suite) Loan / PP: 83% DSC Ratio: 1.00x NOI / Debt: 7.3%

Junior Debt – To Acquire Existing Apartment Building

PROBLEM:

 KingSett DSC ratio = 1.00x  Borrower cash was only 9.3% of purchase price  Borrower assumed inefficient first mortgage  First Mortgage: 55% LTV ratio – 5.15% interest rate – closed loan  VTB third mortgage behind KingSett – 5.00% interest (50/50 prepaid/postponed)

SOLUTION / COMFORT:

 KingSett accepted 1.00x DSC Ratio and a VTB third mortgage  We committed a 48 month loan – open after 12 months  Fifth loan with this client – never any issues  Proven ability to reduce energy costs (via capital investment)  Positive DSC ratio with right sized & priced first mortgage  KS comfortable with $107K loan / door and our 7.3% NOI / Debt

EXIT:

 More senior debt on maturity & more equity (or sale)

2/27/2013 6

Junior Debt – To Reposition Existing Asset

Location: Toronto Loan Amount: $20,000,000 Second Mortgage Loan Exposure: $63,000,000 ($242 psf) Property Type: 160,000 sf office (43% leased & occupied) 100,000 sf retail (40% pre-leased but not occupied) LTC Ratio: 90% LTV Ratio: 81% (upon stabilization)

Junior Debt – To Reposition Existing Asset

PROBLEM:

 Borrower can contribute 10% of project cost  Property 42% pre-leased  Only 27% occupied  Revenues don’t cover operating costs  Retrofit = cost overrun risk

SOLUTION / COMFORT:

 LTC Ratio = 90%. We bridged gap between senior debt and equity  Interest payments added to loan for entire term  We agreed to discharge surplus development lands  Great borrower – very experienced. Great location  KingSett comfortable with asset

EXIT:

 Repaid in 14.5 months  Conventionally refinanced upon substantial pre-leasing

2/27/2013 7

• Timbercreek is a leading real estate asset manager with a

hands-on, conservative approach to investing.

• Timbercreek manages $3.2 billion in assets through one
• r a combination of investment strategies;
• Private Equity (Direct Real Estate)
• Private Debt (Mortgage Investments)
• Public Equity/ Debt (Global Real Estate Securities)
• Timbercreek is a leading provider of customized real

estate financings. In 2012, Timbercreek committed $928 million across 101 transactions.

13

Timbercreek Asset Management Timbercreek – Transaction #1

14

Loan Am ount: $65,000,000 Property Type: Multi-Residential Suites: 290 Location: Montreal, QC

2/27/2013 8

Timbercreek – Transaction #2

15

Loan Am ount: $3,380,000 Property Type: Medical Office NRA: 33,895 sq. ft. Location: Stratford, ON

Presentation

2/27/2013 9

Apartment Building

17

Description: Acquisition financing for developer to renovate and rent units to tenants. Alternatively, the 4 co-

• wners may combine units

and occupy themselves Property: 4 storey, 17 unit vacant apartment building in Forest Hill Loan: 1st mortgage of $3,000,000 Loan-to-Purchase Price: 75%

Apartment Building

18

Challenges:

• Property vacant
• Owner wants to convert to 4

residential condominium units

• Present Toronto zoning

issues removing units from rental Solution:

• Proven borrower
• Hired excellent consultants

to liaison with Atrium

• 75% of purchase price loan

within 10 days

2/27/2013 10

Airport Industrial Park

19

Description: Acquisition financing for developer to renovate and sell industrial condominium units to tenants. Property: Multi-tenanted industrial building, Toronto, ON Loan: 1st mortgage of $7,250,000 Loan-to-Purchase Price: 75%

Artist Rendering

Airport Industrial Park

20

Challenges:

• 65% vacant
• 30-40 year old multi-

tenanted industrial building

• Building Condition Report

left a lot to be desired about the buildings Solution:

• Structured finance solution

– 60% of acquisition cost financing.

• Multiple draws to bridge

gutting and upgrading model suite and sale of individual units to end users

Artist Rendering

2/27/2013 11