Alternative Debt Financing Options October 14, 2014

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1 Alternative Debt Financing Options October 14, 2014 Philip S. Rachels Senior Vice President, Debt & Structured Finance CBRE Capital Markets Todd Trehubenko Senior Vice President, Multifamily Finance Walker & Dunlop Chris Tokarski Principal & Managing Director Coastal Capital Partners

2 TOPICS 1) Non-recourse high leverage bridge based on total capitalization. We are seeing 80-85% for multi-family at competitive rates 2) Higher leverage senior CMBS Blended mezz into the senior trust Structured mezz above same senior lender 3) FHA Structure Timing to close

3 Alternative Debt Financing Options Case Studies 1) Bridge, Conduit, and Mezzanine Todd Trehubenko 2) Acquisition, Reposition, Earn Out Chris Tokarski 3) FHA for Acquisition and Conversion Todd Trehubenko 4) Broken Condo Sell Down Chris Tokarski

4 New Products in an Evolving Market Interim Loan Program (bridge financing) created in 2013 CMBS program created 2014 Continuing to diversify mezzanine, preferred equity, etc. Can evaluate all opportunities across all channels

5 Case Study 1 Bridge, Conduit and Mezzanine Gulf Coast portfolio acquisition 6 Properties in TX and LA 1,032 apartments Strong competition for portfolio $72.2 million in new financing: o $35.4 million bridge loan over three properties, crossed o $31.4 million CMBS loan, 10-year term (4 years IO) o $5.4 million mezzanine loan Executed as a single transaction, one underwriting and one closing

6 Case Study 2 Acquisition, Reposition, Earn Out First Mortgage / Mezz Combination Purpose Loan-to-Cost Initial Acquisition 65% Loan-to-Cost w/ Earnout 95% Term Amort IO Rate L+4% Fee 1% in Call Protection 18 months Starting DY 5.8% Stabailzed DY 7.0% $32,400,000 ($178,000/unit, $240/SF) for the acquisition of a 10 property portfolio consisting of 173 multifamily units (6 to 60 units per property). Funded $30,400,000 at closing $2MM of future funding for unit renovations and capital improvements. Earn-out of $15MM of additional proceeds upon achieving annually increasing DY hurdles: (6.25%, then 6.5%, then 6.75%) minimum DSCR (1.47x through month 12, increasing 6 bps every 12 months thereafter) maximum LTV of 75% In-place rents across the portfolio are 38.0% below market on average (subject to rent control).

7 Case Study 2 Other Deal Terms Release Provisions: Properties can be released at the greater of % of the allocated Loan Amount; or 2. a post-release debt yield on the remaining portfolio equal to the greater of: a. 7.00%; or b. debt yield immediately prior to release Cash Management: Event of Default BK proceeding of Borrower, Guarantor or property manager DSCR less than 1.35x during the Initial Loan Term DSCR less than 1.55x during any Extension Term Debt Yield less than 6.0% during Initial Loan Term Debt Yield less than 6.75% during any Extension Term

8 Case Study 3 FHA for Acquisition and Conversion-Hartford Acquisition and conversion of vacant office tower o 286 apartments, targeted LEED Platinum o $90 million TDC including commercial and garage Located in CBD, few comps but strategic, emerging area Developer seeking high leverage, long-term financing

9 Case Study 3 FHA for Acquisition and Conversion (cont d) Arranged new $37.2 million 1 st mortgage through FHA Section 221(d)(4) o IO during construction period o Base permanent loan with 40-year term o Tranches for tax exemption and LRECs (15 years) Subordinated new state debt and equity of $21 million Tradeoffs for affordability set-aside, commercial/garage

10 Case Study 4 Broken Condo Sell Down Loan $17,400,000 for the acquisition of a 25 out of 86 condominium units Funded $16,000,000 at closing $1.4 MM of future funding for unit renovations Purpose Acquisition Sources Uses Initial Funding $ 16,000,000 71% Acquistion Price $ 21,000,000 Future Funding $ 1,400,000 6% Cap Ex $ 1,400,000 Total Funding $ 17,400,000 78% Sponsor Equity $ 5,000,000 22% Total $ 22,400, % $ 22,400,000 Loan-to-Cost Initial 78% Loan-to-Sell Out 62% Term Amort Rate Fee Call Protection IO L+4.75% 1% in/1% out 18 months DY 4.75%

11 Case Study 4 Broken Condo Sell Down Loan Cap Stack Amount % LTC Rate (L+) DY DSCR First Mortgage $ 12,180,000 70% 54% 2.50% 6.79% 2.71 Mezz $ 5,220,000 30% 23% 9.25% 4.75% 1.05 Total $ 17,400,000 78% 4.53% 4.75% 1.05 Cheaper First Mortgage Money is L %, maybe tighter if you can keep the LTV / DY / DSCR at attractive levels (in 1-1.5% over last 12 months) Mezz L+8-10% going up to 75-85% with low DY / DSCR Avoid Dealer Status for tax purposes by renting units for some period of time and only selectively selling units

12 Case Study 4 Broken Condo Sell Down Loan Unique Deal Terms Release Provisions: 120% of allocated loan amount pay down until $500 psf is reached, after which 100% of allocated loan amount (leaks equity to Borrower to equity). 100% of sales proceeds pay down loan on last 5 units to protect against adverse selection. Interest Rate Step Up: Increase in rate equal to.35% if Debt Yield Drops below 4.5%

13 Thank You! Philip S. Rachels Todd Trehubenko Chris Tokarski