Debt Financing in a Challenging Regulatory and Market Environment

Debt Financing in a Challenging Regulatory and Market Environment

Panelists and Deals Mindy Berman JLL Managing Director Boston, MA Erik Tellefson CapitalOne Healthcare Managing Director, Medical Facilities Chicago, IL Winston Abbott Siemens Financial Services, Healthcare VP / National Sales Manager Dallas, TX Moderator Mokena MOB Acquisition Financing Chicagoland, IL $11,900,000 Dignity Neighborhood Hospital Construction/Permanent Loan Las Vegas, NV $16,100,000 Brion Haist JLL Executive Vice President, Capital Markets New York, NY Aurora MOB Credit Tenant Lease Waukesha, WI $17,500,000

Agenda Debt Market Conditions Case Studies Panel Discussion Q&A

Debt Market Conditions

Benchmark Treasury Yields Interest rates and government debt yields continue to decline and remain near historic lows The 10-Year Treasury yield is currently 43 basis points lower than the five-year historical average 6.0% 5.0% As of 4/14/2016, the 5- and 7-Year Treasury yields are 1.23% and 1.54%, respectively. Meanwhile, the 10-Year Treasury yield is at 1.77%. 4.0% 3.0% 2.0% 1.0% 0.0% Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Source: JLL Research, Federal Reserve 10-Yr Tr 7-Yr Tr 5-Yr Tr April 2016 5

Historical 10-Year Treasury Rates 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Apr-66 Apr-76 Apr-86 Apr-96 Apr-06 Apr-16 Averages 40 Year : 6.56% 50 Year : 6.56% 30 Year : 5.23% 20 Year : 4.07% 10 Year : 3.00% 5 Year : 2.20% 4/14/16 : 1.77% Source: JLL Research, Federal Reserve April 2016 6

Overall Real Estate Debt Summary Commercial and multifamily real estate debt outstanding: $2.76 trillion as of 3Q2015 Bank and Thrift CMBS, CDO and other ABS issues Agency and GSE portfolios and MBS Life insurance companies State and local government Federal government REITs Finance companies Nonfarm noncorporate business Household sector Private pension funds Nonfinancial corporate business Other insurance companies State and local government retirement funds 37.5% 18.8% 16.0% 13.8% $102.7 3.7% $82.7 3.0% $69.4 2.5% $35.0 1.3% $23.5 0.9% $20.6 0.7% $19.8 0.7% $12.2 0.4% $11.6 0.4% $4.7 0.2% $380.2 $442.7 $519.9 $1,036.9 (in billions / % of total) Source: Mortgage Bankers Association; data available thru 3Q2015 April 2016 7

Real Estate Debt Conditions Life Companies Banks CMBS Agency Alternative Market Snapshot Focused on high quality transactions and institutional real estate Pricing has increased 20-30 bps over the past 90 days due to spread widening in bond market (offset by a reduction in Treasury rates) Regulatory environment continues to impact pricing with slightly widening spreads Willing to go longer term (7+ years) for select, small to medium size deals Trying to originate more cash flowing loans Construction loan terms are getting more conservative Spreads have recently widened nearly 100 basis points over past 5 months with rates ~5% Choppy market with nearly every new securization pricing wider than previous securitization Currently lending full term I/O on modest leverage deals and not shying away from equity "cash-outs" Primary source of liquidity for assets in secondary markets plus hotels Primary source of medium and higher leverage multifamily financing Freddie & Fannie portfolio limitations pushing to focus on more Class B / C properties Bridge loan pricing has increased 25-50 bps over past 60 days. Increased appetite in mezz loans from investors (equity investors seeking safety versus debt investors seeking yield, which we saw 12 months ago) Abundance of capital in mezz debt space New regulations taking effect at YE 2016 creating uncertainty over pricing and year-end origination Leverage 50-65% 50-65% 65-75% Up to 80% Up to 95% Outlook Steady to slightly increased volume going in to 2016, though several lenders may reduce goals due to concerns about "relative value" compared to corporate bonds. Will continue to focus on current key client relationships Volume in 2015 was $101 billion. Significant maturities from 2006 maturities should sustain market, despite choppy pricing. Other sources of financing have and will continue to pick up the slack from the reduction of agency originations Steady volume going in to 2016 as development pipeline remains strong April 2016 8

CMBS issuance (billions of $US) Historical U.S. CMBS Issuance In 2015, U.S. CMBS issuance hit a post-recession high with full year issuance of $101 billion, compared to $94 billion in 2014. Issuance in 2016 is off to a slow start relative to 2015, with $19.4 billion originated as of April 6, compared to $32.6 billion at this time last year. $260 $240 $229 $220 $200 $198 $180 $160 $167 $140 $120 $100 $80 $60 $40 $20 $0 $101 $93 $94 $86 $74 $78 $67 $57 $52 $47 $48 $37 $33 $26 $16 $19 $12 $12 $3 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015YTD 2016 Source: JLL Research, Bloomberg, Commercial Mortgage Alert Data through April 6, 2016 April 2016 9

Maturities (billions of $US) CRE Debt Maturities Approximately $268 billion of CRE loans are scheduled to mature in 2016 and $295 billion in 2017 $350 $300 $250 281 22 289 23 298 25 280 282 24 24 268 26 295 27 $200 $150 205 213 211 187 159 132 131 213 214 27 26 203 25 187 25 154 24 $100 $50 $0 145 159 154 126 137 99 110 54 53 62 69 41 29 24 99 94 22 64 36 36 13 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 CMBS Banks Life Companies Source: JLL Research, Trepp LLC April 2016 10

Implications for Borrowers Uncertainty and risk aversion is creeping into the real estate finance market none of it is driven by concerns about real estate fundamentals. It is driven by the junk bond market, risk aversion in emerging markets, broader macro-economic concerns and regulatory changes. Less competition from CMBS lenders and higher demand for bank and life company money. Life companies will likely get through most of their allocations by late summer New CMBS regulations for risk retention go into effect December 24,, 2016 Expected pricing increase of 30-40 bps Lenders likely to limit new loans in November/December until pricing and execution is understood Secondary market liquidity for CMBS bonds is thinning due to regulations preventing Wall Street from making markets for their bonds CMBS pricing approximately 5% for 10-year loans Interest rate up 1% over past 6 months Rate is still lower than the $100B+ of 2006 maturities where rates were 5.5-6.0% Remain the primary source of liquidity for secondary markets and hotels Loan economics are not final until the day of closing Banks are continuing to figure out new regulatory framework Different lenders view the same transaction with a different view on its impact on capital requirements and profitability Clarity should start to develop over the next 12 18 months Recommendations/Implications Secure loan commitment by August as allocations may utilized by Q4 (consider forwards) Liquidity in primary markets and Class A transactions will be less impacted than secondary markets and lower quality assets Institutional borrowers will be less impacted than local/regional investors Expect volatility and higher rates to impact asset pricing April 2016 11

Hospital Bond Issuance Tax-Exempt Healthcare Issuance ($B) 9.0 8.0 7.0 6.0 $7 $6 $8 $7 5.0 4.0 3.0 2.0 $2 $4 $3 $3 $4 $3 1.0 0.0 Q1 Q2 Q3 Q4 2014 2015 2016 YTD Source: Barclays April 2016 12

Tax-exempt Bond Rates Relative to U.S. Treasury Rates 30-Year MMD 4.50% 4.00% 4.20% 3.50% 3.00% 2.50% 2.61% 2.00% Jan- 14 Jun- 14 Nov- 14 May- 15 Oc t- 15 Apr- 16 30Y M M D 2.61% 30-Year UST 4.50% 4.00% 3.98% 3.50% 3.00% 2.71% 2.50% 2.00% Jan- 14 Jun- 14 Dec- 14 May- 15 Nov- 15 Apr- 16 30-Year UST Source: Barclays April 2016 13

Current Lending Parameters Bank Life Company 3 Years 5 Years 10 Years Leverage 50 65% 50 65% N/A Debt Yield 9 12% 9 12% N/A Pricing LIBOR* + 170 270 LIBOR* + 170 270 N/A Current Rates 2.58 3.58% 2.82 3.82% N/A 3 Years 5 Years 10 Years N/A 50 65% 50 65% N/A 8 12% 8 12% N/A T + 160 230 T + 160 230 N/A 2.84 3.54% 3.38 4.08% CMBS Agency 3 Years 5 Years 10 Years Leverage N/A 65 75% 70 75% Debt Yield N/A 8 12% 8 12% Pricing N/A S/T + 320 360 S/T + 280 310 Current Rates N/A 4.40 4.80% 4.44 4.74% 3 Years 5 Years 10 Years N/A Up to 80% Up to 80% N/A 1.25x - 1.55x DSCR 1.25x 1.55x DSCR N/A T + 225 290 T + 210 270 N/A 3.39 4.04% 3.82 4.42% *Current Rates based on April 14, 2016 interest rates. Floating rate debt assumes swapped all-in rate. April 2016 14

Case Studies

Mokena MOB Acquisition Financing Lender: Borrower: Type of Loan: Property Type: Location: Loan Amount: Loan-to-Value: 70% Size: Term/Amortization: CapitalOne Healthcare MedProperties Holdings Affiliate, Dallas Term Loan Medical Office / Surgery Center / Post Acute Chicago, IL (Suburbs) $11.9MM 29,000 SF 5 years - 30 Mos. I/O then 30 yr Amort Borrower Dallas-based MedProperties Holdings, (large legacy borrower with strong relationship) was seeking a loan to finance its acquisition of a 29,000 SF MOB / Surgery Center property in the Chicago Suburbs. The asset is a mix of MOB space, surgery center and post acute usage with doctors offices, a 4 OR ASC and the post acute portion including a recovery center with 5 overnight beds. The borrower s concern was finding a lender that understood the asset and would provide an appropriate loan. Property details 100% leased by a JV between the doctor group and its operating partner. 15 year Lease Term NOI of $1.3MM Relatively high $/SF for an MOB / Surgery Center of $590/SF value related to the space usage. Solution CapitalOne was able to utilize its healthcare expertise and compare across the various components of the asset to illustrate a blended basis that made sense with respect to the $/SF. Aligning the debt to the borrowers business plan, Capital One structured a loan that met the borrower needs.

Dignity Neighborhood Hospital Construction/Permanent Lender: Borrower: Type of Loan: Property Type: Location: Siemens Financial Services, Inc. Rose Rock Capital Construction and Permanent Neighborhood Hospital Las Vegas, Nevada Loan Amount: $16,100,000 Loan-to-Value: 75% Size: Term/Amortization: 60,000 square feet 24 months interest only with escalators and extension options Borrower Rose Rock Capital (Bryan, Texas) solicited construction and permanent financing for a 60K sq. ft neighborhood hospital to be built in the metro Las Vegas, Nevada area. The asset is part of Dignity Health s overall hub and spoke market strategy - to serve the community and capture market share. Rose Rock Capital was seeking an experienced lender with platform knowledge and the capacity to replicate the financing. Property Details 100% pre-leased to a JV tenant partially owned by Dignity Health. 15 year triple net (NNN) lease with escalators and renewal options. 1 st year NOI of $1.7 MM. Eight (8) treatment and inpatient beds and auxiliary hospital services on first floor. Physician offices and specialty services on second and third floors. Solution Siemens Financial Services, Inc. was able to underwrite a start up tenant under a non-recourse loan structure with market terms. In addition, provide any TI, Capex or equipment financing needed by the tenant as both JV partners are existing Siemens clients.

Aurora Health Care Credit Tenant Lease Lender: U.S. Bank National Association Borrower: Mayfair Medical Properties, LLC Type of Loan: Credit Tenant Lease Financing Property Type: Medical Office Location: Wauwatosa, WI Loan Amount: $17.5 mm LTV: 93% Size: 60,800 SF Term/Amortization: 25 years / 25 years Borrower: Mayfair Medical Properties LLC desired a long-term, fixed rate, non-recourse financing corresponding to the term of the underlying lease that would refinance the existing floating-rate construction loan. Property: 100% leased to Aurora Health Care, Inc. (Investment grade, A3 rating) 25-year Absolute Net Lease $18,800,000 Development Cost Solution: JLL placed the Credit Tenant Lease bonds with a major foreign fixed income investor. Over 10 investors competed to purchase the bonds which resulted in competitive pricing and successful closing on behalf of Mayfair. Coincidentally, Aurora issued tax-exempt bonds the same day as the CTL at exactly the same coupon as the CTL bonds.

Deal Volume in Millions Private Placement Volume Large, liquid market to tap for private debt for investment grade borrowers served by life companies and pension funds Credit tenant lease is a subset of private placements $70,000 $60,000 $50,000 $40,000 $30,000 US Domestic Foreign Issuance $20,000 $10,000 $- 2009 2010 2011 2012 2013 2014 2015 2016 YTD Year Total Private Placement Issuance (in millions) 2009 2010 2011 2012 2013 2014 2015 2016 YTD $ 28,121 $ 41,822 $ 44,897 $ 54,257 $ 58,250 $ 58,843 $ 60,484 $ 9,743 CTL Issuance (in millions) $125 $ 1,489 $ 1,262 $ 1,951 $ 2,584 $1,234 $ 1,128 $ 42 CTL Percent of Total PP 0.4% 3.6% 2.8% 3.6% 4.4% 2.1% 1.9% 0.4%

Panel Discussion

Thank you! Mindy Berman mindy.berman@am.jll.com +1 617 316 6539 Erik Tellefson erik.tellefson@capitalone.com +1 312 441 6828 Winston Abbott winston.abbott@siemens.com +1 214 232 9242 G. Brion Haist brion.haist@am.jll.com +1 212 812 6492