H U N T M O R T G A G E G R O U P Multifamily Debt Market Hayley Suminski Originator, Boston Office
Multifamily Debt Market Asset Types 1. Conventional & Coop 2. Manufactured Housing 3. Seniors Housing 4. Student Housing 2
* Forecast Sources: Marcus & Millichap Research Services, MPF Research This document was presented during the 2016 NCREIF Summer Conference. Apartment Vacancy vs. Construction 300 Completions Vacancy Rate 10% Completions (000s of Units) 240 180 120 60 8% 6% 4% 2% Average Vacancy Rate 0 93 9495 96 9798 99 0001 02 0304 05 0607 08 0910 11 1213 14 1516* 0%
National Apartment Rank by Metro 2016 Completions* Top 10 Metros 2016 Completions* Completions as % Inv. Bottom 10 Metros 2016 Completions* Completions as % Inv. New York 30,000 2.0% Dallas-Fort Worth 25,900 3.7% Houston 24,500 3.9% Seattle-Tacoma 15,000 3.8% Washington, D.C. 13,700 2.4% Denver 12,100 4.5% Los Angeles 11,600 1.1% Austin 11,400 5.3% Atlanta 9,800 2.1% Phoenix 9,100 2.8% U.S. Total 285,000 1.8% Cleveland 700 0.4% Sacramento 1,200 0.8% St. Louis 1,300 0.9% Las Vegas 1,335 0.6% Jacksonville 2,000 1.9% Detroit 2,200 0.7% Cincinnati 2,800 1.9% Oakland 2,900 1.4% West Palm Beach 2,900 2.6% Indianapolis 3,000 2.1% U.S. Total 285,000 1.8% * Forecast Sources: Marcus & Millichap Research Services, MPF Research
Annual Renter and Owner Household Formations
U.S. Apartment Price and Cap Rate Trends $150 Average Price Cap Rates 8% Average Price per Unit (000s) $125 $100 2002 2003 2004 2005 2006 2007 2008 2009 $75 $50 +32% * Preliminary estimate through 1Q Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics 2010 2011 2012 2013 2014 2015 2016* 7% 6% 5% 4% Average Cap Rate
U.S. Apartment Investment Transaction Growth Pace Moderating in 2016 $1M-$10M $10M-$20M $20M+ 16 Total Transactions (000s) 12 8 4 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16* * Preliminary estimate for trailing 12-months through 1Q Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics
Apartment Investors Pursue Yield Capital Allocations Moving Beyond the Core $16 Secondary/Tertiary Market Dollar Volume- $15M+ Percent in Secondary/Tertiary Markets* 70% Dollar Volume (Billions) $12 $8 $4 $0 2001 2002 * Trailing 12-month average Includes sales $15 million and greater Sources: Marcus & Millichap Research Services, Real Capital Analytics, CoStar Group, Inc. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 60% 50% 40% 30% Percent of Dollar Volume
Apartment Cap Rate Spreads Compress as Investors Pursue Yields Beyond Core 9% Preferred Primary Secondary Tertiary 8% Average Cap Rate 7% 6% 5% 120 bps 370 bps 210 bps 4% 04 05 06 07 08 * Preliminary estimate through 1Q Includes sales $1 million and greater Preferred Markets Include: NY, DC, BOS, SD, LA, OC, SJ, SF, SEA Sources: Marcus & Millichap Research Services, Real Capital Analytics, CoStar Group, Inc. 09 10 11 12 13 14 15 16*
U.S. Apartment Cap Rate Trends Average Cap Rates vs. 10-Year Treasury Apartment Cap Rate 10-Year Treasury Rate Average Rate 10% 8% 6% 4% 2% 0% 380 bps 390 bps 430 bps 10-Yr Treasury Long-Term Avg. 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 390 bps 100 bps Cap Rate Long-Term Avg. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 * Through July 11 2016 Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics, Federal Reserve 450 bps 391 bps 2013 2014 2015 2016*
Multifamily Debt Outstanding Totals $1.07 Trillion 11
Multifamily Debt Allocation MF Debt Outstanding 6% 5% 9% 44% 33% Agency, GSE Banks State & Local Gov't Life Insurance Co's CMBS, CDO, ABS 12
Multifamily Debt Allocation 13
Multifamily debt allocation by quarter 14
Record Origination Volume 15
Agency Financing Overview Three Multifamily sources Fannie Mae DUS Freddie Mac FHA/GNMA 16
Fannie Mae DUS 2015 $42.3B Conventional, Affordable, Small Balance $30B FHFA capped business - remainder uncapped Currently on track to meet/exceed 2015 volume Loans financed via Single Asset MBS sold to 3rd party investors with payments guaranteed by Fannie Mae 5-30 Fixed Loan Terms. Yield Maintenance Prepay. Graduated prepay on certain structures available. Floating structures available 17
Freddie Mac 2015 $47.3B Conventional, Affordable, Small Balance. *Leading multifamily lender for 1st time $30B FHFA capped business - remainder uncapped Currently on track to meet/exceed 2015 volume Loans financed via pooled securitization of loans purchased by Freddie Mac CMBS-style securitization. Guaranteed and Unguaranteed tranches sold to 3rd party investors 5-10 Fixed Loan Terms. Defeasance Prepay. Graduated Prepay available in Small Balance. Floating structures available 18
FHA Ginnie Mae 2015 $13.5B Currently on track to meet/exceed 2015 volume Loans financed via Single Asset MBS sold to 3rd party investors with payments guaranteed by Ginnie Mae 35-40 year fully amortizing terms. Graduated prepay 19
Success and Reasons for Success 12 MONTH 10 YEAR UST YIELD GRAPH 20
Success and Reasons for Success 10 YEAR UST YIELD GRAPH: Back 10 years 21
Success and Reasons for Success 3rd Party MBS Investor Interest Strong Since 2008 significant increase in 3rd party MBS interest Wall Street Regional Broker Dealers Banks Insurance Companies Funds Strong demand - spreads low and competitive Number one driver Agency CMBS market Limited/narrower investor base would widen spreads Guaranteed yield at 65-75bps pickup to UST s. Safe investment Affordable Housing and Conventional loans in specific markets satisfy many bank CRA requirements Despite tremendous increase in supply, market has weathered the storm and able to absorb volumes with very few hiccups Previously a $25B-$40B market now $100B+ annual market 22
Success and Reasons for Success Historically Low Interest Rates Combined with Agency s servicing and guarantee fees, average spreads (12 months) depending on credit and structure have fallen 175-250bps over Treasuries Trailing 12 month 10 year UST yield average = 2.08% Average FNMA/Freddie Mac10 year loan rates 3.75% - 4.50% Average FHA rates 3.00% - 4.00% (before MIP requirements) Compare to height of the market in 2006-2007 where average rates were 5.50% - 6.25% 2006-2007 10 year UST average of 4.70% 2006-2007 average spread. 75-150bps over UST s Which market do you prefer? 4.75% 10 yr UST, spreads 75bps 150bps 2.00% 10 yr UST, spreads 175bps 250bps 23
Success and Reasons for Success Agency Lending Caps Fannie Mae and Freddie Mac 2016 volume cap recently increased to $35B, from $31B FHFA s commitment to GSE multifamily business Cap exclusions include: Affordable Housing Manufactured Housing Conventional Properties 5-50 units Loans in standard to very high cost markets with tenants at 60%-100% of area median income depending on the market FHFA quarterly reviews of GSE market share to determine further increases or changes to scorecard exclusions No Volume Cap for FHA/Ginnie Mae 24
Recap - Where We Stand Today Agency CMBS market share doubled in last four years $100B+ Market Bigger than CMBS No sign of a slow down 3rd party MBS interest strong new participants entering the market Market s ability to absorb volume Spreads remain competitive Low Treasury yields + competitive spreads = historically low attractive note rates 25
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