christopher kallivokas - fdic special asset sales

RER Financial Group LLC

FDIC Special Asset Sales and CMBS OutlookGreenPearl Events – Distressed Real Estate SummitJanuary 27, 2011

Christopher Kallivokas Chairman, RER Financial Group LLC [email protected]

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RER Financial Group LLC

RER Financial Group LLC2

Federal Deposit Insurance Corporation (“FDIC”)

Responsible for liquidating assets of failed institutions

Rate of bank failures has accelerated over the last 12 months25 banks failed in 2008140 banks failed in 2009157 banks failed in 2010860 banks were on the FDIC watch list at the completion of the

third quarter of 2010 - $379 Billion in assets - historically 81% are closed

FDIC sells assets through three primary mechanisms:All-cash sealed bid loan auctionsStructured loan salesTitled real estate sales

Source: FDIC


FDIC Asset Sale Programs

Loan Sales – These “Cash Auction Sales” are conducted over the internet by various FDIC contractors. As the name suggests, there is no financing provided. The product type generally involves performing and non-performing C&I loans, consumer loans and generally those loans not targeted for Structured Sales.

Real Estate Asset Sales – Single family, commercial and land assets that are held by the FDIC receiverships in title. Disposed of by FDIC contractors with information available on their respective websites.

Other Asset Sales - Mainly office furniture and other fixtures and equipment sold over the internet by FDIC contractors.

Structured Sales – Large and smaller pools of performing and non-performing Commercial Real Estate loans, Acquisition, Development and Construction loans and land loans offered through a competitive bid process with partial financing where the FDIC remains as a partner sharing in the upside.

Securitization Sales - These are large pools of performing single family loans aggregated from many failed institutions that are securitized and sold to institutional investor groups.


Awards and Contact Information for Owned Real Estate (ORE) Management & Marketing Services Contracts

The ORE Management & Marketing Services Contracts have been awarded to the contractors listed below:

CB Richard Ellis, Inc 2100 Ross Avenue, #400 Dallas, TX 75201

Tel. 866-260-8505 [email protected]

Prescient, Inc. 2600 Douglas Road Suite 800 Coral Gables, FL 33134


Quantum/G&A Joint Venture Paul Wallace Quantum / G&A Joint Venture 4801 Woodway Dr., #210W Houston TX 77056


Ocwen Financial Corporation Steven B. Nesmith 2300 M Street N.W. Suite 800 Washington, D.C. 20037


Cushman and Wakefield Susan Carras 1717 Pennsylvania Avenue, NW, Suite 500 Washington, DC 20006



Awards and Contact Information for Internet Marketing and Support Services Contractors

The “Cash Auction Sale” contracts have been awarded to the contractors listed below and the scope of work includes the marketing of assets, particularly loans of a diverse type, via an internet platform.

Eastdil Secured Michael Lesser 40 West 57th Street NW New York City, NY 10019

Tel. 310-526-9000 Fax: 310-526-9050 [email protected]

First Financial Network John Morris 14000 Quail Springs Parkway, Suite 200 Oklahoma City, OK 73134


Garnet Capital Advisors Robin Ishmael 500 Mamaroneck Ave, Suite 215 Harrison, NY 10528


Mission Capital Advisors Peter Tobin 585 Broadway, Suite 1001 New York, NY 10012


The Debt Exchange William Jakubowski 133 Federal Street, 10th Floor Boston, MA 02110



Are there any restrictions to purchasing loans from the FDIC?

Yes. The Purchaser Eligibility Certification identifies prospective purchasers who are not eligible to purchase assets from the FDIC under the laws, regulations and policies governing such sales. The FDIC must receive an executed Purchaser Eligibility Certification from the winning bidder upon notification of bid award.

In order to self screen, Potential Purchasers can review a sample copy of the Purchaser Eligibility Certification at the following link:

Purchaser Eligibility Certification (http://www.fdic.gov/buying/loan/purchaser/purchaser.pdf) (PDF file - 144 kb)

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Shawn Khani, Sr. Capital Markets SpecialistFranchise and Asset Marketing Division of Resolutions and Receiverships

January 27, 2011

STRUCTURED LOAN SALES -TRANSACTION OVERVIEW

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WHAT IS A STRUCTURED TRANSACTION?

Loan sale approach/transaction FDIC as Receiver forms a Limited Liability Company

(LLC) and conveys loans received from failed banks to the LLC

FDIC offers to sell an equity interest in the LLC to third party bidder (e.g., 40%)

FDIC retains the remaining equity interest in the LLC Partnership is established to liquidate the portfolio Used by the RTC and “revised & resurrected” in 2008

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STRUCTURED TRANSACTIONS

Loans may come from a single institution or multiple failed banks

FDIC conducts a sealed bid process to auction off the equity interest

Structured transactions currently offered with leverage and on an unlevered basis

The successful bidders offers the highest price for the portfolio and enters into the LLC partnership with FDIC

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The LLC partnership relies on the expertise of the investor to manage and dispose of the loans

FDIC and the investor retain their equity interests in all future cash flows generated by the workout of the assets over time

FDIC partnerships are a continuing relationship– Up to 7 years for Commercial Loans & Up to 10 years

for Single Family Loans All loans are secured by real estate assets

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Used for Multiple Collateral Types Secured by Real Estate

– Single-Family – Acquisition, Development and Construction loans – Commercial &

Residential – Commercial Real Estate – All collateral types – Other Real Estate

Must be Pre-Qualified Bidders To Start Due Diligence Sealed Bid Sales – Due Diligence Conducted on

Secured Virtual Data Rooms (VDR)

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Rationale: Long-Term Intrinsic Value Exceeds Current Depressed Market

Goal - Maximize Recovery For Receiverships Investors are putting a “price” on the total book

value of the loan portfolio but only buying a equity interest (e.g., 40%)

27 closed transactions (through January 2011)

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Example One– Commercial Real Estate Loan Pool– 1,660 loans with book value of $1.8 billion– FDIC offered Seller Financing up to 1:1

leverage (based on the bid amount the size of Note was approximately $545 million)

– Equity split 40% (Investor)/ 60% (FDIC) with winning bidder paying approximately $218 million for their equity stake

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What are the calculations (example)

Book Value of a loan portfolio is $500M Bidder does due diligence and decides

“value” is $300M 1/1 leverage, FDIC finances $150M (debt) Equity piece is $150M Bidder bids 40% equity share or $60M FDIC’s 60% equity share is $90M

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EVOLVING STRUCTURED TRANSACTIONS

Structures Continually Evolving Based on Market Conditions and Feedback

Contemplating Offering Option of Working Capital & Advances

LLC Structure May Be Component of Purchase and Assumption Transactions for Closed Banks

Using smaller transactions (less than $200 million/fewer loans) for diversity of participation

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Diversity of Participation

FDIC encourages the diversity of participation in structured sales

Bidders may form a consortia with large and small investors and with asset managers

MWOB participation on previous 12 auctions was 50%

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ACCESS TO INFORMATION

WWW.FDIC.Gov “Other Financial Asset Sales” describes

structured sales and bidder qualification criteria, including historical sales info– (http://www.fdic.gov/buying/financial/index.html

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Click on Structured Loan Sales

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Historical Sales Information Available

Sale ID and loan type Date sold Loan quality (e.g., non-performing) Number of loans and book value Number of bidders % of equity sold Price paid for equity Leverage Implied Value Winning bidder and address

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Structured Loan Sales Information

Sales ID 2010-2 Multi-Bank SFR Venture LLC

CRE 2010-1 Venture LLC

Date Sold 6/25/10 7/2/10

Loan Type Single Family Commercial RE

Loan Quality Non-Performing Non-Performing

Number of Loans 1,456 1,660

Book Value $314 Million $1.8 Billion

% Equity Sold 50% 40%

Partner Price Paid $28 Million $218 Million

Leverage 1 to 1 1 to 1

Implied Value 35.4% 59.9%

Winning Bidder Turning Point Colony Capital

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More Historical Information Available

Click on “Sales ID” to access sales/transaction documents – LLC Operating Agreement– Loan Contribution and Assignment Agreement– Custodial and Paying Agency Agreement– Participation and Servicing Agreement– LLC Interest Sale and Assignment Agreement– Guaranty Agreement– FDIC Purchase Money Note Guaranty– Reimbursement and Security Agreement

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Summary

18 Structured Transactions Currently Listed on fdic.gov (others to be added)

Over 30,000 Loans Sold

Over $18 Billion in Book Value

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Thank You & Questions

Shawn Khani

[email protected]


CMBS Market Outlook

The outlook for the CMBS market

and what it means for builders and developers.

Historical InformationIn 2007, U.S. CMBS issuance peaked at $233.7 billionIn 2008 issuance plummeted to $5.0 billionFollowed in 2009 with $11.6 billionThe market started to come back in 2010 with $18.3 billion of

issuanceMarket participants predict $38 to $50 billion in 2011


Current CMBS Practices

Leverage levels have risen from approximately 60 percent twelve months ago to as high as 75 percent today.

New issues increasingly feature properties with some level of risk—centers positioned in secondary or tertiary markets, complexes with near-term lease rollovers or higher than expected vacancy rates.

We are evolving from the initial conservative standards of early 2010 to more of a middle range A tertiary market can work if everything else about the deal is fine, or they’ll do lease-up risk if everything else about the deal is fine. We are not at the point where they’ll do everything, which is where we were at the peak of the market.


Preferred Product Types

Retail is a preferred asset class right now

Multifamily and industrial product as well

Stabilized first tier city office desired but insurance financing still more attractive

Suburban office space—is considered too risky of an investment by CMBS shops because of high unemployment rate


Other CMBS Facts

Borrowers’ experience level with a particular asset class and knowledge of the local market is weighted heavily.

Interest rates on class-A 10-year deals have dipped as low as 5.4 percent.

Cash flow is underwritten on current cash flow

Current debt service coverage ratios on CMBS loans range from 1.25 to 1.35—they still haven’t come back to 1.20

The average loan amount that goes into recent issues has been $15 million to $20 million

With fewer smaller loans, investors can analyze every loan. They no longer blindly trust issuers to do the due diligence for them.

In 2011, $54 billion in CMBS loans will reach maturity, so the $45 billion in new issuance will be almost “entirely offset” by legacy pay downs.


What does this mean to the borrower?

By the end of 2010, about a dozen or so firms had come back to doing CMBS issuance. As 2011 plays out, the number might swell to 25.

Most of new issuance money will go to finance new acquisitions or to refinance loans with low original leverage ratios. Borrowers looking to refinance where current LTV is thin will either have to put more money into their assets or look for mezzanine lenders to bridge the gap in funding.

Instead of “Cash Out Refinancing” it is “Cash In Refinancing”.

Good news - CMBS is still non-recourse but with tough prepay penalties.

It’s difficult for the new financing to take out the old financing. Property values have dropped. Things were very aggressively underwritten.

Refinance and acquisition owners are going to have to make a decision: contribute more equity into their properties or obtain mezzanine financing where possible.

Strong properties with good sponsors, stable rent roles and healthy LTV and DSC ratios will have many conduits fighting over them.


Questions

Thank you for your time and attention.

Christopher Kallivokas

Chairman, RER Financial Group LLC

(703) 742-6789

[email protected]