NCREIF PRESENTATION

MARCH 2011

NCREIF Presentation March 10, 2011

NCREIF PresentationMarch 10, 2011

• Keystone & Johnson Capital Introductions• Capital Markets General Overview

– Debt---CHW; JCS– Equity---JCS; CHW

• Debt (property preferences, underwriting, pricing, markets, sponsorship)– Life Co’s---CHW– Agencies---JCS– Bridge, Mezz, Other—CHW– CMBS---JCS– Banks---CHW/JCS

• Property Types– MF---CHW– Retail---JCS– Office---CHW– Industrial---JCS– Other---CHW

• Summary and Conclusions

JOHNSONJOHNSON CAPITALCAPITAL OFFICESOFFICES USA OfficesUSA Offices

2010 Deal Volume by Loan Type

Permanent-floater7%

Construction7%

Permanent-fixed84%

Bridge2%

2010 Deal Volume by Lender Type

Agency40%

Life36%

CMBS5%

Bank18%

2010 Deal Volume by Property Type

Industrial28%

Retail21%

Apartments42%

Other2%

Office2%

Assisted Living3%

8

Theme for the day:Capital Flow has been and continues to INCREASE

• SOURCES: Life Companies, Agencies, CMBS and Opportunity Funds, with Banks just starting to emerge

• It is cautious, thorough and very selective.

• Expect a lot of logical and specific questions: Borrower Quality True Market Rents True Market Vacancy Stressed Cap Rates

NOTHING LIKE 2005 – WE HAVE TO ADJUST

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National Capital Flow Increase Statistics Mortgage Bankers Association of America

• Life Insurance Companies• Capital to grow close to 2007 levels.• Need for yield and quality.

• Agency• Administration will keep the flow open even in the midst of agency reform.

• CMBS• Markets are a small fraction of what they were but expect a 4-fold increase

over 2010. That said, it will be 10% of the flow of 2007.

• Banks• Like CMBS, Banks have many maturing loans. The general thought is that they

will begin to lend more aggressively as they work through these maturities.

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National Sales StatisticsGreater than $5,000,000

$100B/Qtr.$100B/Qtr.

Q4 ‘10 $52B (52% of Peak)Q4 ‘10 $52B (52% of Peak)

FY ‘10 $132B (33% of Peak)FY ‘10 $132B (33% of Peak)

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MBA Commercial/Multifamily Origination Index

20% off 20% off high of high of

‘07.‘07.

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Life Insurance Co. Commitments

‘‘05-’07 @ $40-$50B/Yr.05-’07 @ $40-$50B/Yr.

‘‘09 @ $20B/Yr.09 @ $20B/Yr.

‘‘10 @ $30B/Yr.10 @ $30B/Yr.

Est. ‘11 @ $40B/Yr.Est. ‘11 @ $40B/Yr.

‘‘08 @ $30B/Yr.08 @ $30B/Yr.

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CMBS Issuance

‘‘06-’07 @ $300B/Yr.06-’07 @ $300B/Yr.

‘‘10 @ $12B/Yr.10 @ $12B/Yr.(4% of Peak)(4% of Peak)

Est. ‘11 @ $39B/Yr.Est. ‘11 @ $39B/Yr.(13% of Peak)(13% of Peak)

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Commercial & Multifamily Mortgage Debt Outstanding

‘‘09 @ $3.5T09 @ $3.5T‘‘10 @ $3.2T10 @ $3.2T

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Who Holds The Commercial & Multifamily Mortgage Debt

Banks @ $1.4TBanks @ $1.4T

CMBS @ $640BCMBS @ $640B

Agency @ $317BAgency @ $317B

Life Co. @ $300BLife Co. @ $300B

The Big 4 = 85% of TotalThe Big 4 = 85% of Total

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Banks & Thrifts > 4%Banks & Thrifts > 4% CMBS > 8%CMBS > 8%

Life Insurance < 1%Life Insurance < 1% Fannie/Freddie < 1%Fannie/Freddie < 1%

Commercial/Multifamily Mortgage Delinquency

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Looming Loan Maturities

Most maturities lie with Banks and CMBS. Nearly $300 Billion per year / Almost $1 Trillion ‘11-’13. It is imperative that Banks and CMBS re-establish themselves to meet the demand. If Agency and Life

Companies do $50 Billion per year each they will total 1/3, or $100 Million of all maturities annually.

‘‘11-’13 @ $300B/Yr. - almost $1T11-’13 @ $300B/Yr. - almost $1T

Agency Debt Profile

Fannie (GSE)Freddie (GSE)________________ FHA (HUD)

1. Fixed & Floating Rate Debt• Fannie, Fixed Execution• Freddie, CAPPED ARM Execution

2. 5,7,10 year terms• 30 year amortization• I/O

Agency Debt Profile Continued

3. Pricing• TIERS by LTV & DSCR range from 4.42% to 5.79%, fixed and

3.32% to 5.36% floating• 1% to lender (DUS or Seller/Servicer)

4. 60 Day Execution• Early rate lock available

5. Underwriting• MAI Appraisal• 85% occupancy• T-3, T-6, T-12 trends• Up to 80% LTV & 1.25 x DSC

6. Supplementals

FHA (HUD)

1. Refinance• No cash out• 35/35• 9-12 + months processing• Open @ par after year 10• Pricing 4.15-4.50%, fixed• 1.20x DSCR & 83.3% LTV

2. New Construction• 40/40• 12-15 + months processing• Open @ par after year 10• Pricing 5.45-5.75%• 1.20x DSCR & 83.3% LTV

Underwriting for Commercial Real Estate

1. All rents at current market• Property & submarket checks

2. Sponsorship• Track record• Bones• Schedule of REO• Contingent liabilities• Liquidity• Real equity

Underwriting for Commercial Real Estate Continued

3. Underwriting• 3 to 25 year terms• 20-25 year amortizations• No I/O except MF• Internal value (cap rates)• TILC reserves (true cost to re-tenant)

4. Pricing• Mortgage yields are current favorable to other asset

categories• Junk bonds @ 6.48%• Further spread compression likely• Spreads are 150-250 over UST for life companies are 200-250

over swap spreads for CMBS

Underwriting for Commercial Real Estate Continued

5. Other• YM or Defeasance• Submarket Critical

6. Multifamily• 3 to 25 year terms• 30 year amortizations• Some I/O• Underwrite current trends• Most competitive pricing• Debt yields under 8%• Highest LTV;maybe lower DSCRs• Cap rate flexibility