Lake Buena Vista, Florida

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Frederica Collins
10 years ago
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1 NCREIF DEBT VALUATION PANEL DISCUSSION Lake Buena Vista, Florida November 8, Introduction: Moderator: Panelists: Jay Marling, Capright Property Advisors Neal Armstrong, RREEF Jeff Kiley, PwC Ellie Kerr, JP Morgan Adam Elmore, TIAA CREF Jeff Walker, USRealty Consultants

Capright Property Advisors Neal Armstrong, RREEF Jeff Kiley, PwC

2 Base Scenario You are buying an office building in a primary market. The property is encumbered by existing debt that is prohibitive to payoff. py Property Summary (Free & Clear) Property Type: Office CBD High Rise Size: 150,000 SF Occupancy: 100% Expiration: Minimal Expected closing: January 1, 2013 Price: $50,000,000 Year 1 NOI: $2,500, (growing 3% annually) Existing Debt Summary Initial Loan Amount: $30,000,000 Current LoanBalance: $30,000,000 (Interest only during entire term) Origination: January 1, 2008 Interest Rate: 6.50% Expiration: December 1, 2017 Prepayment: Yield maintenance or $1.0 million, whichever is greater. Loan can be prepaid without penalty within 6 months of maturity.

Year 1 NOI: $2,500,000 000 (growing 3% annually) Existing Debt Summary Initial Loan Amount: $30,000,000 Current LoanBalance: $30,000,000 (Interest only during entire term)

3 Base Scenario Existing Debt Summary Initial Loan Amount: $30,000,000 Current Loan Balance: $30,000,000 (Interest only during entire term) Origination: January 1, 2008 Interest Rate: 6.50% Recourse: Yes Expiration: December 1, 2017 Prepayment: Yield maintenance or $1.0 million, whichever is greater. Loan can be prepaid without penalty within 6 months of maturity. Best Market Loan Terms Recourse: Yes Max LTV: 70% Interest Rate: Appraiser to determine. See below. Terms: 5 or 10 years, assume interest only Oii Origination Fee: 1% Spreads: Assumed to be 250 bps

0 million, whichever is greater. Loan can be prepaid without penalty within 6 months of maturity.

4 Base Scenario Treasuries: 1 Month hbill 0.114% 3 Month Bill 0.120% 6 Month Bill 0.160% 1 Year Note 0.181% 2 Year Note 0.293% 3 Year Note 0.394% 5 Year Note 0.736% 7 Year Note 1.152% 152% 10 Year Note 1.706% 30 Year Bond 2.874% APPRAISER S MARKET RATE:???

293% 3 Year Note 0.394% 5 Year Note 0.736% 7 Year Note 1.

5 Results: Appraisers Market Rate Market Rate 3.250% 3.750% 3.236% 3.065% High 3.750% 3.236% Low 3.065% 3.236% Average 3.281% 3.240% 3.236%

6 Results: Appraisers Mark to Market How would you mark the existing debt to market? Value of Debt $31,000,000 $33,000,000 $34,600,000 $34,000,000 High $34,600,000 $34,500,000 Low $31,000,000 $34,300,000 Average $33,602,255 $34,018, $33,400,000

7 Considerations: Results: Appraisers Mark to Market A B C D Used Cash Equivalency Method Considered 6 month Prepayment without Penalty E F G H Used Cash Equivalency Method Considered d6 month Prepayment without t Penalty

Prepayment without Penalty E F G H Used Cash

8 Results: Appraisers Mark to Market Low Value/NOI Scenario How would you mark the existing debt to market assuming that the value of the asset is $25,000,000 and the NOIis $1,800,000 (all other assumptions the same)? Value of Debt $30,000,000 $25,000,000 $23,050,000 $25,000,000 High $30,000, $25,000,000 Low $20,750,000 $24,500,000 Average $24,787,500 $20,750,000 $25,000,000

9 Results: Appraisers Mark to Market Low Value/NOI Scenario Considerations: Used Cash Equivalency Method Considered 6 month Prepayment without Penalty A B C D E F G H UsedCash Equivalency Method Considered 6 month Prepayment without Penalty Comments: Many groups indicated that value of debt could not be greater than property value

G H UsedCash Equivalency Method Considered 6 month Prepayment without Penalty

10 Results: Appraisers Mark to Market Favorable Debt Scenario How would you mark the existing debt to market if the contractual interest rate were favorable? Assuming existing debt is at a fixed rate of 4.75% and the market interest rate is a 6.50% fixed rate. Value of Debt $32,300,000 $32,204,366 $32,100,000, $32,300,000 High $32,400,000 $32,300,000 Low $32,100,000 $32,400, Average $32,235, $32,100,000 $32,181,731

75% and the market interest rate is a 6.50% fixed rate.

11 Results: Appraisers Mark to Market Favorable Debt Scenario Considerations: A B C D Used Cash Equivalency Method Considered 6 month Prepayment without Penalty E F G H Used Cash Equivalency Method Considered 6 month Prepayment without Penalty

Considered 6 month Prepayment without Penalty E F G H Used

12 Results: Appraisers Mark to Market Close Maturity Scenario Going back to the original scenario, how would you adjust the purchase price if the debt matures October 31, 2013? Value of Debt $30,000, $30,000,000 $30,050,000 $30,000,000 High $30,300,000 $30,300,000 Low $30,000,000 $30,000, Average $30,043, $30,000,000 $30,000,000

Value of Debt $30,000,000000 000 $30,000,000 $30,050,000 $30,000,000 High $30,300,000

13 Results: Appraisers Mark to Market Close Maturity Scenario Considerations: A B C D Used Cash Equivalency Method Considered 6 month Prepayment without Penalty E F G H Used Cash Equivalency Method Considered 6 month Prepayment without Penalty

14 Results: Appraisers Mark to Market Note Purchase Scenario Again with the original scenario, but now instead of being the buyer, you are a banker who is planning to purchase the existing note. How much is it worth? Value of Debt $34,900, $34,500,000 $34,000,000 $34,600,000 High $34,900,000 $33,000,000 Low $30,000,000 $34,022, Average $33,640, $34,100,000 $30,000,000

15 Results: Appraisers Mark to Market Note Purchase Scenario Considerations: A B C D Used Cash Equivalency Method Considered 6 month Prepayment without Penalty E F G H Used Cash Equivalency Method Considered 6 month Prepayment without Penalty

American Options and Callable Bonds

American Options and Callable Bonds American Options Valuing an American Call on a Coupon Bond Valuing a Callable Bond Concepts and Buzzwords Interest Rate Sensitivity of a Callable Bond exercise policy