LNR Capabilities - Hatfield Philips
LNR Capabilities - Hatfield Philips
LNR Capabilities - Hatfield Philips
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<strong>Hatfield</strong> <strong>Philips</strong> International Limited<br />
2nd Annual Client Servicer Forum<br />
12th September 2011<br />
Managing<br />
Complexity<br />
Maintaining<br />
Performance<br />
Maximising<br />
Returns<br />
MANAGING COMPLEXITY. MAINTAINING PERFORMANCE. MAXIMISING RETURNS. 1
Clarence Dixon<br />
Section break<br />
Welcome<br />
2
AGENDA<br />
13:00 – 13.10 Welcoming remarks<br />
Clarence Dixon, Managing Director – <strong>Hatfield</strong> <strong>Philips</strong> International<br />
13.10 – 14.00 Asset Pricing<br />
Justin Kennedy, Co-CEO – <strong>LNR</strong> Property LLC<br />
14.00 – 14.45 Precedents currently impacting the CRE market –<br />
Where do we go from here? New Lending, CMBS or Loan Extensions?<br />
Moderator : Amanda Little, Director – <strong>Hatfield</strong> <strong>Philips</strong> International<br />
Panel: Charles Roberts, Partner – Paul Hasting LLP<br />
Peter Denton – Head of UK Real Estate Finance – BNP Paribas<br />
Romano Paredes – Executive Director – UBS<br />
Peter C.M. Schott, Managing Director – Westdeutsche Immobilienbank<br />
14.45 -15.05 Coffee Break<br />
MANAGING COMPLEXITY. MAINTAINING PERFORMANCE. MAXIMISING RETURNS. 3
15.10 - 15.45 Loan and Note Auctions, The US Experience<br />
Jeff Frieden, CEO & Ken Rivkin, Managing Director – Auction.com<br />
Isaac Pesin, Division COO - <strong>LNR</strong> Partners, LLC<br />
15.45 -16.30 CRE Work Out Strategies – The Real Deal<br />
Moderator : Matthew Grefsheim, Director – <strong>Hatfield</strong> <strong>Philips</strong> International<br />
Panel:<br />
Christian Daumann, Managing Director – <strong>Hatfield</strong> <strong>Philips</strong> Deutschland<br />
Gautam Doshi, Vice President – Blackrock<br />
Fraser Greenshields, Partner – Ernst & Young<br />
Matthew Prest, Managing Director – Moelis & Company<br />
16.30 -17.00 The European Real Estate Perspective: Focus on Germany and Holland<br />
Moderator : John Muldoon, Director Real Estate – <strong>Hatfield</strong> <strong>Philips</strong> International<br />
Panel: Jacob Lyons, Managing Director – CR Investment Management<br />
Michael Walton, Chief Executive – Rynda Property Investors<br />
17.00 – 17.10 Closing Words<br />
Matthias Schlueter, Managing Director – <strong>LNR</strong> Partners Europe<br />
17.10 – 18.30 Drinks Reception<br />
MANAGING COMPLEXITY. MAINTAINING PERFORMANCE. MAXIMISING RETURNS. 4
Justin Kennedy<br />
Section break<br />
Asset Pricing<br />
5
Asset Pricing: Market Environment Perspective<br />
‣ Over $3+ trillion of over-levered CRE debt<br />
~ The yet-to-unwind CRE debt bubble of the 2005 to 2008 period left $3+ trillion of over-levered CRE debt on financial<br />
institution and investor balance sheets in the US alone.<br />
‣ Minimal transaction flows to date<br />
~ Since 2008, the investment community has waited for the inevitable flood of de-leveraging transaction flows. Despite TARP<br />
and other financial institution capital raising efforts, these flows have been minimal as exposed institutions have attempted<br />
to modify and extend over-levered credits.<br />
‣ Unsustainable government-sponsored temporary relief<br />
~ Since late-2008, massive government liquidity programs, historically low interest rates and temporary capital relief schemes<br />
created capital cushions for financial institutions and sparked massive cap rate compression for the highest quality assets.<br />
‣ Large portfolios starting to emerge<br />
~ In recent months, however, mounting pressure has brought several large portfolios to market, particularly from "non-core"<br />
lending operations of European banks, but large transactions are being seen from US banks and the FDIC as well.<br />
‣ $2+ trillion of imminent CRE maturities will cause floodgates to open<br />
~ While unprecedented liquidity, low rates and artificially limited supply have made appropriately priced CRE investments<br />
difficult to find over the last 18 months, nearly $2 trillion of CRE debt matures in the next 3 years and we believe the recent<br />
market flows are just the start of the anticipated flood.<br />
‣ Unprecedented opportunities await<br />
~ The vast inevitable restructuring of legacy CRE debt both in the US and Europe will bring with it unprecedented challenges<br />
and opportunities.<br />
~ Experience shows that investing in CRE debt (performing and distressed) requires significant operational capabilities for<br />
diligence, servicing and asset management far different and beyond than those for corporate securities and debt markets.<br />
<strong>LNR</strong> is the global market leader in these capabilities.<br />
6
# of Problem Banks<br />
Problem Assets ($B)<br />
Asset Pricing: Bank Failures Create Opportunity<br />
‣ Since 2008, 370 banks with $653B in assets have failed, wiping out $41B+ from the Deposit Insurance Fund<br />
‣ 865 FDIC “Problem Banks” with $372B in assets<br />
‣ DIF currently has a $3.9B surplus, up from the $20.9B peak deficit YE 2009<br />
‣ “Problem Banks” and bank failures will likely continue to rise as we approach peak defaults in the crisis<br />
‣ Most failures will be concentrated across small regional banks which collectively have $2.5T in assets<br />
‣ Credit Sights and the Economist estimate over 1,000 banks could fail in the future<br />
‣ 9,100 banks failed between 1930-1934, and 818 banks failed in the RTC-era crisis from 1988-1992<br />
Bank failures tend to lag the crisis and will likely accelerate sharply over the next few years<br />
FDIC Problem Institution Watch List<br />
FDIC DIF Balance<br />
1200<br />
1000<br />
800<br />
600<br />
400<br />
200<br />
0<br />
# of failed banks during RTC-era crisis<br />
865 FDIC “Problem<br />
Banks” with $372<br />
billion of assets<br />
(1) To date, most assisted sale transactions have left highly toxic assets with FDIC R&R<br />
400<br />
300<br />
200<br />
100<br />
0<br />
-100<br />
2001 2003 2005 2007 Q1<br />
2009<br />
Q3<br />
2009<br />
Q1<br />
2010<br />
Q3<br />
2010<br />
Q1<br />
2011<br />
60<br />
50<br />
40<br />
30<br />
20<br />
10<br />
0<br />
-10<br />
-20<br />
DIF Balance ($B)<br />
-200<br />
Total Assets (Billions)<br />
DIF Balance<br />
-30<br />
7
Maturities ($B)<br />
2007 Value = $100MM<br />
CRE transaction volumes ($bn)<br />
Upside<br />
Asset Pricing: “Frozen Tsunami” & Imminent Price Transition Process<br />
Current efforts to modify and extend troubled loans leave the market at a stalemate where over-leveraged assets languish on lender balance sheets<br />
and transaction volume freezes while market awaits “Price Transition” correction<br />
$375<br />
$325<br />
$275<br />
$225<br />
$175<br />
$125<br />
$75<br />
$25<br />
Market Peak<br />
-$25<br />
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020<br />
Source: Foresight Analytics, Wall Street Journal, Real Estate Roundtable.<br />
Source: Foresight Analytics, Wall Street Journal, Real Estate Roundtable.<br />
Other Life Cos CMBS Banks<br />
Market distortions of<br />
government liquidity,<br />
loan mods &<br />
accounting changes<br />
are unsustainable:<br />
“Price Transition<br />
Process” must<br />
eventually occur.<br />
Market Market Cycle Cycle<br />
Denial<br />
Re-Pricing<br />
Liquidation<br />
Market<br />
Bottom<br />
Old<br />
Equity<br />
25%<br />
Old<br />
Debt<br />
75%<br />
$25<br />
MM<br />
$75<br />
MM<br />
CRE Debt Maturities & The Price Transition Process<br />
Market Market Cycle<br />
Market Cycle<br />
Cycle<br />
Market Peak<br />
Denial<br />
Re-Pricing<br />
Liquidation<br />
Market<br />
Bottom<br />
PRICE<br />
TRANSITION<br />
PROCESS<br />
Equity Write<br />
Off<br />
Debt Write<br />
Off<br />
$400<br />
$350<br />
$300<br />
$250<br />
$200<br />
$150<br />
$100<br />
$50<br />
$0<br />
$25<br />
MM<br />
$15<br />
MM<br />
$60<br />
MM<br />
CRE Transaction Volumes<br />
2004 2005 2006 2007 2008 2009 2010<br />
Source: Real Capital Analytics<br />
CRE Transaction Volumes<br />
$15<br />
MM<br />
$45<br />
MM<br />
New Equity<br />
New Mezz<br />
New<br />
Debt<br />
75%<br />
Transaction<br />
volumes are down<br />
77%<br />
“Denial Phase”<br />
8
Asset Pricing: The Big Picture<br />
U.S. Cap Rate Trends<br />
Quarterly Cumulative Distressed Volume<br />
‣ Property cap<br />
rates continue to<br />
decline for most<br />
asset classes.<br />
‣ Resolutions are<br />
increasing as<br />
overall distress<br />
increases<br />
Source: Real Capital Analytics<br />
U.S. Property Price Index<br />
Source: Real Capital Analytics<br />
Distressed Property Sales<br />
1.9<br />
1.7<br />
1.5<br />
1.3<br />
1.1<br />
‣ US property<br />
prices have<br />
declined to levels<br />
last seen 10 years<br />
ago<br />
‣ $9.4B of property<br />
sales in Q2 2011 is<br />
very small relative to<br />
the $180B in<br />
distressed assets today<br />
0.9<br />
2001 2002 2003 2004 2006 2007 2008 2009 2011<br />
Source: Moody’s/Real Capital Analytics<br />
Source: Real Capital Analytics<br />
9
Asset Pricing: Europe Mirrors US<br />
‣ Over $1.9 trillion of non-core loans reside on bank balance sheets<br />
~ European banks are sitting on more than €1.3 trillion ($1.9 trillion) of loans considered "non-core" to<br />
their businesses and are likely to be put up for sale over the next decade.<br />
‣ Loan portfolio offerings continue<br />
~ Banks from the U.K., Ireland, Germany, Austria, Greece, Italy, Portugal and Spain have been<br />
unloading tens of billions of dollars worth of assets—from loans to finance major U.S. construction<br />
projects and LBOs to slices of securities composed of risky residential mortgages.<br />
‣ Regulators are slow to act; No FDIC exists<br />
~ Most European banks and regulators have been<br />
slower to act because sector wasn't as hard hit as<br />
many U.S. lenders. This situation is changing.<br />
‣ Cleanup process is imminent<br />
~ The continent's year-long sovereign-debt crisis,<br />
combined with new international capital rules, has<br />
thwarted regulators’ “Extend-and-Pretend” strategy<br />
and will force an accelerated cleanup process that will<br />
ultimately lead to painful recognition of losses and<br />
steep price declines.<br />
Europe NPL Profile<br />
10
Europe CMBS Issuance volume ($bn)<br />
Asset Pricing: Europe Mirrors US<br />
‣ Like the US CRE markets, the European CRE finance markets have effectively frozen, leading to a significant €82<br />
billion funding gap in which a significant portion of existing CRE debt is unlikely to be refinanced<br />
‣ Since 2008, new origination for European CRE loans from banks has been severely curtailed and new CMBS issuance<br />
has, for all practical purposes, ceased.<br />
‣ The main drivers of this critical financing situation are:<br />
~ Deterioration of CRE property values which have led to significant negative equity<br />
~ Failures of some banks that previously had a large presence in the CRE finance market<br />
~ Significant reduction in CRE exposure of surviving banks<br />
~ Regulatory changes leading to higher capital requirements<br />
European CMBS Issuance<br />
$100<br />
$80<br />
$60<br />
$40<br />
$20<br />
$0<br />
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011<br />
YTD<br />
11
Maturities (€B)<br />
2007 Value = €100MM<br />
2011 Value = €60MM<br />
Europe CRE transaction volumes ($B)<br />
Upside<br />
Asset Pricing: Europe Mirrors US<br />
‣ As of the end of 2010, over €960 billion of European CRE debt will be maturing in the next ten years, of which 55% is due to mature in the<br />
next three years alone<br />
‣ It is very likely that these loans will need to be addressed more forcefully than we have seen in the last 24 months, leading to painful<br />
recognition of losses. It is only after this recognition that the European CRE markets will stabilize.<br />
CRE Debt Maturities & The Price Transition Process<br />
Market Peak<br />
200 €<br />
150 €<br />
100 €<br />
Denial<br />
Market<br />
Bottom<br />
Liquidation<br />
Re-Pricing<br />
$450<br />
$400<br />
$350<br />
$300<br />
$250<br />
$200<br />
Transaction<br />
volumes are down<br />
90%<br />
“Denial Phase”<br />
50 €<br />
$150<br />
$100<br />
$50<br />
0 €<br />
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020<br />
Source: CBRE, DeMontfort University<br />
UK<br />
Germany<br />
Rest of Europe<br />
$0<br />
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010<br />
Source: Real Capital Analytics<br />
Market distortions<br />
are unsustainable:<br />
“Price Transition<br />
Process” must<br />
eventually occur<br />
Old<br />
Equity<br />
25%<br />
Old<br />
Debt<br />
75%<br />
€25<br />
MM<br />
€75<br />
MM<br />
PRICE<br />
TRANSITION<br />
PROCESS<br />
Equity Write<br />
Off<br />
Debt Write<br />
Off<br />
€25<br />
MM<br />
€15<br />
MM<br />
€60<br />
MM<br />
€15<br />
MM<br />
€45<br />
MM<br />
New Equity<br />
New Mezz<br />
New<br />
Debt<br />
75%<br />
12
Asset Pricing: Increasing Supply<br />
‣ Recent market offerings suggest banks, insurance companies and other financial institutions will sell more<br />
U.S. Notable Offerings<br />
U.S. Loan Sale Offerings<br />
(UPB $MM)<br />
Parties Involved<br />
Date and<br />
Amount<br />
Anglo Irish Bank Sep-11 /<br />
$9.3B<br />
Bank of Ireland,<br />
Wells Fargo<br />
Bank of America,<br />
Blackstone<br />
FDIC, Colony<br />
Capital<br />
M&I Bank,<br />
Oaktree Capital<br />
Aug-11 /<br />
$1.4B<br />
Aug-11 /<br />
$1.3B<br />
Aug-11 /<br />
$650M<br />
Feb-11 /<br />
$205M<br />
Source: Dow Jones Newswire, Reuters, Commercial<br />
Mortgage Alert, CREnews.com<br />
Source: CREnews.com<br />
Description<br />
U.S. loan portfolio secured by a wide<br />
range of CRE loans<br />
Portfolio of CRE mostly written post<br />
market crash, reportedly sold close to<br />
face value<br />
41 mixed quality loans with an average<br />
size of $31M<br />
40% stake of the portfolio, sold at 53<br />
cents on the dollar<br />
Distressed CRE loans, 35 mortgages<br />
sold at ~50 cents on the dollar<br />
60,000<br />
50,000<br />
40,000<br />
30,000<br />
20,000<br />
10,000<br />
-<br />
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3<br />
2009 2009 2009 20092010201020102010201120112011<br />
Top Sellers Since<br />
Q1 2009<br />
Balance Offered ($MM)<br />
Banks $23,963<br />
FDIC $17,522<br />
CMBS Trusts $5,719<br />
Life Cos and Financial<br />
Institutions<br />
$4,037<br />
13
<strong>LNR</strong> <strong>Capabilities</strong><br />
14
<strong>LNR</strong> <strong>Capabilities</strong>: <strong>LNR</strong> Is A One-Stop Shop<br />
No other servicer has the efficiency of a single platform able to work any asset class<br />
<strong>LNR</strong> is a one-stop shop: Complementary <strong>LNR</strong> platform capabilities maximize value across divisions<br />
<strong>LNR</strong> Partners, LLC<br />
Justin Kennedy<br />
Co-CEO<br />
Toby Cobb<br />
Co-CEO<br />
Archetype Capital Management<br />
<strong>LNR</strong> Asset Services<br />
Archetype Capital Markets<br />
Fund Vehicles<br />
Balance Sheet Assets<br />
US Europe CPG<br />
AMC AFIS Arch. Advisors<br />
Archetype RE Debt Fund<br />
European Investment Fund<br />
Commercial Property Fund<br />
CMBS/CDO<br />
Loans<br />
Land/Properties<br />
Loan Servicing<br />
REO<br />
Small Balance<br />
Loan Asset Management<br />
Investment Services<br />
Special Servicing<br />
NPLs<br />
Primary Servicing<br />
Land Inv.<br />
Vertical Inv.<br />
Loan<br />
Origination Platform<br />
Small Balance<br />
Auction.Com<br />
<br />
<br />
Investment Strategies<br />
Distressed Investing<br />
• Distressed Commercial<br />
• Small Balance, C&I<br />
• C&D, Land, TI/CFD<br />
Complex CMBS<br />
• Securities Trading and Investing<br />
Asset Servicing & RE Investment and Development<br />
<br />
<br />
<br />
Special Servicing<br />
• World’s largest commercial mortgage special servicer.<br />
• Industry leader in commercial loan workouts<br />
• Consistently achieves superior resolution rates with the industry<br />
leading time-to-recovery<br />
European Servicing<br />
• Europe-based primary and special servicing unit<br />
• Dominant servicer in Europe with active workout expertise in<br />
multiple jurisdictions across Europe including the United Kingdom,<br />
Germany, France, Spain, and Netherlands<br />
Real Estate Development<br />
3rd Party Fee Business & Origination<br />
<br />
<br />
<br />
Opportunistic Lending<br />
• Commercial Sr. Debt<br />
• Small Balance<br />
• C&D/Land<br />
Securitization Execution<br />
Auction.Com<br />
• Commercial loan & REO<br />
auctions<br />
• Value-add and opportunistic real estate development and acquisitions<br />
15
Maturities ($bn)<br />
<strong>LNR</strong> <strong>Capabilities</strong>: <strong>LNR</strong> Sources Unique Investment Opportunities<br />
Opportunities Driven By <strong>LNR</strong>’s Unique Position In The Marketplace And<br />
<strong>Capabilities</strong> To Restructure AND Invest Capital<br />
New Issue B-pieces<br />
Recent yields attractive<br />
Attains new servicing rights<br />
Market leader, 30% share historically<br />
$84 bn of “Touchpoints” with Borrowers in 2010<br />
Leveraging <strong>LNR</strong>’s “best in class” people<br />
Unsurpassed experience …<br />
… to deploy capital<br />
Structured Asset Pools<br />
Subordinated tranches<br />
FDIC asset sales<br />
Commercial bank bulk sales<br />
300<br />
250<br />
200<br />
150<br />
CRE Maturities 1<br />
$1.7tn in loans scheduled to mature<br />
2011 to 2015<br />
100<br />
Mezzanine Financing<br />
Higher financing levels on loan<br />
originations for low risk deals<br />
“One stop shop” offering<br />
50<br />
0<br />
1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017<br />
Banks CMBS Life Cos Other<br />
New Loan Origination<br />
Provide financing solution for the<br />
maturity wave<br />
Leverage <strong>LNR</strong> underwriting<br />
Conduit program, 1 st loans<br />
Restructure Underwater Loans<br />
Opportunistic loan purchases<br />
Bridge financing<br />
Restructure and reposition property<br />
“Broke to Core”<br />
(1) Source: Wall Street Research, Foresight Analytics, Wall Street Journal, Real Estate Roundtable.<br />
16
<strong>LNR</strong> <strong>Capabilities</strong><br />
‣ <strong>LNR</strong> has a strong new sponsorship group as a result of the 2010 recapitalization<br />
Sponsor Profiles<br />
One of the largest and most respected owners and managers of CRE in the United States with a<br />
portfolio totaling over 100 million square feet<br />
Fully-integrated finance and investment company focused on CRE, having invested more than $35<br />
billion over the past two decades<br />
Premier private investment firm, having raised funds totaling more than $10.7 billion over the past<br />
10 years<br />
Leading banking and financial services company with a network of branches throughout Japan and<br />
overseas<br />
Premier global alternative and non-traditional investment manager with $82 billion in assets under<br />
management as of December 31, 2010<br />
17
<strong>LNR</strong> <strong>Capabilities</strong><br />
COMMERCIAL PROPERTY<br />
GROUP<br />
<strong>LNR</strong>’s Global Footprint Is Expanding<br />
18
Loss Severity<br />
Months to Recover<br />
<strong>LNR</strong> <strong>Capabilities</strong>: Lower Losses In Less Time<br />
From 2006-2009, <strong>LNR</strong> had the lowest loss severity rate of any Major Special Servicer at 20.4% (1)(2)<br />
Lowest<br />
Loss<br />
Severity<br />
From 2006-2009, <strong>LNR</strong> had the largest number of specially serviced loans, yet delivered<br />
the shortest average recovery time of any Major Special Servicer at 8.4 month (1)(2<br />
Shortest<br />
Recovery<br />
Time<br />
(1) Source: Wells Fargo Securities Structured Product Research, CMBS & Commercial Real Estate, October 23, 2009.<br />
(2) “Major Special Servicer” refers to any Special Servicer with loan resolution count greater than 8 for the four-year period from 2006 through 2009.<br />
19
<strong>LNR</strong> <strong>Capabilities</strong>: Servicing<br />
‣ <strong>LNR</strong>’s intensive asset management defines true outperformance in CRE investment across market cycles<br />
‣ Asset services division includes special servicing business in both the U.S. and Europe<br />
‣ <strong>LNR</strong> serves as special servicer on over 15,000 CRE loans with a face value in excess of $215B<br />
U.S. (<strong>LNR</strong> Partners)<br />
Europe (<strong>Hatfield</strong> <strong>Philips</strong>)<br />
‣ Largest U.S. special servicer with ~30% market<br />
share<br />
‣ Named special servicer for more than 14,600 loans<br />
or $270 billion of collateral<br />
‣ Only servicer in business since the advent of special<br />
servicing (18 years of longevity)<br />
‣ ~300 employees; low turnover and depth of<br />
experience highlighted by ratings agencies<br />
‣ Largest servicer outside of the U.S. with ~30%<br />
market share<br />
‣ Named special servicer for 281 loans or $40 billion<br />
of collateral and primary servicer on over 420<br />
loans or $30 billion of collateral<br />
‣ Longest serving independent servicer outside of<br />
the U.S.<br />
‣ ~100 employees in UK and Germany<br />
The depth of our operation, highly experienced staff, extensive workout and disposition expertise, and<br />
proven track record set <strong>LNR</strong> apart as a premier Special Servicer<br />
20
<strong>LNR</strong> <strong>Capabilities</strong>: U.S. Special Servicing Operations<br />
‣ <strong>LNR</strong> operates the largest commercial mortgage special servicer in the U.S.<br />
– <strong>LNR</strong> services 31% of the commercial mortgages in U.S. CMBS<br />
– Portfolio is 21% larger than nearest competitor’s, CW Financial Services (1)<br />
– Over 300 dedicated Special Servicing employees, 71% more than its nearest competitor<br />
CW Financial Services (2)<br />
‣ <strong>LNR</strong>’s success in workout is unparalleled<br />
– <strong>LNR</strong> has resolved more than 3,500 non-performing loans with a total principal balance<br />
of over $30 billion since inception<br />
– <strong>LNR</strong> has managed and disposed of 990 REO properties worth more than $5.1 billion<br />
since inception<br />
– Achieved an inception to date resolution rate of 85%<br />
Named Special Servicing - U.S. CMBS Market (1)<br />
Number Amount Market % Market %<br />
Special Servicer of Loans ($ million) by Loan by Balance<br />
<strong>LNR</strong> Property LLC 14,616 192,304 26% 31%<br />
CW Capital LLC & CW Capital Asset Management 12,874 158,949 23% 25%<br />
C-III Asset Managemet LLC 11,296 112,238 20% 18%<br />
PNC Real Estate/ Midland Loan Services 5,529 62,953 10% 10%<br />
Berkadia Commercial Mortgage LLC 5,396 28,176 10% 4%<br />
Wells Fargo 983 25,016 2% 4%<br />
Bank of America Merrill Lynch 134 16,755 0% 3%<br />
KeyBank Real Estate Capital 2,356 13,400 4% 2%<br />
ORIX Capital Markets, LLC 1,242 7,497 2% 1%<br />
BNY Mellon 402 3,193 1% 1%<br />
<strong>LNR</strong> Statistics (3)<br />
Special Servicing Associates 304<br />
Inception to Date CMBS Portfolio<br />
Number of Deals 206<br />
Original Face<br />
$315.5 billion<br />
Original Loan Count 28,849<br />
Named Special Servicer CMBS Portfolio<br />
Number of Deals 144<br />
Original Face Value $269.8 billion<br />
Original Loan Count 24,109<br />
Special Servicer Rating<br />
Fitch<br />
CSS1-<br />
S&P<br />
Strong<br />
Resolution Rate<br />
Inception to Date 85.0%<br />
<strong>LNR</strong> (2003-2009) (4) 87.8%<br />
Industry (2003-2009) (4) 82.0%<br />
(1) Mortgage Bankers Association, June 30, 2011<br />
(2) Fitch Servicer Report. October 29, 2010.<br />
(3) As of June 30, 2011.<br />
(4) 2009 Fitch US CMBS Loss Study.<br />
21
<strong>LNR</strong> <strong>Capabilities</strong>: Europe Servicing Operations<br />
‣ <strong>LNR</strong> operates the largest commercial mortgage Special Servicer in<br />
Europe<br />
– Part of the Global <strong>LNR</strong> Group, <strong>Hatfield</strong> <strong>Philips</strong> (“HPI”) services 32% of the active<br />
Special Servicing inventory in European CMBS<br />
– Largest active Special Servicing book of € 5.3 billion with 62 loan positions (2)<br />
– 104 dedicated servicing professionals on the ground in Europe<br />
‣ <strong>LNR</strong> has extensive workout experience throughout Europe<br />
– HPI has worked out 12 of the 32 resolved CMBS loans in Europe with over € 2 billion<br />
of principal balance and has achieved an ITD resolution rate of 97%<br />
– <strong>LNR</strong> Europe’s executive team has an average of 17 years industry experience<br />
– Active workout expertise in 10 jurisdictions, including Germany, UK, France, Spain and<br />
Netherlands<br />
Active Special Servicing - European CMBS Market (1)<br />
Number Loan Market % Market %<br />
Special Servicer of Loans Balance * by loan by Balance<br />
<strong>Hatfield</strong> <strong>Philips</strong> 46 4,368 44% 32%<br />
Capita 32 2,985 31% 22%<br />
Morgan Stanley 10 390 10% 3%<br />
Solutus 6 87 6% 1%<br />
CBRE 3 3,924 3% 28%<br />
Hudson 2 107 2% 1%<br />
RBS 2 746 2% 5%<br />
Deutsche Bank 1 263 1% 2%<br />
Deutsche Pfandbriefbank 1 201 1% 1%<br />
Eurohypo 1 717 1% 5%<br />
(1) Moody’s EMEA Servicing Report, June 30, 2011<br />
(2) As of June 30, 2011<br />
*Securitised loan balance is in € million as per transfer date<br />
<strong>LNR</strong> Statistics (2)<br />
Total Servicing Associates 104<br />
Primary Servicing Portfolio<br />
Number of Deals 31<br />
Current Balance<br />
€ 19.9 billion<br />
Loan Count 422<br />
Named Special Servicer<br />
Number of Deals 51<br />
Current Balance<br />
€ 26.2 billion<br />
Loan Count 281<br />
Active Special Servicing Portfolio<br />
Number of Deals 27<br />
Current Balance<br />
€ 5.3 billion<br />
Loan Count 62<br />
Resolutions<br />
Number of Loans 12<br />
Balance at Transfer € 2.0 billion<br />
Inception to Date 97.0%<br />
22
<strong>LNR</strong> <strong>Capabilities</strong>: <strong>Hatfield</strong> <strong>Philips</strong><br />
‣ <strong>Hatfield</strong> <strong>Philips</strong> International<br />
~ <strong>Hatfield</strong> <strong>Philips</strong> (“HPI”) is the largest commercial real estate loan servicer in Europe, offering a full scope of services ranging from<br />
Primary and Special Servicing to the full suite of Agency Services, Real Estate Advisory and Asset Management<br />
~ Formed in 1997, HPI is Europe’s preeminent commercial real estate loan servicer with extensive experience and track record in<br />
working with a diverse array of structured products including CMBS, CDOs and CDS<br />
~ HPI was the first rated servicer in the UK and is currently rated by both Fitch and Standard & Poor’s for commercial real estate loan<br />
servicing in the UK and Continental Europe<br />
~ HPI operates from office locations in Europe’s two Commercial Real Estate Finance hubs, London and Frankfurt, with more than<br />
100 associates on the ground and an extensive network of specialists and operators across Europe<br />
<strong>LNR</strong><br />
Primary<br />
Servicing<br />
‣ Primary Servicer for more than 30 issuers, lenders, and structured vehicles with a €<br />
19.9 billion portfolio balance<br />
‣ 79 designated Primary Servicing associates<br />
HPI<br />
Special<br />
Servicing<br />
Agency<br />
Services<br />
‣ Named Special Servicer on 281 loans with over € 26.2 billion balance<br />
‣ 25 dedicated Special Servicing Asset Managers<br />
‣ Full agency suite, currently engaged on more than 24 transactions valued in<br />
excess of € 2.4bn<br />
Real Estate<br />
Advisory<br />
‣ Provides in-house real estate advisory services to the Primary and Special Services to<br />
asses viability of restructuring proposals, determine real estate value and review<br />
potential exit strategies<br />
23
<strong>LNR</strong> <strong>Capabilities</strong>: Higher Resolutions<br />
“For all specially serviced loans disposed with a loss, <strong>LNR</strong><br />
reports below-average loss severity across a wide variety of<br />
stratifications. Among special servicers, <strong>LNR</strong> has the largest<br />
market share and the largest number of employees. It is<br />
possible that its size gives it better access to information about<br />
both capital markets and individual property markets, allowing<br />
it to achieve better execution in disposing delinquent loans<br />
and REO properties.”<br />
Nomura Fixed Income Research, March 10, 2011 (1)<br />
(1) Source: Nomura Fixed Income Research “CMBS: An overview of special servicer portfolios and performance,” March 10, 2011.<br />
24
<strong>LNR</strong> <strong>Capabilities</strong>: Conclusion<br />
‣ <strong>LNR</strong>'s Unique Commercial Real Estate Platform Provides Tremendous New Opportunities…<br />
Unparalleled<br />
Experience<br />
‣ <strong>LNR</strong> is the market leader among special servicers by value of portfolios serviced and experience<br />
~ <strong>LNR</strong> has resolved over 3,350 non-performing loans (~$27.6bn principal)<br />
~ Managed and disposed of 990 REO properties (~$5.1bn principal)<br />
Benefits of Scale<br />
‣ Special servicing business has scale economies and has grown to a level of significant profitability<br />
Unique <strong>Capabilities</strong><br />
‣ 600+ associates able to underwrite, service and workout highly complex structured loans and portfolios<br />
‣ <strong>LNR</strong> is well-positioned to capitalize on new opportunities in special servicing<br />
Near-Term<br />
Opportunities<br />
‣ Loan portfolios: Subordinated positions in bulk loan sales requiring significant underwriting and<br />
workout/servicing capabilities<br />
‣ New-issue CMBS: Returns for B-pieces gradually increasing to appropriate risk/return levels<br />
‣ Mezzanine loans: Collaboration with loan origination team to offer greater financing flexibility on<br />
low risk assets<br />
‣ Small balance: Servicing loans less than $10mm in size by leveraging scale in less competitive<br />
investment and fee generating situations<br />
‣ Co-brokering: Fee source by co-brokering <strong>LNR</strong> special servicing asset sales<br />
25
Amanda Little<br />
Section break<br />
Precedents currently<br />
impacting the CRE market<br />
26
Precedents currently impacting the CRE<br />
market<br />
Amanda Little - Director Primary Servicing<br />
<strong>Hatfield</strong> <strong>Philips</strong> International<br />
Precedents currently impacting the CRE market - Where do we go<br />
from here? New Lending, CMBS or Loan Extensions?<br />
• Charles Roberts, Partner – Paul Hasting LLP<br />
• Peter Denton – Head of UK Real Estate Finance – BNP Paribas<br />
• Romano Paredes – Executive Director – UBS<br />
• Peter C.M. Schott, Managing Director – Westdeutsche<br />
Immobilienbank<br />
MANAGING COMPLEXITY. MAINTAINING PERFORMANCE. MAXIMISING RETURNS. 27
Coffee Break<br />
Section break<br />
20 minutes<br />
28
Jeff Frieden and Ken Rivkin<br />
Auction.com<br />
Isaac Pesin - <strong>LNR</strong> Partners<br />
Section break<br />
Loan and Note Auctions,<br />
The US Experience<br />
29
NOTES & REO AUCTIONS:<br />
THE U.S. EXPERIENCE<br />
•CRE & MORTGAGE MARKET<br />
•AUCTION.COM COMMERCIAL PLATFORM<br />
•NEVADA AUCTION CASE STUDY
CRE and Mortgage<br />
Markets<br />
31
Index<br />
Commercial Real Estate Values<br />
200<br />
180<br />
160<br />
140<br />
120<br />
100<br />
80<br />
Index: December 2000 = 100<br />
Source: Moody’s/REAL Commercial Property Price Index (CPPI)<br />
CRE values have returned to 2000/2001 levels<br />
3
$ in Trillions<br />
Growth of CRE Mortgage Market (Outstanding)<br />
3.5<br />
3.0<br />
2.5<br />
2.0<br />
1.5<br />
Source: Federal Reserve Bank<br />
CRE debt doubled from 2000 to present<br />
4
Delinquency Rate (%)<br />
60-Day Delinquency Inflow ($ billions)<br />
CMBS Delinquencies<br />
60+ Days Delinquent<br />
8%<br />
$6.0<br />
6%<br />
$4.5<br />
4%<br />
$3.0<br />
2%<br />
$1.5<br />
0%<br />
$0.0<br />
Source: Trepp<br />
New 60-day delinquencies continue at elevated levels<br />
5
Vacant Building Sales<br />
Building City, State SF Sale Price $ / SF<br />
Key Bank Building Cleveland, OH 475,789 $7.5mm $16<br />
Connecticut River<br />
Plaza<br />
Hartford, CT 556,330 $7.0mm $13<br />
7200 Poe Ave Dayton, OH 108,464 $2.1mm $20<br />
Cleveland, OH<br />
Hartford, CT<br />
Dayton, OH<br />
6
Auction.com<br />
Commercial Platform<br />
37
Selected Commercial Clients<br />
C<br />
38
$ in Billions<br />
Auction.com Overview<br />
• Largest real estate auction company, more than $10bn of assets sold since 2007<br />
• Unique web-based auction platform supported by a $30+mm annual advertising budget<br />
• Investor database exceeding 4mm, including 1.3mm for CRE assets<br />
• In the past twelve months auctioned:<br />
• 1,129 CRE notes totaling over $3.4bn at an average recovery rate of 53%<br />
• 884 CRE REO at an average recovery price equal to reserve<br />
• 35,000+ homes<br />
• $6+bn of CRE assets committed through year end<br />
$3.0<br />
$2.5<br />
$2.0<br />
Commercial<br />
Residential<br />
Auctioned Assets<br />
$1.5<br />
$1.0<br />
$0.5<br />
$0.0<br />
Q4 Q1 Q2 Q3 Q4 Q1 Q2<br />
2009 2010 2011<br />
39
Auction.com Commercial Platform<br />
• Conduct multi-seller general monthly, product specific & region specific auctions<br />
• 80+ institutional sellers<br />
• Typical auction attracts 50,000+ unique visitors, 3,000+ data vault visits and over 600 registered<br />
bidders<br />
• Typical asset averages 1,167 unique web hits and 65 unique data vault visitors<br />
• Fully integrated capital markets group provides asset valuations and loan sale advisory<br />
#1 IN WEB TRAFFIC<br />
15,771,251<br />
16,580,068<br />
8,816,592<br />
10,028,742<br />
10,547,289<br />
9,139,387<br />
11,773,240 11,480,161<br />
9,426,294 9,288,594 8,931,512<br />
7,824,443<br />
8,785,963<br />
Aug<br />
2010<br />
Sep<br />
2010<br />
Oct<br />
2010<br />
Nov<br />
2010<br />
Dec<br />
2010<br />
Jan<br />
2011<br />
Feb<br />
2011<br />
Mar<br />
2011<br />
Apr<br />
2011<br />
May<br />
2011<br />
Jun<br />
2011<br />
Jul<br />
2011<br />
Aug<br />
2011<br />
PAGE VIEWS<br />
40
Auction.com Advantage<br />
Non-<br />
Negotiable<br />
Seller<br />
Documents<br />
Transparent<br />
Execution<br />
No Fee to<br />
Seller<br />
Transparent<br />
Process<br />
Easy Due<br />
Diligence<br />
Access<br />
Electronic<br />
Documents<br />
Seller<br />
Advantages<br />
Buyer<br />
Advantages<br />
Seller<br />
Reserves<br />
Marketing<br />
Campaign<br />
Supported<br />
by LSAs<br />
Accelerated<br />
& Certain<br />
Timing<br />
Direct<br />
Access to<br />
Deal Flow<br />
No Broker<br />
Bias =<br />
Democratic<br />
Process<br />
Accelerated<br />
& Certain<br />
Timing<br />
Higher Pricing<br />
41
Online Auction – How it works<br />
1. REGISTER<br />
TO BID<br />
2. DO YOUR<br />
RESEARCH<br />
3. MAKE YOUR<br />
DEPOSIT<br />
4. SHOW PROOF OF<br />
FUNDS<br />
5. START BIDDING<br />
Create a profile at<br />
www.AUCTION.com<br />
and register for the<br />
auction.<br />
Conduct Due<br />
Diligence. All Due<br />
Diligence must be<br />
performed BEFORE<br />
the auction.<br />
Confidentiality<br />
agreement executed<br />
prior to each data<br />
vault entry.<br />
A deposit is required<br />
for each asset you are<br />
bidding on. Deposit<br />
amounts vary by<br />
asset.<br />
To complete the<br />
registration process,<br />
submit a Bidder<br />
Qualification Form<br />
and provide<br />
verification of liquid<br />
assets sufficient to<br />
cover bidding activity.<br />
Place your bid amount<br />
and click “BID NOW”!<br />
Buyer’s Premium<br />
added to the Winning<br />
Bid.<br />
6. CLOSING<br />
Winning Bidders submit deposit followed by cash close.<br />
42
Timeline to Market and Close<br />
60 DAYS<br />
PRIOR<br />
40 DAYS<br />
PRIOR<br />
35 DAYS<br />
PRIOR<br />
3-4 WEEKS<br />
PRIOR<br />
1-2 WEEK<br />
PRIOR<br />
AUCTION<br />
PERIOD<br />
(48 HOURS)<br />
CLOSING<br />
Master<br />
Marketing<br />
Agreement<br />
executed<br />
Asset list<br />
provided<br />
All due<br />
diligence<br />
provided<br />
Website Q&A<br />
PSA &<br />
Reserves due<br />
from Seller<br />
Due diligence<br />
uploaded<br />
Website Live<br />
Media<br />
campaign<br />
launched<br />
Bidder due<br />
diligence<br />
period begins<br />
Broker<br />
Webinars<br />
Leads<br />
generated &<br />
contacted by<br />
brokers<br />
Potential<br />
buyer lists<br />
mined<br />
Bidder<br />
Webinars<br />
Weekly<br />
Marketing<br />
Calls<br />
Brokers hold 2<br />
open houses<br />
Qualified<br />
buyer list<br />
finalized<br />
Weekly<br />
Marketing<br />
Calls<br />
PSAs signed at<br />
Auction close;<br />
EMDs in 24-hrs<br />
10 day closing<br />
for notes<br />
30 day closing<br />
for commercial<br />
Books closed<br />
43
Nevada Auction<br />
Case Study<br />
44
Nevada Case Study: Marketing<br />
Over $1,000,000 Marketing Spend<br />
Advertised in Leading National and Regional Publications<br />
Including:<br />
Wall Street Journal San Francisco Chronicle Arizona Republic<br />
Los Angeles Times Las Vegas Review Journal Dallas Morning News<br />
Sacramento Bee Reno Gazette San Diego Chronicle<br />
Direct Mailed 36,000+ Brochures to Investors<br />
Event Brochure<br />
Print Advertising<br />
Web Advertising<br />
Postcard<br />
45
Nevada Case Study: Auction Results<br />
NON-PERFORMING LOANS & COMMERCIAL REO AUCTION - MAY 19<br />
ASSETS AUCTIONED ASSETS SOLD % SOLD<br />
TOTAL PURCHASE<br />
PRICE<br />
OVERALL RECOVERY<br />
RATE<br />
PURCHASE PRICE TO<br />
RESERVE<br />
70 59 84% $341,288,442 58% 115%<br />
UNIQUE ASSET<br />
WEB HITS<br />
CONFIDENTIALITY AGREEMENTS<br />
SIGNED<br />
BIDDERS<br />
WITH DEPOSITS<br />
131,886 5,421 1,122<br />
Property Name<br />
SOLD NON-PERFORMING LOANS:<br />
Property<br />
Type<br />
Property<br />
Size<br />
Unpaid<br />
Balance<br />
Loans with $30mm+<br />
Unpaid Balance<br />
Fountains at Flamingo Multi-Family 524 Units $50,000,000<br />
77.6%<br />
Wellington Meadows Apartments Multi-Family 332 Units $35,727,405<br />
Montego Bay Apartments Multi-Family 420 Units $38,000,000<br />
average<br />
recovery rate<br />
Augusta Apartments Multi-Family 272 Units $30,000,000<br />
46
Nevada Case Study: Efficient Pricing<br />
Non-Performing Notes Sell at Real Estate Value<br />
Note Sale Summary<br />
PROPERTY TYPE<br />
NUMBER OF LOANS<br />
SOLD<br />
GROSS SALES PRICE<br />
GROSS SALES<br />
PRICE/UPB<br />
GROSS SALES PRICE PER<br />
UNIT/SF<br />
DEBT YIELD<br />
Multifamily 9 of 9 $152,385,492 70.4% $57,766 7.1%<br />
Office 13 of 13 $55,706,650 50.8% $82 6.3%<br />
Industrial 7 of 10 $45,753,750 53.7% $52 5.9%<br />
Retail 13 of 19 $36,968,400 41.8% $87 10.0%<br />
Mixed Use 6 of 6 $17,681,500 54.9% $67 12.1%<br />
Portfolio 50 of 60 $308,495,792 58.0% 7.4%<br />
Highlights from Nevada Auction<br />
• Successfully traded 50 notes for a Gross Sale<br />
Price of $308,495,792<br />
• Sold at 100% of real estate values<br />
• Weighted average debt yield of 7.4% on the<br />
Gross Sale Price<br />
• Average of 5 unique bidders per asset<br />
• Buyers included individuals, investment banks,<br />
opportunity funds, private CRE firms, REITs, and<br />
private equity firms<br />
47
Nevada Case Study: Unparalleled Reporting<br />
Pre-Auction Leads Report – Event Summary<br />
Event Name<br />
$665+ Million Commerical Real Estate Notes and 10 CRE<br />
Properties, Nevada Auction<br />
Number of<br />
Registered Bidder (All Unique)<br />
Non Registered<br />
Seller List Assets Total Received POF Received Accessed Vault Accessed Vault Web Hits<br />
Deposit<br />
C3 ,<strong>LNR</strong> Partners, Inc.,Torchlight<br />
Investors, Union Bank, Nevada<br />
State Bank, Zions Bank<br />
70 533 843 1,122 898 4,523 131,886<br />
Pre-Auction Leads Report – Property Information<br />
9 Sample Properties from May Nevada Auction<br />
Bidders Access the Vault<br />
Property Address City State Zip Property Description POF Received Deposit<br />
Received<br />
Total Vault<br />
Access<br />
Asset<br />
Web Hits<br />
3275 E Flamingo Rd Las Vegas NV 89121 524 Unit Multi-family Property 15 15 208 3,637<br />
Decatur Blvd & Sahara Ave Las Vegas NV 89102 333234 SF Retail Property 8 8 137 2,561<br />
212 Elks Point Rd Zephyr Cove NV 89448 Safeway Anchored Shopping Center 5 6 49 1,484<br />
5115 Spring Mountain Rd Las Vegas NV 89146 77909 SF Retail Property 25 25 120 2,654<br />
6310 W Charleston Blvd Las Vegas NV 89146 55583 SF Retail Property 15 16 113 2,028<br />
4669 W Ann Rd North Las Vegas NV 89031 27685 SF On 2.56 Acres Consisting Of 5<br />
19 20 55 1,417<br />
Individual Suites Built In 2006<br />
7293 W Sahara Ave Las Vegas NV 89117 Retail Consisting Of 14880 SF On 1.66 Acres<br />
8 13 69 1,471<br />
Built In 2007<br />
1107 California Ave Reno NV 89509 45057 SF On 5.17 Acres Consisting Of 3<br />
5 5 37 1,137<br />
Buildings Built In 1958 And Renovated In 2005<br />
9700 - 9730 W Tropicana Ave Las Vegas NV 89147 19886 SF Retail Property 16 18 69 1,918<br />
Bid Activity<br />
Sample Bidder Activity from Auction<br />
Bidder Details<br />
Bid<br />
First Name Last Name Company Address City Phone Email Amount<br />
John Doe 123 Main St San Diego 619-555-1234 John.Doe@Yahoo.com $10,550,000<br />
Sam Smith XYZ Company 456 First St Los Angeles 323-555-1234 Ssmith@xyzcompany.com $10,450,000<br />
John Doe 123 Main St San Diego 619-555-1234 John.Doe@Yahoo.com $10,350,000<br />
Sam Smith XYZ Company 456 First St Los Angeles 323-555-1234 Ssmith@xyzcompany.com $10,250,000<br />
John Doe 123 Main St San Diego 619-555-1234 John.Doe@Yahoo.com $10,150,000<br />
George Jones Company X 789 Maple Rd., Suite 123 El Segundo 310-555-1234 GeorgeJ@companyx.com $10,050,000<br />
John Doe 123 Main St San Diego 619-555-1234 John.Doe@Yahoo.com $9,950,000<br />
David Williams 222 Ash St Las Vegas 775-555-1237 DavidW@google.com $9,850,000<br />
George Jones Company X 789 Maple Rd., Suite 123 El Segundo 310-555-1234 GeorgeJ@companyx.com $9,750,000<br />
Sam Smith XYZ Company 456 First St Los Angeles 323-555-1234 Ssmith@xyzcompany.com $9,650,000<br />
Seller Bidding on behalf of seller $9,550,000<br />
George Jones Company X 789 Maple Rd., Suite 123 El Segundo 310-555-1234 GeorgeJ@companyx.com $9,450,000<br />
John Doe 123 Main St San Diego 619-555-1234 John.Doe@Yahoo.com $9,350,000<br />
48
Matthew Grefsheim<br />
Section break<br />
CRE Work Out Strategies –<br />
The Real Deal<br />
49
Work Out Strategies<br />
Matthew Grefsheim - Director Special Servicing<br />
<strong>Hatfield</strong> <strong>Philips</strong> International<br />
CRE Work Out Strategies – The Real Deal<br />
• Christian Daumann, Managing Director – <strong>Hatfield</strong> <strong>Philips</strong> Deutschland<br />
• Gautam Doshi, Vice President – Blackrock<br />
• Fraser Greenshields, Partner – Ernst & Young<br />
• Matthew Prest, Managing Director – Moelis & Company<br />
MANAGING COMPLEXITY. MAINTAINING PERFORMANCE. MAXIMISING RETURNS. 50
John Muldoon<br />
Section break<br />
The European Real Estate<br />
Perspective<br />
51
The European Real Estate Perspective<br />
John Muldoon - Director Real Estate<br />
<strong>Hatfield</strong> <strong>Philips</strong> International<br />
The European Real Estate Perspective: Focus on Germany and Holland.<br />
• Jacob Lyons, Managing Director – CR Investment Management<br />
• Michael Walton, Chief Executive – Rynda Property Investors<br />
MANAGING COMPLEXITY. MAINTAINING PERFORMANCE. MAXIMISING RETURNS. 52
Matthias Schlueter<br />
Section break<br />
Closing Words<br />
53
End of Forum<br />
Drinks are served in the foyer<br />
Managing<br />
Complexity<br />
Maintaining<br />
Performance<br />
Maximising<br />
Returns<br />
MANAGING COMPLEXITY. MAINTAINING PERFORMANCE. MAXIMISING RETURNS. 54
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