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Capital Markets Update TM SECOND QUARTER 2014 MULTIFAMILY EDITION a Berkshire Hathaway and Leucadia National Company SPECIAL FEATURE: SENIOR HOUSING OUTLOOK
Capital Markets UpdateTM
SECOND QUARTER 2014
MULTIFAMILY EDITION
a Berkshire Hathaway and Leucadia National Company
SPECIAL FEATURE: SENIOR HOUSING OUTLOOK
MARKET ACTIVITY
SECOND QUARTER 2014 | MULTIFAMILY EDITION
A Sampling of Recently Closed Senior Housing Loans
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SINGLE ASSET
$8,471,750
Georgia64 Units
Berkadia Proprietary Financing
SINGLE ASSET
$11,850,000
Wisconsin82 Units
Agency Financing
SINGLE ASSET
$23,377,900
Florida159 Units
Agency Financing
SINGLE ASSET
$9,159,000
Arizona135 Units
Agency Financing
SINGLE ASSET
$8,563,800
Texas60 Units
HUD / FHA Financing
PORTFOLIO
$13,492,000
California, Indiana, Michigan163 Units
Agency Financing
PORTFOLIO
$172,125,000
Illinois, Missouri, New York, Ohio873 Units
Agency Financing
SINGLE ASSET
$49,312,500
Oregon292 Units
Agency Financing
SINGLE ASSET
$8,775,000
Virginia121 Units
Berkadia Proprietary Financing
PORTFOLIO
$23,752,000
Colorado, Texas, Washington 140 Units
Agency Financing
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PORTFOLIO
$91,223,500
North Carolina1,270 Units
HUD / FHA Financing
BERKADIA.COM
PORTFOLIO
$87,611,200
California, Texas1,543 Units
HUD / FHA Financing
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Berkadia is jointly owned by Berkshire Hathaway and Leucadia National Corporation. Berkadia is a leading multifamily investment sales, advisory and research provider, as well as a principal and intermediary, providing debt and equity solutions for multifamily and commercial real estate nationwide and a highly rated master, primary and special servicer managing a portfolio of more than $230 billion. Berkadia is a Freddie Mac Program Plus lender, Fannie Mae DUS® Multifamily Seller/Servicer and HUD, MAP and LEAN originator and servicer. We are a correspondent for 40 insurance companies for which we originate and service loans, providing non-recourse fixed rate, short, intermediate and long term debt. We have origination and servicing agreements with the major CMBS conduits. Berkadia is also a proprietary bridge lender, leveraging our balance sheet capabilities. In 2013, our investment sales and debt placement totaled $15 billion.
As a nonbank-regulated, closely held corporation, Berkadia has the flexibility to quickly respond to ever-changing market dynamics and the ability to customize finance solutions to meet our customers’ needs. Berkadia’s origination professionals provide acquisition, refinance or rehabilitation capital for:
Berkadia has 75 offices in the U.S., in addition to a wholly owned operation in India, and over 1,300 employees worldwide.
Berkadia offers clients the most dynamic multifamily and commercial debt market platforms. The company’s Marketing and Research Center provides advisory, research and capital markets services powered by empirical research, real-time market data and specialized expertise.
This full range of services – from acquisition to disposition – is a complete life-cycle solution spanning all commercial property types, and is delivered with quality, flexibility, customer focus and satisfaction.
Our leadership position in the industry assures the development of initiatives that will grow existing relationships, build new ones and create opportunities for all our customers.
Multifamily Retail Office
Industrial Medical Office Seniors Housing
Health Care Self-Storage Student Housing
Hospitality Land Manufactured Housing
BERKADIA.COM
CAPITAL MARKETS UPDATETM
SECOND QUARTER 2014 | MULTIFAMILY EDITION
The U.S. labor market showed resilience during the first two quarters of the year. Total employment expanded by 1.4 million workers year to date through June, the most significant six-month expansion since 2006. Businesses also finally recouped the jobs shed during the downturn, with second-quarter headcounts exceeding the prerecession peak by 430,000 jobs. Furthering positive expectations for the second half of 2014, the JOLTS report, a job-openings measure and one of the indicators on the Federal Reserve’s economic dashboard, reached a postrecession high of 4.6 million positions, portending continued hiring stability.
GDP performance tempered economic news, as GDP declined 2.1% in the first quarter. Transient factors such as the harsh winter impeded construction and home sales, leading to a 4.2% reduction in residential fixed investments. Despite the overall drop, the preliminary second-quarter GDP reading put growth at a sizable 4%. Additionally, GDP expansion is expected through the remainder of 2014. The Fed estimates full-year 2014 GDP growth in the low-2% range.
The Fed maintains a watchful eye on inflation, following the 30-basis-point annual rise in the consumer price index to 2.1% in June. Nevertheless, inflation hovers at acceptable levels. Tapering of quantitative easing persists, with the Fed cutting bond purchases by another $10 billion following their June meeting. Low interest rates are perpetuating the flow of capital which has facilitated business and investor confidence.
Historically low interest rates and favorable demographic trends sustained senior housing investment. Compared to nationwide growth of 0.7% per year, the quickly growing 75-year old and older cohort is expected to increase by almost 685,000 people, or 2.9%, annually through 2030. Additionally, as home prices advance and negative equity dissipates, older homeowners will be able to sell and move into retirement communities. Not surprisingly, senior housing-deal flow remains elevated. In 2013, the number of senior housing properties sold surged 27.9% compared to the prior year according to NIC MAP. In the first two quarters of 2014, senior housing-asset trades were up 2% compared to the same period last year.
INTEREST & TREASURY RATES ECONOMIC TRENDS
DEMOGRAPHICS & APARTMENT SUPPLY INVESTMENT SALES VELOCITY & RETURNS*
SENIOR HOUSING DEMOGRAPHICS*ECONOMIC & CAPITAL MARKET TRENDS
* 2Q YTD Estimate Source: Berkadia Research, Federal Reserve, Real Capital Analytics
* Forecast Source: Berkadia Research, BEA, BLS
* 2Q YTD Estimate Source: Berkadia Research, Axiometrics, BEA
* All Multifamily Sales 100+ Units; ** 2Q YTD Estimate Source: Berkadia Research, Axiometrics, CoStar Inc.
0
1
2
3
4
5Percent Change: 75-Year Old +Percent Change: U.S.Absolute Change: 75-Year Old +
2010-2015 2015-2020 2020-2025 2025-2030 2030-2035 2035-2040
5%
0%
Absolute Change: 75-Year Old + (mil)
Perce
ntag
e Cha
nge i
n Pop
ulatio
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10%
15%
20%
25%
* Forecast Source: Berkadia Research, ESRI, Moody’s Analytics
MARKET ACTIVITY MULTIFAMILY MORTGAGE ORIGINATIONS
GSE QUARTERLY ISSUANCE* CMBS QUARTERLY ISSUANCE*
LIFE INSURANCE QUARTERLY ISSUANCE* MULTIFAMILY DELINQUENCIES*
GSE lending ramped up 15.2% quarter over quarter, as the GSEs were more flexible with loan criteria following lower than anticipated lending earlier in the year. In particular, flexible-rate mortgages were offered with terms of Libor plus 1.7% to 2.5% on partial-interest payment loans or Libor plus up to 2% on interest-only loans. The GSEs maintained loan to values of 75% for most loans, but offered as high as 80% for top-tier assets. Debt service coverage was between 1.3 and 1.45, but some originations were as low as 1.0 for an adjustable-rate, seven- to 10-year term. Fannie Mae typically offered longer terms, yet both were flexible on loan length depending on the asset and sponsor.
CMBS lending decreased 8% so far this year compared to the first half of 2013. A majority of the loans were offered with a fixed-rate,10-year term; though, shorter terms were available with a higher DSCR. Lending was typically at the 75% LTV level or below, while DSCRs ranged from 1.25 to 1.45. Meanwhile, life company originations were elevated, due to increasing life company allocations for multifamily loans. Life company issuance was up 1.8% in the first two quarters of this year, compared to the first half of 2013. Although LTV requirements of 60% to 70% precluded some borrowers, more flexible loan options and a willingness to lend for quality assets maintained velocity. Alternately, among bank lenders, LTVs were offered in the mid- to low-70% range for quality apartment product, while requiring DSCRs between 1.25 to 1.5 for five- to 10-year terms.
In the senior housing investment arena, HUD lending remained popular due to the longer 30- to 40-year terms, with a maximum LTV of 80% based on a 1.45 DSCR. Freddie Mac offered loans with a 10-year term, 75% LTV and minimum DSCR of 1.3 to 1.45 for assets with occupancies of at least 85%. Likewise, Fannie Mae offered similar loan criteria, but required 90% occupancy. According to NIC MAP, senior housing investment accelerated in secondary and tertiary metros, with the number of property sales rising 7.3% in this segment year to date compared to the same time in 2013. Deal flow, for example, accelerated significantly in Sacramento, Salt Lake City, central California and several tertiary Florida and Wisconsin markets.
* 2Q YTD Estimate Source: Berkadia Research, BEA, Real Capital Analytics
* Single- and Multifamily Issuance; ** Forecast Source: Berkadia Research, Fannie Mae, Freddie Mac
* Multifamily and Commercial Issuance; ** Forecast Source: Berkadia Research, Mortgage Bankers Assocation
Forecast10-Year Average: 6.5%
* Multifamily and Commercial Issuance; ** Forecast Source: Berkadia Research, Mortgage Bankers Assocation
* CMBS: 30+ days delinquent & REO; Life Companies & GSE: 60+ days delinquent; Banks & Thrifts: 90+ days delinquent; ** Forecast Source: Berkadia Research, Mortgage Bankers Assocation
BERKADIA.COMFor a full list of sources please visit: ApartmentUpdate.com/Sources
Regional Sampling of Berkadia Apartment Loan Closings
SOUTHWEST REGION
# OF UNITS LOCATION LOAN AMOUNT PER UNIT FINANCE NOTE
362 Units Arizona $69,975,000 $193,301 Bank Financing: 36-Month Term, Adjustable, 65% LTV
300 Units Texas $21,937,500 $73,125 Agency Financing: 84-Month Term, Fixed, 75% LTV
224 Units Arizona $16,134,000 $72,027 Life Company Financing: 60-Month Term, Fixed, 65% LTV
144 Units Colorado $16,000,000 $111,111 Agency Financing: 120-Month Term, Fixed, 55% LTV
MIDWEST REGION
# OF UNITS LOCATION LOAN AMOUNT PER UNIT FINANCE NOTE
170 Units Illinois $33,300,000 $195,882 Conduit Financing: 120-Month Term, Fixed, 75% LTV
356 Units Indiana $16,837,500 $47,296 Life Company Financing: 120-Month Term, Fixed, 55% LTV
288 Units Michigan $15,577,100 $54,087 HUD Financing: 420-Month Term, Fixed, 83.3% LTV
100 Units Missouri $7,400,000 $74,000 Agency Financing: 120-Month Term, Fixed, 80% LTV
WESTERN REGION
# OF UNITS LOCATION LOAN AMOUNT PER UNIT FINANCE NOTE
309 Units California $40,442,000 $130,880 Agency Financing: 84-Month Term, Fixed, 65% LTV
163 Units Washington $11,717,600 $71,887 HUD Financing: 420-Month Term, Fixed, 80% LTV
88 Units California $7,250,000 $82,386 Conduit Financing: 120-Month Term, Fixed, 75% LTV
84 Units Oregon $5,915,000 $70,417 Agency Financing: 84-Month Term, Fixed, 65% LTV
EASTERN REGION
# OF UNITS LOCATION LOAN AMOUNT PER UNIT FINANCE NOTE
300 Units Florida $40,000,000 $133,333 Conduit Financing: 132-Month Term, Fixed, 75% LTV
645 Units Pennsylvania $26,500,000 $41,085 Life Company Financing: 240-Month Term, Fixed, 74% LTV
248 Units Georgia $15,450,000 $62,298 Agency Financing: 120-Month Term, Fixed, 80% LTV
106 Units New York $9,525,600 $89,864 HUD Financing: 420-Month Term, Fixed, 80% LTV
CAPITAL MARKETS UPDATETM
SECOND QUARTER 2014 | MULTIFAMILY EDITION
For More Information Please Call 888.872.2787
NEW 2014 MULTIFAMILY LISTINGS
430 Units | Built 1986 • Orlando, FL
426 Units | Built 2007 • Las Vegas, NV
317 Units • $16,500,000 | Built 1981 • Las Vegas, NV
412 Units | Built 1964 • St. Louis, MO
378 Units | Built 1960 • El Paso, TX
351 Units | Built 1949 • Seattle, WA
296 Units • $11,800,000 | Built 1973 • Columbia, SC
304 Units | Built 2005 • Moreno Valley, CA
184 Units • $11,000,000 | Built 1984 • Corning, CA
306 Units | Built 1987 • Tempe, AZ
1,187 Units | Built 1970 • Atlanta, GA
300 Units | Built 2009 • Albuquerque, NM
240 Units • $42,650,000 | Built 2013 • Tulsa, OK
600 Units | Built 1986 • Dallas, TX
260 Units | Built 2008 • Little Rock, AR
204 Units • $31,000,000 | Built 2011 • Riverside, CA
510 Units | Built 1968 • Indianapolis, IN
68 Units • $20,000,000 | Built 2012 • Corvallis, OR
140 Units • $20,000,000 | Built 2005 • Bermuda Dunes, CA
230 Units • $18,500,000 | Built 1974 • Fresno, CA
BERKADIA.COM
RECENT MULTIFAMILY SALES
1,022 UNITS | BUILT 1975/87
$84,000,000
Ypsilanti, Michigan
On Behalf of an Institutional Owner
444 UNITS | BUILT 2000
$44,500,000
Dallas, Texas
On Behalf of an Institutional Owner
943 UNITS | BUILT 1969/79
$44,500,000
Cleveland, Ohio
On Behalf of a Private Investor
296 UNITS | BUILT 2013
$43,000,000
Las Vegas, Nevada
On Behalf of an Apartment Developer
280 UNITS | BUILT 2011
$40,800,000
Lafayette, Louisiana
On Behalf of an Apartment Developer
352 UNITS | BUILT 2012
$37,500,000
San Antonio, Texas
On Behalf of a Private Investor
276 UNITS | BUILT 2003
$35,500,000
Columbus, Ohio
On Behalf of a Private Investment Company
334 UNITS | BUILT 1972
$33,300,000
Pullman, Washington
On Behalf of a Private Investment Company
118 UNITS | BUILT 2012
$33,000,000
Seattle, Washington
On Behalf of an Apartment Developer
316 UNITS | BUILT 2003
$28,000,000
Canton, Georgia
On Behalf of an Institutional Owner
239 UNITS | BUILT 1909
$25,000,000
Salt Lake City, Utah
On Behalf of a Private Investor
352 UNITS | BUILT 1990
$23,000,000
Plant City, Florida
On Behalf of an Institutional Investor
ALBUQUERQUE, NM | 505.855.7660
ATLANTA, GA | 404.654.2100
AUSTIN, TX | 512.226.8700
BAKERSFIELD, CA | 661.369.7100
BATON ROUGE, LA | 225.922.4587
BETHESDA, MD | 301.202.3579
BIRMINGHAM, AL | 205.918.0785
BOCA RATON, FL | 561.998.8300
BOSTON, MA | 781.639.3200
CAMAS, WA | 360.356.0215
CHICAGO, IL | 312.845.8585
CHARLESTON, SC | 842.628.3765
COLORADO SPRINGS, CO | 843.628.3765
DALLAS, TX | 214.346.0200
DENVER, CO | 303.796.8811
DETROIT, MI | 248.208.3460
FRESNO, CA | 559.449.0700
HORSHAM, PA | 215.328.3200
HOUSTON, TX | 713.469.4500
INLAND EMPIRE, CA | 951.506.2787
IRVINE, CA | 949.622.9200
JACKSON, MS | 601.519.0233
JACKSONVILLE, FL | 904.296.7700
KANSAS CITY, MO | 816.531.2884
LAS VEGAS, NV | 702.866.6333
LENOX, MA | 413.637.8840
LITTLE ROCK, AR | 501.255.7996
LOS ANGELES, CA | 310.209.3200
LOS ANGELES-NORTH, CA | 818.615.1600
LOS ANGELES-SOUTH BAY, CA | 424.239.5900
LOS ANGELES-WEST, CA | 310.470.4883
MIAMI, FL | 305.373.6650
NEWPORT BEACH, CA | 949.223.0600
NEWPORT NEWS, VA | 757.383.9643
NEW YORK, NY | 646.600.7800
OAKLAND, CA | 510.444.2787
OKLAHOMA CITY, OK | 405.415.6822
ONTARIO, CA | 909.235.7888
ORANGE COUNTY, CA | 949.223.0600
ORLANDO, FL | 407.481.9920
PASADENA, CA | 626.584.0952
PHOENIX, AZ | 602.955.1122
PHILADELPHIA, PA | 215.328.1400
PLANO, TX | 972.673.0387
PORTLAND, OR | 503.223.0050
RALEIGH, NC | 919.781.6815
RICHMOND, VA | 804.780.9200
SACRAMENTO, CA | 916.638.5000
SALT LAKE CITY, UT | 801.532.4900
SAN ANTONIO, TX | 210.377.1191
SAN DIEGO, CA | 858.683.7930
SAN FRANCISCO, CA | 415.646.7709
SCOTTSDALE, AZ | 602.997.3920
SEATTLE, WA | 206.521.7220
SHREWSBURY, NJ | 732.758.0004
ST. LOUIS, MO | 314.984.5500
TACOMA, WA | 253.509.7157
TAMPA, FL | 813.221.7750
TEMPE, AZ | 480.336.1860
TROY, MI | 248.646.7701
TUCSON, AZ | 520.529.9206
TULSA, OK | 918.398.8260
HYDERABAD - INDIA
BERKADIA.COM
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Some locations do not currently provide both investment sales and mortgage banking services
a Berkshire Hathaway and Leucadia National Company
