US Bank Tower Wisdom Capital, LLC Mezzanine Financing Team: Jianhao Zeng M.S. in Real Estate Finance Class of 2015 NYUSchack Institute of Real Estate [email protected]347-997-0664 Eugene Zingman (GE Capital) M.S. in Real Estate Finance NYUSchack Institute of Real Estate [email protected]
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US Bank TowerWisdom Capital, LLC
Mezzanine Financing Team:Jianhao Zeng M.S. in Real Estate FinanceClass of 2015NYUSchack Institute of Real [email protected]
Eugene Zingman (GE Capital)M.S. in Real Estate FinanceNYUSchack Institute of Real [email protected]
New York based Debt Fund providing flexible real estate financing solutions to clientPrimary focus on Mezzanine and Pref. Equity financing on high quality assets in top U.S. markets.
Wisdom Capital, LLC
Wisdom Capital, LLC
Property&
Market Information
Wisdom Capital, LLC
U.S. Bank Tower
Wisdom Capital, LLC
LA Population & Unemployment
Jan 2005 Sep 2005May 2006 Jan 2007 Sep 2007May 2008 Jan 2009 Sep 2009May 2010 Jan 2011 Sep 2011May 2012 Jan 2013 Sep 2013May 2014%
The second largest city the United States with population of 10 million Population grew by 3.7% between 2000 and 2010, slightly higher than U.S.
average Cost of living in metro LA is 19% higher than the national average 28% of adult population holds a college degree vs. 32% nationally Unemployment rate peaked out at 13.1% in July 2011 and had gone down to
7.5% as of December 2014.
Wisdom Capital, LLC
Los Angeles Job Growth Healthcare, Retail Trade and Info Tech are the leading industries in the metro
area Education & Healthcare and Professional & Business Services sectors grew at
the fastest rate in the second half of 2014 and are projected to continue the trend throughout 2015.
Wisdom Capital, LLC
Los Angeles Employment Data
Unemployment Rate
9.1% in 2013
7.9% in 2014
Education & Health 17%
Government 13%
Leisure & Hosp 11%
Retail Trade & Consumer 14%
Prof & Business
14%
Finance 5%
Information 5%
Wholesale 5%
Construc, Trans &Util 7%
Manufacturing 9%
Employment Data Employment By Sectors
Wisdom Capital, LLC
LA Office Inventory - Submarket
SFV - West 7%West LA
6%Century City 5%
Mid-Wilshire 8%
LAX/El Segundo 8%
Downtown 18%
Other 48%
One of the largest and decentralized office markets in the United States with ~200MM SF of space, known for its low-density
Subdivided into 21 distinct submarkets, with Downtown Submarket accounting for 18.2% of the total inventory
Downtown Submarket inventory is 35.8MM SF with an average asking rent of $34.54 (REIS) as of 4Q 2014.
Wisdom Capital, LLC
Downtown Submarket Overview Downtown LA has been a slow-growth / low-volatility submarket Historically a major hub for government tenants, TAMI, healthcare and financial
services industries started to relocate here. Submarket provides great access to transportation and talented employee base Class A inventory practically unchanged since 2000 at ~23MM SF and projected
to remain the same through 2016. ~400,000 SF of new space is coming to market in 2017 (Wilshire Grand).
Per REIS, net absorption is projected at average 200,000 SF in 2015 and 2016. New inventory is expected to be easily absorbed in 2017, with vacancy rate remaining in 12%-13% range.
Wisdom Capital, LLC
Demand and leasing activities Leasing activity picked significantly in 4Q 2014 at 573K SF, 49% increase in
3Q 2014 Legal, financial services, engineering firms account for a large portion of
the leasing activity. Lewis Brisbois Bisgaard leased 215,030 SF in U.S. Bank Tower, the large
transaction of the quarter. According to the forecast, the office vacancy rate will stay double digit in
Downtown LA
Effective Rent
$27.33Source: Reis, Inc.
Vacancy Rate
12.5%Source: PPR.
Wisdom Capital, LLC
Sales Comparable Only few comparable transactions over $100MM in the past couples years. Competitive Set - Weighted Average PPSF at $295 2014 Los Angeles average Office Cap Rate was 5.4%, 60bps lower than prior
year. Per REIS, cap rates are forecast to stay below 6.0% mark through 2018
Wisdom Capital’s Mezz Strategy Four Equity Sponsors submitted best and final bids for acquisition of U.S.
Bank Tower, an iconic Los Angeles office property. Sponsors have approached two lenders to arrange for Senior Debt and
Mezzanine Loan to finance the acquisition. Wisdom Capital provided Mezzanine Financing terms to each Sponsor,
taking Senior Lender terms under consideration. Subject Analysis goes through each Equity Sponsor’s proposal and value-
add strategy in detail. Mezzanine Loan will help winning bidder finance project repositioning
and is expected to pay-off in 3-5 years, likely taken out by cheaper long term financing.
Mezzanine Loan sizing was based on As-Is Value of the subject Lender analysis focused on stability of cash flows during the loan term
and successful exit at maturity.
Wisdom Capital, LLC
Mezzanine Loan Terms ComparisonMezz Loan Terms
Sponsor 1Equity One
Dev.
Sponsor 2BlackBoulder
Sponsor 3N&F Properties
Sponsor 4PB Capital
Acquisition Price $424.7MM $430.9MM $457.7MM $465.2MMLoan Amount $45.0MM $70.0MM $70.0MM $45.0MMBorrower Equity $125.6MM $91.7MM $137.0MM $167.3MMLTC (Initial) 71.5% 80.2% 71.3% 65.3%LTV As-Is (MAI) Up to 70.0% Up to 80.0% Up to 80.0% Up to 70.0%Going-In DY (Lender) 5.9% 5.0% 5.5% 5.9%
Year 3 DY 15.0% 11.0% 11.2% 12.4%Interest Rate 7.0% Fixed 8.0% Fixed 1ML + 8.0% 1ML + 7.5%Term 3Yr + two 1yr Ext. 3Yr + two 1yr Ext. 3Yr + two 1yr Ext. 3Yr + two 1yr Ext.Amortization 3yr IO / 30Yr Am 3yr IO / 30Yr Am 3yr IO / 30Yr Am 3yr IO / 30Yr AmFees 1% Upfront 1% Upfront 1% Upfront 1% UpfrontYear 1 DSCR 1.12x 0.83x 0.90x 1.05x
Interest Reserve N/A$2MM
(Replenishment)
$2MM(Replenishment) N/A
Prepayment Month 1-36: YMMonth 37-56: 1%
Month 1-36: YMMonth 37-56: 1%
Month 1-24: MWMonth 25-36: 1%
Month 1-24: MWMonth 25-36: 1%
Recourse No / “Bad-Boy” No / “Bad-Boy” No / “Bad-Boy” No / “Bad-Boy”Lockbox Soft Soft Soft Soft
Wisdom Capital, LLC
Equity Team 1
Equity One Development Partners
Wisdom Capital, LLC
Sponsor Strategy Equity One Development Partners plans to acquire U.S. Bank Tower, an
iconic LA office for $424.7MM Sponsor strategy is to reposition the property in 2015-2017 and
assumes 7yr hold period. Sponsor proposal calls for detailed repositioning plan to enhance the
property’s status as LA’s iconic building and maximize its value:o New Observation Deck with Gift Shopo Upgrade retail spaces up to the 6th Floor from current three floorso Add state-of-the-art multimedia experience in the lobby and other floorso Installation of state-of-the-art destination dispatcho Upgrade landscapingo Upgrade building energy rating from LEED Gold to LEED Platinum
Equity One Development
Wisdom Capital, LLC
Sponsor Strategy (cont.) Strategy calls for diversification of income base at the property, while
monetizing on the upper floor views and Downtown LA’s growing retail and dining scene.
Downsizing trend continues among traditional tenants in Legal and Financial Services. Sponsor plans to convert two floors into smaller spaces to focus on tech and creative tenants.
Plan calls for attractive TI allowances and rent abatements for both retail and office tenants in order to maximize face rent
Sponsor is budgeting ~$66MM in capital and leasing costs for 2015-2017 fiscal years.
Benchmark 0.00% Max LTV 60.0% Benchmark 0.00% Max LTV 80.0%Spread 5.00% Min Debt Yield 6.0% Spread 7.00% Min Debt Yield 5.0%
All-In Rate 5.00% Min DSCR 1.20x All-In Rate 7.00% Min DSCR 1.00xLoan Term 10 Years Loan Term 5 YearsInterest Only 1 Years Interest Only 3 YearsAmortization Term 30 Years Test 1 - Max LTV Amortization Term 30 Years Test 1 - Max LTVPayments per Year 12 Value (5 year NPV) $450,933,830 Payments per Year 12 Value (5 year NPV) $450,933,830Maturity Year Max LTV 60.0% Maturity Year Max LTV 80.0%
Max Loan Amount 270,560,298$ Max Loan Amount 90,747,064$ UW Loan Metrics Test 2 - Min Debt Yield UW Loan Metrics Test 2 - Min Debt Yield
Value (5 year NPV) $450,933,830 Year 0 NOI 18,693,459$ Value (5 year NPV) $450,933,830 Year 0 NOI 18,693,459$ Year 0 NOI 18,693,459$ Debt Yield 6.0% Year 0 NOI 18,693,459$ Debt Yield 5.0%Loan Amount (rounded) $270,000,000 Max Loan Amount 311,557,648$ Loan Amount (rounded) $45,000,000 Max Loan Amount 103,869,177$ LTV 60% Test 3 - Min DSCR LTV 70% Test 3 - Min DSCRDebt Yield (Year 1) 6.9% Year 0 NOI 18,693,459$ Debt Yield (Year 1) 5.9% Year 0 NOI (Remaining) 18,693,459$ DSCR (Year 1) 1.38x DSCR 1.20x DSCR (Year 1) 1.12x DSCR 1.00x
Max Annual Debt Service 15,577,882$ Max Annual Debt Service 5,193,459$ Monthly Payment 1,298,157$ Monthly Payment 432,788$ Max Loan Amount $311,557,648 Max Loan Amount $65,051,347
Mezz DY increases to 15.0% in Yr3 and 17.4% in Yr5, making the loan easy to refinance at both initial and extended maturity dates
Yr1 IO DSCR of 1.1x increases to 2.2x DSCR in Yr3 and 2.5x DSCR in Yr5
Mezz$45.0MM
7.0% Fixed Rate, 5.9% DY,
1.12x DSC,71.5% LTC (Initial)
Up to 70.0% MAI LTV
Senior Mortgage$270.0MM
5.0% Fixed Rate,6.9% DY,
1.38x DSC,61.3% LTC (Initial)
Up to 60.0% MAI LTV
Borrower Equity$125.6MM
Equity One Development
Wisdom Capital, LLC
Exit Analysis
Market Rent Sensitivity
Wisdom Capital expects to be fully paid off at the end of Yr3 or Yr4 - Yr5 in case borrower exercises extension options
Per Sponsor’s projections, property Yr3 residual value is $823MM and $876MM in Yr5. Accordingly, Mezz Loan exit metrics look very strong:o Yr3: 15.0% DY at 37% LTVo Yr5: 17.4% DY and 34% LTV
Yr3 DY 15.0% 14.5% 14.0% 13.4% 12.9%Yr5 DY 17.4% 16.9% 16.3% 15.7% 15.1%
Profit Margin
Profit MarginRe
sidu
al C
ap R
ate
Wisdom Capital, LLC
Conclusion Sponsor underwriting is based on reasonable assumptions Market Leasing Assumptions are in line with the market and rents
currently achieved at the property 3% market rent growth rates are in-line with PPR 5yr average
projected at 3.1% Underwritten stabilized occupancy at 90.0% vs. PPR at 87.6% Income from Observation Deck and Stabilized Occupancy are the
primary drivers of NOI growth. Running sensitivities on both resulted in acceptable residual value to insure successful take-out:o Market rent stressed by 30% resulted inYr3 Exit LTV of 59% at 8.0% Residual Cap
Rate and 12.6% DY.o Observation Deck Profit Margin stressed by 40% (from 70% base case
assumption) resulted in Yr3 Exit LTV of 57.0% at 8.0% Residual Cap Rate and 12.9% DY.