1. 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
jz1624@nyu.edu
347-997-0664
Eugene Zingman (GE Capital)
M.S. in Real Estate Finance
NYUSchack Institute of Real Estate
eugene.zingman@ge.com
2. New York based Debt Fund providing flexible real estate financing solutions to client
Primary focus on Mezzanine and Pref. Equity financing on high quality assets in top U.S. markets.
Wisdom Capital, LLC
5. Wisdom Capital, LLC
LA Population & Unemployment
%
2%
4%
6%
8%
10%
12%
14%
Jan2005
Apr2005
Jul2005
Oct2005
Jan2006
Apr2006
Jul2006
Oct2006
Jan2007
Apr2007
Jul2007
Oct2007
Jan2008
Apr2008
Jul2008
Oct2008
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Oct2009
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Jan2011
Apr2011
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Oct2011
Jan2012
Apr2012
Jul2012
Oct2012
Jan2013
Apr2013
Jul2013
Oct2013
Jan2014
Apr2014
Jul2014
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Unemployment Rate - Montly data
Before Seasonal adjustment
Los Angeles Metro U.S. Average New York Metro
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.
6. 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.
7. 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
8. 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.
9. 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.
10. 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
$27.33
Source: Reis, Inc.
Vacancy Rate
12.5%
Source: PPR.
11. 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
17. Wisdom Capital, LLC
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.
18. Wisdom Capital, LLC
Mezzanine Loan Terms Comparison
Mezz Loan
Terms
Sponsor 1
Equity One Dev.
Sponsor 2
BlackBoulder
Sponsor 3
N&F Properties
Sponsor 4
PB Capital
Acquisition Price $424.7MM $430.9MM $457.7MM $465.2MM
Loan Amount $45.0MM $70.0MM $70.0MM $45.0MM
Borrower Equity $125.6MM $91.7MM $137.0MM $167.3MM
LTC (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 Am
Fees 1% Upfront 1% Upfront 1% Upfront 1% Upfront
Year 1 DSCR 1.12x 0.83x 0.90x 1.05x
Interest Reserve N/A
$2MM
(Replenishment)
$2MM
(Replenishment)
N/A
Prepayment
Month 1-36: YM
Month 37-56: 1%
Month 1-36: YM
Month 37-56: 1%
Month 1-24: MW
Month 25-36: 1%
Month 1-24: MW
Month 25-36: 1%
Recourse No / “Bad-Boy” No / “Bad-Boy” No / “Bad-Boy” No / “Bad-Boy”
Lockbox Soft Soft Soft Soft
20. 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 Shop
o Upgrade retail spaces up to the 6th Floor from current three floors
o Add state-of-the-art multimedia experience in the lobby and other floors
o Installation of state-of-the-art destination dispatch
o Upgrade landscaping
o Upgrade building energy rating from LEED Gold to LEED Platinum
Equity One Development
21. 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.
Equity One Development
23. Wisdom Capital, LLC
Underwriting Assumptions Equity One Development
Sponsor 1
Equity 1 Dev.
Lender
U/W
Acquisition Price $424.7MM $432.6MM
Going-In Cap Rate 5.3% 5.5%
Residual Cap Rate 5.7% 6.0%
Capital Reserves (PSF) $0.50 $0.20
Cost of Sales 4.0% 2.0%
MLA (Avg. NNN) Office: $27
Retail: $49
Storage: $21
Office: $25
Retail: $32
Storage: $18
Market Rent Growth 3% per Annum
PPR: 5.1%, 3.5%, 2.5%, 2.2%,
2.2%
TI (New/Renew)
$30 / $15 Office: $35 / $20
Retail: $35 / $20
LC (New/Renew) 3.5% / 2.0% 6.0% / 4.0%
Stabilized Occ. 90.0% 87.6%
Lease Term
Office: 5 years
Retail: 10 years
5 years
Renewal Prob. 70% 65%
Downtime 6 months 9 months
Rent Abatement
Office: 5 months
Retail: 12 months
5 months
24. Wisdom Capital, LLC
Loan Sizing Equity One Development
SENIOR LOAN SIZING MEZZ LOAN SIZING
Loan Terms Loan Sizing - 4 Tests Loan Terms Loan Sizing - 4 Tests
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 1.00x
Loan Term 10 Years Loan Term 5 Years
Interest Only 1 Years Interest Only 3 Years
Amortization Term 30 Years Test 1 - Max LTV Amortization Term 30 Years Test 1 - Max LTV
Payments per Year 12 Value (5 year NPV) $450,933,830 Payments per Year 12 Value (5 year NPV) $450,933,830
Maturity Year Max LTV 60.0% Maturity Year Max LTV 80.0%
Max Loan Amount 270,560,298$ 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 DSCR
Debt 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 $65,051,347
Loan Amount 270,560,298$ Loan Amount 65,051,347$
Loan Amount (rounded) 270,000,000$ Loan Amount (rounded) 45,000,000$
25. Wisdom Capital, LLC
Target Capital Stack
Conservative Debt Strategy:
o 61.5% LTV Senior Loan
o 72.8% LTV Mezz Loan
5.9% going-in Mezz DY based on
Lender U/W
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
26. 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% LTV
o Yr5: 17.4% DY and 34% LTV
Observation Deck Profit Margin Sensitivity
Equity One Development
Y r3 E xit L T V
-30% -20% -10% 0% 10% 20% 30%
4.0% 30% 28% 26% 25% 24% 22% 21%
4.5% 33% 31% 29% 28% 26% 25% 24%
5.0% 37% 35% 33% 31% 29% 28% 27%
5.5% 41% 38% 36% 34% 32% 31% 29%
6.0% 44% 42% 39% 37% 35% 34% 32%
6.5% 48% 45% 43% 40% 38% 36% 35%
7.0% 52% 49% 46% 43% 41% 39% 37%
7.5% 55% 52% 49% 47% 44% 42% 40%
8.0% 59% 56% 52% 50% 47% 45% 43%
E xit DY
-30% -20% -10% 0% 10% 20% 30%
Y r3 DY 12.6% 13.4% 14.2% 15.0% 15.8% 16.6% 17.4%
Y r5 DY 14.5% 15.5% 16.5% 17.4% 18.4% 19.4% 20.4%
C hange in Market R ent
C hange in Market R ent
ResidualCapRate
Y r3 E xit L T V
70% 60% 50% 40% 30%
4.0% 25% 26% 27% 28% 29%
4.5% 28% 29% 30% 31% 32%
5.0% 31% 32% 33% 34% 36%
5.5% 34% 35% 37% 38% 39%
6.0% 37% 38% 40% 41% 43%
6.5% 40% 42% 43% 45% 46%
7.0% 43% 45% 47% 48% 50%
7.5% 47% 48% 50% 52% 54%
8.0% 50% 51% 53% 55% 57%
E xit DY
70% 60% 50% 40% 30%
Y r3 DY 15.0% 14.5% 14.0% 13.4% 12.9%
Y r5 DY 17.4% 16.9% 16.3% 15.7% 15.1%
P rofit Margin
P rofit Margin
ResidualCapRate
27. 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.
Equity One Development