Presentation by Mark Troen, Senior Consultant, Brookwood Group, LLC. CNU New England 2014 Summit

1. The 2014 Urbanism Summit!
The Invisible Asset Class Initiative
Reviewing the Literature and Supporting Research
• Influences on Residential Land Prices
• Performance of Commercial Mortgages
• CMBS Performance with Delinquency and Foreclosure
• Walkability Premium in Commercial Real Estate
• Sustainability Features and Mortgage Default Risk
Presentation by Mark Troen, Senior Consultant, Brookwood Group LLC
Adjunct Professor, NYU Schack Institute of Real Estate

2. The 2014 Urbanism Summit!
Influences on Residential Land Prices
Micro-Neighborhood Externalities and Hedonic Housing Prices,
Mingche M. Li & H. James Brown, Land Economics, 1980"

3. The 2014 Urbanism Summit!
Performance of Commercial Mortgages
Four-Quarter Rolling Return 1974:4-1990:4 (%)
ndustrial Apartment Office Retail Mixed-U e Hotel
M an 10.81 10.79 10.72 11.29 11.54 9.91
Horiz n
Annualized Performance Period Ending 1990:4 (0/0)
(yr) Industrial Apartment Office Retail Mixed-U e Hote)
1 6.16 7.75 4.77 .47 4.30 6.02
3 7.77 8.17 7.04 9.44 10.96 6.03
5 7.62 8.56 7.46 9.76 13.63 7.27
10 12.56 12.41 12.14 13.15 13.75 11 .07
17 10.54 10.60 10.38 11. 12 11.40' 9.59c
a Series tart 1974:4. h
ene .tart 1975:1. c: S rie ' i 16 yr .
The Performance of Commercial Mortgages, Brian A. Ciochetti
& Kerry D. Vandell, Real Estate Economics, 1999"

4. The 2014 Urbanism Summit!
CMBS Data – Delinquencies
Mixed-Use Delinquencies and Foreclosures, "
Alan Todd, Bank of America, 2013"
0%
2%
4%
6%
8%
10%
12%
Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13
Mixed Use 60+ DQ Universe 60+ DQ

5. The 2014 Urbanism Summit!
CMBS Data – Foreclosure / REO
Mixed-Use Delinquencies and Foreclosures, "
Alan Todd, Bank of America, 2013"
0%
2%
4%
6%
8%
10%
12%
Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13
Mixed Use FC/REO Universe FC/REO

6. The 2014 Urbanism Summit!
Pre-Crisis Conduit & Fusion Data
Pre-Crisis Conduit & Fusion Data, "
Harris Trifon – Deutsche Bank, 2013"
Property Type!
Total Loans
($Billions)!
Liquid. Bal.
($Billions)!
Liquidation
% w. Loss!
Amt. of Loss
($Billions)! Severity!
Losses !
to date!
Lodging" $25.10 " $6.80 " 27%" $3.09 " 46%" 12.42%"
Retail" $103.34 " $17.57 " 17%" $8.86 " 50%" 8.50%"
Office" $93.90 " $19.72 " 21%" $7.52 " 38%" 7.98%"
Industrial" $18.98 " $3.80 " 20%" $1.44 " 38%" 7.60%"
Other" $11.20 " $1.68 " 15%" $0.75 " 45%" 6.75%"
Multifamily" $85.44 " $15.38 " 18%" $5.68 " 37%" 6.66%"
Multi-Use" $9.71 " $1.46 " 15%" $0.58 " 40%" 6.00%"
Grand Total" $349.35 " $66.41 " 19%" $27.92 " 42%" 7.98%"

7. The 2014 Urbanism Summit!
Walkability Premium in Commercial RE
The Walkability Premium in Commercial Real Estate Investments,
Gary Pivo & Jeffrey D. Fisher, Real Estate Economics, 2011"

8. The 2014 Urbanism Summit!
Loan Risks & Sustainability Features
“The Effect of Transportation, Location, and Affordability Related
Sustainability Features on Mortgage Default Prediction and Risk in
Multifamily Rental Housing”, Journal of Sustainable Real Estate, 2013
• Predicting mortgage default based upon sustainability variables
Dr. Gary Pivo, Professor of Urban Planning and Professor of
Renewable Natural Resources at the University of Arizona

9. The 2014 Urbanism Summit!
Loan Risks & Sustainability Features
• Sustainability Variables - location dependent:
– Walkability / Walk Score®
– Commuting time
– Auto dependence
– Adjacency to mass transit
– Exposure to pollution (freeway access)
– Proximity to open space
– Proximity to retail establishments
• Affordability – non-location dependent

10. The 2014 Urbanism Summit!
Loan Risks & Sustainability Features
• Control Variables
– Loan characteristics
– Property characteristics
– Neighborhood characteristics
– Borrower characteristics
– Regional and national economy
– Collinearity

11. The 2014 Urbanism Summit!
Sustainability and Default Risk
Summary of Sustainability Effects on Default Risk in Multifamily Mortgages
Variable Definition
Effect on Relative
Risk of Default
AFFORDABLE Property meets FNMA definition for affordable housing 61.9% less
WALKSCORE > 80 Property has a Walk Score greater than 80 60.3% less
SUBWAY30 At least 30% of workers commute by subway or elevated 58.4% less
RETAIL16 There are > 16 retail establishments in the block group 34.4% less
PROTECTED1MILE Property is located with 1 mile of protected open space 32.5% less
PCTWALK Per 5 unit increase in the percent who walk to work 15.0% less
COMMUTE TIME Per 10 minute increase in the commute time to work 45.0% more
FREEWAY1000FT Property is located within 1,000 feet of a freeway corridor 59.0% more
WALKSCORE < 8 Property has a Walk Score less than 8 121.0% more

12. The 2014 Urbanism Summit!
Conclusions
• Walkability has material consequences and financial
benefits for property investors
• Multi-family lenders can mitigate risk by gearing their
portfolios toward more sustainable properties
• Lenders can offer favorable financial terms to more
sustainable properties without increasing risk