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UCONN October 2007 PowerPoint Presentation
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UCONN October 2007

UCONN October 2007

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UCONN October 2007

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  1. UCONN October 2007

  2. Overview CBRE Realty Finance(CBF:NYSE) is a specialty real estate finance and investment company : • Focused on the Commercial Real Estate Sector • Originate and retain • Commercial whole loans (Office, Retail, Industrial, Hotel etc) • Junior Debt (subordinate debt behind a senior loan) • CMBS securities • Utilize debt to finance the companies activities and lever returns • CDO technology: Issued two transactions ($1.6 billion size) • Bank Lines: Short term facilities • Current Equity Base: ~ $400 million • Leverage: ~ 1.8 billion • Approx Leverage: ~ 4.5x

  3. STRUCTURED MARKET • HISTORY • Began with the mortgage pass-through market in the 1980’s • Continued with the first CM0 (Collateralized Mortgage Obligation) • The carving of various risks created a bigger buyer base • Since then the same technology has been applied to • Non-Agency Residential (Sub-prime, Jumbo,Alt-A) • Student Loans • Credit Card Receivables • Auto Loans • COMMERCIAL REAL ESTATE LOANS • AIRCRAFT

  4. STRUCTURED MARKET • Current Size • The Structured Market has experienced strong growth • The Lehman Aggregate Bond Index • The Index is a market value weighted Bond index • MBS/Structured is the biggest part of the index (and growing)

  5. STRUCTURED MARKET • BUYER BASE FOR STRUCTURED PRODUCTS • INSURANCE COMPANIES (AIG, MET LIFE ETC) • PENSION FUNDS • MUTUAL FUNDS (FIDELITY, PUTNAM ETC) • HEDGE FUNDS • SPECIALTY FINANCE COMPANIES (COUNTRYWIDE) • GOVT AGENCIES (FANNIE, FREDDIE MAC)

  6. CMBS MARKET • EVOLUTION OF CMBS MARKET • TRACES ROOTS TO S&L SCANDAL • RTC (RESOLUTION TRUST) • Wall Street began originating and packaging loans • HOW IS A CMBS TRANSACTION CREATED • Issuer accumulates a pool of loans (Typically 100 to 300 for a total size > $1 billion. Largest loan typically a “Trophy” asset loan size >$100 million, smallest loan non descript typically $2 million or less) • This pool is assigned a distinctive name (CSMC 07-C3) • Rating agencies assign ratings to the structure • Wall Street sells the various portions of risk • A secondary market is created in the transaction

  7. CMBS Structure/Risk • Highlights of the capital Structure Below • Losses are borne from the bottom most tranche up. • Principal payments flow sequentially from the top down • Subordination quantifies this relationship (measure of $ below you) • The risk measures section shows why the top is rated AAA and the bottom NR • Structural breakpoints of lower rated classes is why credit investors dedicate so much time to the underlying collateral

  8. CDO Market • CDO: A structured product consisting of various underlying bonds/loans • Explosive growth in the CRE CDO sector • As market has matured has evolved from commercial real estate securities transactions, to whole loans and in particular bridge loans • Current market travails have caused a temporary shut down in sector

  9. Current Market Conditions (CMBS) CMBS spreads began to widen in March due to trading technical's related to the sub-prime sector (synthetic correlation). This relationship has remained strong since and has forced CMBS spreads wider despite strong underlying commercial real estate fundamentals. SIV worries have worsened sector.

  10. Current Market Conditions (CRE CDO) • CDO market has essentially “shut-down”. • European buyers (SIV’s) were big buyers of AAA rated securities • CDO “repacks” (CDO issuers who purchased underlying CDO’s for their CDO’s) have slowed down • This removed buyer demand, put pressure on spreads and stopped most new issuance • (I believe spreads are even wider then below. No liquidity)

  11. Conclusion • Capital Markets are currently in a transitional phase • The after affects of the sub-prime debacle are not complete • The “re-pricing” of risk will continue for some time • Longer term is a healthy thing for the markets • A more rational pricing of risk • Better underwriting across all sectors • Liquidity will return to the sector