Varia Us Properties Ag · SIX:VARN
Varia Us Properties — Shareholder Meeting (May 2018)
34 slides from Varia Us Properties's shareholder meeting presentation, May 2018
Slide 1: Varia Shareholder's Meeting: US Multifamily Financing Overview
Varia Shareholder’s Meeting US Multifamily Financing Overview Presented by Steve Comly May 2018
Slide 2: Relationships
RELATIONSHIPS “PEOPLE DO BUSINESS WITH PEOPLE THEY KNOW, LIKE, TRUST, AND VALUE”
Slide 3: Topics for Today
Topics for Today 1. Who is Berkadia? What do we do? 2. Financing Markets in the US – Freddie Mac and Fannie Mae’s Role 3. Varia’s Investment Strategy and how Financing Plays an Integral Role
Slide 4: Who is Berkadia?
Who is Berkadia? An Industry Leader in Commercial Real Estate
Slide 5: Berkadia is a joint venture of Berkshire Hathaway and Leucadia
Berkadia is a joint venture of Berkshire Hathaway and Leucadia National Corporation, both of which are renowned for their capital strength and sophisticated investment strategies. Berkshire Hathaway Inc. (NYSE: BRK.A and BRK.B) is a holding company owning subsidiaries engaged in a number of diverse
Slide 6: Who is Berkadia?
Who is Berkadia? • Industry-leading real estate company • Privately held, non bank regulated • Comprehensive debt and equity capital solutions, investment sales advisory and research services for multifamily and commercial properties • Largest, highest-rated and most respected primary, master and sp
Slide 7: National Reach, Local Expertise
National Reach, Local Expertise
Slide 8: Berkadia by the Numbers: 2017 Lender Rankings
Berkadia by the Numbers 2017 Lender Rankings #1 Ranked FHA/HUD #2 Ranked Fannie Mae #2 Ranked Freddie Mac #4 Ranked Life Company
Slide 9: Berkadia by the Numbers
Berkadia by the Numbers MORTGAGE BANKING 2017 $24.6B In total loan $16.8B Agency 1,323 production production Loans closed INVESTMENT SALES 2017 $7.8B In sales 438 2016 total 543 transactions transactions Listings taken SERVICING PORTFOLIO RATINGS FITCH STANDARD & POOR’S MORNINGSTAR $205.9B 16,769 Pr
Slide 10: What does Berkadia do for you?
What does Berkadia do for you? • Assist Stoneweg in the underwriting, valuation, and financing of each property. • Provide financing terms via competitive bidding process with Freddie Mac, Fannie Mae and other lending institutions. • Work with Stoneweg on acquisition due diligence, 3rd party reports
Slide 11: Philadelphia Mortgage Banking Team: Steve Comly
Philadelphia Mortgage Banking Team Steve Comly • 15 years of lending experience • $3.5 Billion loan origination volume 2017 BY THE NUMBERS $3.0 BILLION 145 New loan originations Loans closed $2.3 BILLION $292 MILLION GSE loan originations Life Co. loan originations
Slide 12: Freddie Mac & Fannie Mae
Freddie Mac & Fannie Mae The Government Sponsored Entities (GSEs)
Slide 13: Government Sponsored Entity
Government Sponsored Entity • The United States multifamily market is unique in that it has a liquidity function that does not exist in other countries. • Fannie Mae and Freddie Mac are Government Sponsored Entities designed to promote liquidity in the US housing market and to assist in the preserva
Slide 14: Freddie Mac and Fannie Mae
Freddie Mac and Fannie Mae • Taken into Conservatorship in September 2008 and now overseen by the FHFA • Freddie Mac and Fannie Mae cannot lend directly, must lend through their approved Seller Servicer / DUS Network • Freddie Mac and Fannie Mae provided the best combination of leverage, long term f
Slide 15: Freddie Mac and Fannie Mae: 2017 Production Numbers
Freddie Mac and Fannie Mae 2017 Production Numbers Freddie Mac Production: $73.2 B • Capped Production - $33.8 B Combined $140.3 B in loan • Green Production - $19 B production accounts for 60% of • Uncapped (Affordable) - $20.4 B the entire multifamily loan Fannie Mae Production: $67.1 B originatio
Slide 16: Freddie Mac and Fannie Mae Combined Production
Freddie Mac and Fannie Mae Combined Production (in $ Billions) $160 $140B $140 $112B $120 $90B $100 $57B $80 $60 $40 $20 $0 2014 2015 2016 2017
Slide 17: Freddie Mac and Fannie Mae: 2018 Lending Cap
Freddie Mac and Fannie Mae 2018 Lending Cap of $35 Billion each • Freddie Mac $13 B in 1Q 2018 • Fannie Mae $11.3 B in 1Q 2018 Reasons: • Increased competition on lending side – especially luxury Class A space • Higher Borrowing Costs with the increased Treasury • Tax code uncertainty early in 2018
Slide 18: Historical 10-year Treasury Rates
Historical 10-year Treasury Rates
Slide 19: Forecasted 10-year Treasury Rates
Forecasted 10-year Treasury Rates Insights: • Treasury Market should increase but at gradual pace • Average GSE Spread over 15 years is 165 bps • Current Average Spread today is 180 bps
Slide 20: Capital Markets and Financing for Multifamily
Capital Markets and Financing for Multifamily The ability to finance multifamily real estate has never been better. The following elements contribute to the current robust market conditions. • Increase of debt capital entering the market in various forms; GSE and other lending sources • Historically
Slide 21: Green Financing
Green Financing Ability for owner to invest in Green improvements to their property and gain benefit of better financing terms Requirements: • Conduct a Green assessment of the property • Replace devices that will allow the property to achieve a 25% reduction in electric or water • Report utility us
Slide 22: Affordable Financing / Workforce Housing
Affordable Financing / Workforce Housing Not just for properties that restrict rents through a Governmental Program Requirements: • Property must be under a LURA, OR • Rents are equal or lesser than the equivalent rent supported by a tenant making 60% of area median income or less (workforce housing
Slide 23: Financing Plays a Key Role in Varia's Investment Strategy
Financing Plays a Key Role in Varia’s Investment Strategy
Slide 24: Attractiveness of the Multifamily Housing Market
Attractiveness of the Multifamily Housing Market The U.S. is expected to need 4.6 million net new apartments by 2030 with needs driven by: • Millennial school debt and lifestyle choices such as delayed marriage • An aging, empty-nest population seeking less space and lower maintenance • Internationa
Slide 25: Attractiveness of the Multifamily Housing market
Attractiveness of the Multifamily Housing market • Approximately one million new renter households were formed in each of the last five years • Shortfall in housing stock vs. demand benefits Varia’s value-add approach • U.S. needs an average of 325,000 new units per year • However, only 244,000 were
Slide 26: A Shift Toward Home Rental Vs Ownership
A Shift Toward Home Rental Vs Ownership
Slide 27: Multifamily Workforce Housing
Multifamily Workforce Housing • The largest underserved market segment is defined as workforce housing – typically pre-1990 construction and rented to those making 60% - 100% of area median income. • Current workforce housing stock is aging and will benefit from capital investment and strong sponsor
Slide 28: Varia's Investment Strategy
Varia’s Investment Strategy “Varia’s main focus lies on secondary and tertiary areas that are characterized by strong population and employment growth and limited housing offering. These regions are typically within a 45 to 60 minute drive of city or employment centres. The housing offering targets
Slide 29: GSE Mission and Varia's Investment Strategy: Common Alignment
GSE Mission and Varia’s Investment Strategy: Common Alignment • Provide Stability and Liquidity in the MF Housing Space • Provide quality affordable housing for low to middle income households • Enhance and improve the current again housing stock: • Unit Renovations • Deferred Maintenance • Green Im
Slide 30: Typical Varia Financing Structure
Typical Varia Financing Structure • 7 – 10 year fixed rate term • 65% of Purchase Price • Non Recourse • Interest Only Benefits of this Financing Structure • 65% LTV provides attractive financing note rates – currently +/- 150 bps over corresponding treasury • Interest Only provides better cash on c
Slide 31: The What If Scenario: A Different Investment Strategy
The What If Scenario: A Different Investment Strategy Strategy: Class-A properties, 10-years-old or newer, primary markets Pros Cons • Unit Improvements not needed • Command lower cap rates, which equals lower • Estimated property life is longer returns • Rental growth can be stronger • Greater comp
Slide 32: The What If Scenario: A Different Investment Strategy
The What If Scenario: A Different Investment Strategy Class A / Luxury Property Class B / Workforce Housing Net Operating Income $2,000,000 Net Operating Income $2,000,000 Cap Rate 5.25% Cap Rate 6.25% Value $38,095,238 Value $32,000,000 Loan $24,761,905 Loan $20,800,000 Note Rate 4.65% Note Rate 4.
Slide 33: Relationships
RELATIONSHIPS “PEOPLE DO BUSINESS WITH PEOPLE THEY KNOW, LIKE, TRUST, AND VALUE”
Slide 34: Questions?
Questions?