Exhibit 11 Annual Percent Change in MIT TBI Index Source: MIT TBI; KBW Research. Exhibit 12 Annual Percent Change in NCREIF Property Index Source: NCREIF; KBW Research. What about CRE Concentration Risk? CRE lending has high concentration risk, so statistical averages may not fully capture idiosyncratic default risks. To evaluate potential concentration risk, we think Blackstone Mortgage Trust (BXMT) and Starwood Property Trust (STWD) provide helpful data on their portfolios. • For example, BXMT discloses an average LTV of 63% for the overall portfolio, while we estimate approximately 61.3% of the portfolio is above 65% LTV, 28.6% is above 70% LTV, and 10.1% is above 75% LTV. We estimate an average loan size of $73.2 million or 2.1% of the portfolio. CRE Finance World Winter 2015 34 • STWD discloses an average LTV of 65.2% for the overall portfolio, while we estimate approximately 57.9% of the portfolio is above 65% LTV, 34.9% is above 70% LTV, and 22.5% is above 75% LTV. We estimate an average loan size of $46.4 million or 0.9% of the portfolio. • Assuming a 50% higher default rate for the above 75% LTV cohort, we estimate cum. losses would increase to 1.8% for BXMT and 2.5% for STWD from a generic average of 1.7%, resulting in equity losses of 5.4% for BXMT and 4.9% for STWD adjusted for corporate leverage from a generic average of 4.2% assuming a 2x debt/equity ratio for the sector. This analysis does not account for any potential revenue benefit to LNR, STWD’s commercial mortgage special servicer. Historical Commercial Mortgage REIT Stock Performance Commercial Mortgage REITs came into being in the 1990s post the prior CRE downturn. As a result, the data we have is from the last cycle, which included the financial crisis that should be a rarer occurrence than a normal recession. In Exhibit 13 below, we show historical performance of the commercial mortgage REIT sector vs. the S&P 500 and S&P 500 Financials while Exhibit 14 shows historical performance including dividends, which is much stronger. However, it is worth noting that there is a survivorship bias to this data set as the analysis assumes capital is reinvested in surviving CMBS REITs so dividends continue. If you measured performance against legacy REITs only, returns would plummet since many failed during the financial crisis. Exhibit 13 Historical Price Performance Source: Factset; KBW Research. Modeling CRE Losses for Commercial Mortgage REITs
CREFW-Winter Edition
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