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You are a real estate investment manager at a state pension fund with a very large diversified portfolio. Your real estate allocation has fallen below the fund's target portion of the overall portfolio because your stock market investment allocation gained value recently. Also, your managing director and you think there are some very interesting opportunities available at the moment due to market conditions. You are fortunate in that the fund will allow you to invest in debt, equity or real estate, but the volatile economy (US and overseas) provides no clear direction in the market. Despite this, you have found three distinct opportunities, each of which can consume the entire $50 million allocation you need to place within the next month. You are otherwise sufficiently diversified such that a $50 million acquisition of any of the following will not adversely impact the fund's balance. The opportunities are: A 300,000 SF office building in a CBD (pick one) that can be purchased at an unlevered 5% capitalization rate. You're not sure if it's a bit pricey, and you will have to finance it within six months and lever the return to meet your goals. You may assume that the due diligence has been done and you are satisfied that the property is appropriate for the fund. The property is in transition" with one-third of the leases expiring within two years and another third in five years. A portfolio of CMBS bonds issued in 2020 and 2019 with the bonds maturing over various terms depending upon tranche --chose from the BNK-27 or 1 Bryant Park deals or both. Look at next page to see the Average Life or WAL (Weighted Average Life), amount available per tranche, and the yield on the tranches to determine which tranches (if any) you want to buy. A secondary stock offering for a large retail REIT (rated Baal) with a diversified portfolio by geography and tenant throughout the USA. The issuer plans to raise $500 million of new equity. The prospectus includes the typical statement that the money will be used for operations, to pay down debt and to make future opportunistic acquisitions. All metrics are at 2020 (meaning YTD, not just 2Q): Gross assets are $14.1 billion (note:Gross assets=total assets+accumulated depreciation and amortization). REIT's portfolio is levered at 45% before JVs (debt/gross assets). Secured debt/gross assets is 3.2% (before JVs) Net debt + preferred dividends/recurring EBITDA is 7.9x. Dividend yield is 3.6% (to be paid in cash, not stock per 2009 and 2020 IRS guidelines) Fixed charge coverage (recurring EBITDA/interest expense + preferred dividends) is 3.3x. Your managing director wants a review of the pros and cons of each investment, plus your recommendation for the fund's actual investment. You will have 15 minutes (maximum 5-page memo) to present to the investment committee, so your arguments for and against must be concise, cogent and persuasive. Bullet points preferred- not long paragraphs. The investment committee -1- NYU Capital Markets Fall 2020- Assignment #2 reviews all investments of the pension fund, not just real estate, so your overall real estate experience (i.e., your other coursework and work experience) will be helpful. Your thought process since we completed our initial overview of capital markets, CMBS and REITs is most important- discuss pros, cons, conclusion for each alternative and then provide conclusion with salient rationale. You may use any outside information sources, but cite references to these sources as plagiarism is unacceptable. Supplemental graphs/resources may be attached in an Appendix. PRICING of CMBS DEALS BANK 2020-BNK27 MORTGAGE TRUST INITIAL PRICING: BANK, 2020-BNK27 Sub Ench Smin Amt Avg Final Rating Rating Rating Pricing Classi Yield Level % Life (yrs) Fitch Kroll Moody's% Pricing (bp) mark A-1 2.53 30.00 23.00 AAA AAA Aaa 99.998 1.110 +85 swaps A-SB 4.34 30.00 7.32 AAA AAA Aaa 102.995 1.819 +130 swaps A-4 130.00 30.00 9.47 100.9991.784 +114 swaps A-5 274.01 30.00 9.61 AAA AAA Aaa 102.9941.802 +115 swaps A-S 68.97 18.25 9.72 AAA AAA Aa2 102.993 2.207 +155 swaps B 24.21 14.125 9.74 AA- AA- NR 102.998 2.559 +190 swaps C 21.27 10.50 9.80 A A- 98.105 3.512 +285 swaps D 16.88 7.625 9.80 BBB BBB NR 81.512 4.912 +425 swaps 5.87 6.625 9.80 BBB-BBB-NR swaps F 10.57 4.875 9.80 BB+ BB- Treas G 5.87 3.875 9.80 B+ B- Treas | H 22.76 0.00 9.80 INR INR Treas RR 30.89 0.00 9.58 INA INA Treas X-A 410.88" NA Treas X-B 114.46" NA INA A AAA NR Treas X-D 16.88" NA NA BBB BBB NR Treas *Notional amount, interest only Pricing Date: 19 June, 2020 Collateral balance: $617.86 million EEEEEE 1 INA NA One Bryant Park Trust (OBP) 2019-OBP ABS CMBS OBP 2019-OBP (USD 903m) Durst Organization BAM USOA Aug 7, 2019 CLASS CCY SZE(M) WAL WALX MOSPF DR KR MS C/E LTV TYPE BNCH GONC SPRD CPN YLD PRICE USD 902.500 10.07 AAA Fixed 93a 100 2.52% 2.519% 100.00000 HRR USD 47.500 10.07 AAA Retained You are a real estate investment manager at a state pension fund with a very large diversified portfolio. Your real estate allocation has fallen below the fund's target portion of the overall portfolio because your stock market investment allocation gained value recently. Also, your managing director and you think there are some very interesting opportunities available at the moment due to market conditions. You are fortunate in that the fund will allow you to invest in debt, equity or real estate, but the volatile economy (US and overseas) provides no clear direction in the market. Despite this, you have found three distinct opportunities, each of which can consume the entire $50 million allocation you need to place within the next month. You are otherwise sufficiently diversified such that a $50 million acquisition of any of the following will not adversely impact the fund's balance. The opportunities are: A 300,000 SF office building in a CBD (pick one) that can be purchased at an unlevered 5% capitalization rate. You're not sure if it's a bit pricey, and you will have to finance it within six months and lever the return to meet your goals. You may assume that the due diligence has been done and you are satisfied that the property is appropriate for the fund. The property is in transition" with one-third of the leases expiring within two years and another third in five years. A portfolio of CMBS bonds issued in 2020 and 2019 with the bonds maturing over various terms depending upon tranche --chose from the BNK-27 or 1 Bryant Park deals or both. Look at next page to see the Average Life or WAL (Weighted Average Life), amount available per tranche, and the yield on the tranches to determine which tranches (if any) you want to buy. A secondary stock offering for a large retail REIT (rated Baal) with a diversified portfolio by geography and tenant throughout the USA. The issuer plans to raise $500 million of new equity. The prospectus includes the typical statement that the money will be used for operations, to pay down debt and to make future opportunistic acquisitions. All metrics are at 2020 (meaning YTD, not just 2Q): Gross assets are $14.1 billion (note:Gross assets=total assets+accumulated depreciation and amortization). REIT's portfolio is levered at 45% before JVs (debt/gross assets). Secured debt/gross assets is 3.2% (before JVs) Net debt + preferred dividends/recurring EBITDA is 7.9x. Dividend yield is 3.6% (to be paid in cash, not stock per 2009 and 2020 IRS guidelines) Fixed charge coverage (recurring EBITDA/interest expense + preferred dividends) is 3.3x. Your managing director wants a review of the pros and cons of each investment, plus your recommendation for the fund's actual investment. You will have 15 minutes (maximum 5-page memo) to present to the investment committee, so your arguments for and against must be concise, cogent and persuasive. Bullet points preferred- not long paragraphs. The investment committee -1- NYU Capital Markets Fall 2020- Assignment #2 reviews all investments of the pension fund, not just real estate, so your overall real estate experience (i.e., your other coursework and work experience) will be helpful. Your thought process since we completed our initial overview of capital markets, CMBS and REITs is most important- discuss pros, cons, conclusion for each alternative and then provide conclusion with salient rationale. You may use any outside information sources, but cite references to these sources as plagiarism is unacceptable. Supplemental graphs/resources may be attached in an Appendix. PRICING of CMBS DEALS BANK 2020-BNK27 MORTGAGE TRUST INITIAL PRICING: BANK, 2020-BNK27 Sub Ench Smin Amt Avg Final Rating Rating Rating Pricing Classi Yield Level % Life (yrs) Fitch Kroll Moody's% Pricing (bp) mark A-1 2.53 30.00 23.00 AAA AAA Aaa 99.998 1.110 +85 swaps A-SB 4.34 30.00 7.32 AAA AAA Aaa 102.995 1.819 +130 swaps A-4 130.00 30.00 9.47 100.9991.784 +114 swaps A-5 274.01 30.00 9.61 AAA AAA Aaa 102.9941.802 +115 swaps A-S 68.97 18.25 9.72 AAA AAA Aa2 102.993 2.207 +155 swaps B 24.21 14.125 9.74 AA- AA- NR 102.998 2.559 +190 swaps C 21.27 10.50 9.80 A A- 98.105 3.512 +285 swaps D 16.88 7.625 9.80 BBB BBB NR 81.512 4.912 +425 swaps 5.87 6.625 9.80 BBB-BBB-NR swaps F 10.57 4.875 9.80 BB+ BB- Treas G 5.87 3.875 9.80 B+ B- Treas | H 22.76 0.00 9.80 INR INR Treas RR 30.89 0.00 9.58 INA INA Treas X-A 410.88" NA Treas X-B 114.46" NA INA A AAA NR Treas X-D 16.88" NA NA BBB BBB NR Treas *Notional amount, interest only Pricing Date: 19 June, 2020 Collateral balance: $617.86 million EEEEEE 1 INA NA One Bryant Park Trust (OBP) 2019-OBP ABS CMBS OBP 2019-OBP (USD 903m) Durst Organization BAM USOA Aug 7, 2019 CLASS CCY SZE(M) WAL WALX MOSPF DR KR MS C/E LTV TYPE BNCH GONC SPRD CPN YLD PRICE USD 902.500 10.07 AAA Fixed 93a 100 2.52% 2.519% 100.00000 HRR USD 47.500 10.07 AAA Retained
