December 2020 — Office & Industrial Quarterly — Page 33 TYPE OF CAPITAL SOURCE OF CAPITAL EXPLANATION RATES/SPREADS LTV/COVERAGE TERM AMORTIZATION FOCUS TRENDS LIFE INSURANCE COMPANY • Insurance premiums • Annuity and GIC sales • Non-Recourse • Longer-term fixed rate loan 2.50%-3.50% • Up to 65% LTV • 1.35x Minimum DCR 5-30 Years 20-30 Years • Established industrial corridors or properties with superior access, last-mile product very popular • Vintage and new product, but will stretch for new construction • Single-tenant with long-term lease (credit preferred) or multi-tenant with staggered rollover • Major metro areas & secondary markets (being more selective on secondary markets) • Industrial is seen as one of the most attractive asset classes for insurance companies given the current risk environment associated with office, retail, and hospitality assets • Newly constructed or well-maintained product is in high demand with additional interest for construction financing from select life companies • Full-term interest only to be considered for 50% - 55% with strong sponsors • Sensitivity around loan basis on older product, especially at higher leverage • Lender sensitivity to deals with a large cash-out component, especially for newly constructed assets • Properties with CBD or marijuana tenants are still challenging, despite the continued changes in legislation • Interest reserves implemented on deal-by-deal basis CONDUIT (CMBS) • Sales of mortgage- backed securities through public markets • Non-Recourse • Longer-term fixed rate loan 2.75%-4.00% • Up to 70% LTV • 1.25x Minimum DCR • 8.0% Minimum Debt Yield 5, 7, & 10 Years 25-30 Years • Secondary/Tertiary Markets • Large transactions or portfolios that are tough for other lenders to pursue alone • Strong B-piece buyer demand for stabilized industrial • Leasing capital reserves or cash management incorporated for large rollover events • Will consider full-term I/O on select deals at LTVs less than 60% • Can be more compteitive on larger one-off deals or portfolios that may be too large for other lending sources BANK • Corporate Debt • Deposits • Recourse (some non-recourse available on case-by-case basis) • Shorter-term fixed and floating rate loans 3.00% - 4.00% • Up to 65% LTV • 1.30x Minimum DCR Up to 10 Years Fixed, Typical Max Term is 5-7 Years 25-30 Years • All industrial assets • Value-add with guaranties • Secondary/Tertiary Markets • Strong bank appetite for construction or re-position on assets with Strong sponsor and good location • Most competitive for Sponsors with established banking relationships and strong borrower history that are willing to accept recourse • Establishing a deposit relationship is becoming a requirement • Primarily recourse loans, with non-recourse available to strong sponsors at low leverage • More flexible (open) prepayment terms DEBT FUND / BRIDGE LOAN • Private Capital • Institutional Capital • Non-Recourse • Shorter term bridge loans for acquisition and/or repositioning L+350-500 bps spreads • Up to 80% LTC • Going-in 1.0x DCR 1-5 Years (3+1+1) Interest Only • Value-Add Transactions • Recapitalizations • Most lenders have a LIBOR floor of 25, 50, or 100 bps • Pricing depends on leverage level, property quality, and Sponsor strength • Needs to have strong business plan and attractive location MEZZANINE/ PREFERRED EQUITY • Private Capital • Institutional Capital • Junior financing secured by a pledge of, or participation in ownership interest Mezzanine 8%-12% • Up to 85% LTC • 1.10x DCR 2-10 Years Interest Only (in most cases) • All industrial assets • Value-Add Transactions • Recapitalizations • Preferred equity offers higher funding than mezzanine, but at a higher cost • Minimum investment is typically $5MM but can start as low as $1MM when paired with senior position LIBOR - London Interbank Offered Rate REIT - Real Estate Investment Trust This information is intended to illustrate someof the lendingoptions currentlyavailable.Otheroptionsmayexist.WhileEssexFinancialGroup strives topresent this informationasaccuratelyaspossible,noguarantee ismadeas to theaccuracyof thedatapresented,or theavailabilityof the termsat timeof application.Ratesand termsare subject to change.Please contactoneof ourmortgagebankers forup todate rateand term information. Essex Financial Group | 1401 17th Street, Suite 700 | Denver, CO 80202 | DCR - Debt Coverage Ratio DUS - Delegated Underwriter Servicer LTV - Loan to Value Ratio LTC - Loan to Cost Ratio Industrial Properties Quarterly - Financing Sources Matrix Essex Financial Group - Recent Industrial Transactions Summit at CTC II Louisville, CO $5,200,000 Permanent Loan Life Insurance Company Centennial Industrial Centennial, CO $2,400,000 Permanent Loan Life Insurance Company Pecos Logistics Park - Phase I Denver, CO $40,300,000 Permanent Loan Life Insurance Company J EFF R IGGS F OUNDER AND C HAIRMAN (303) 843-0440 JRIGGS @ ESSEXFG . COM C OOPER W ILLIAMS P RESIDENT (303) 843-4581 CWILLIAMS @ ESSEXFG . COM P ETER K EEPPER M ANAGING P RINCIPAL (303) 843-6002 PETERK @ ESSEXFG . COM M IKE J EFFRIES P RINCIPAL (303) 843-9220 MJEFFRIES @ ESSEXFG . COM A LEX R IGGS VP OF L OAN P RODUCTION (303) 843-4027 ARIGGS @ ESSEXFG . COM P AUL D ONAHUE A SSISTANT VP (303) 843-4021 PDONAHUE @ ESSEXFG . COM J ARED W IEDMEYER A SSISTANT VP (303) 843-4022 JWIEDMEYER @ ESSEXFG . COM B LAIRE B UTLER A SSISTANT VP (303) 843-4024 BBUTLER @ ESSEXFG . COM