Fed offers TALF lifeline to commercial real estate industry

by LJ Miehe on May 4, 2009

Editor’s Note: As you know, I called this coming and here it is.  It was obvious that once we handled the residential real estate depression, the commercial real estate sector would be next in line.   First the CMBS securities are going to be used as collateral to get bailout loans.  Next step I see, is a bailout program that will allow commercial mortgages to be refinanced to a lower rate.

News (Reuters):

The U.S. Federal Reserve on Friday threw the battered commercial property sector a lifeline by granting it access to an emergency program set up last year to unlock credit markets frozen by a global financial crisis.

The Fed said its $200 billion Term Asset-Backed Securities Loan Facility, which it has already said may grow to $1 trillion in size, will be opened from June to commercial mortgage-backed securities that were issued in 2009.

The TALF was launched last November as policy-makers fought a financial crisis sparked by the collapse of the U.S. housing market that has inflicted the worst recession in a generation.

“The inclusion of CMBS as eligible collateral for TALF loans will help prevent defaults on economically viable commercial properties, increase the capacity of current holders of maturing mortgages to make additional loans, and facilitate the sale of distressed properties,” it said in a statement.

“CMBS accounted for almost half of all new commercial mortgage originations in 2007,” the Fed said.

Risk premiums on commercial mortgage-backed securities rose after the Fed’s announcement, with traders disappointed that the expansion did not include older and lower rated assets. As part of a broader government effort to remove bad assets from bank balance sheets, the Treasury has said the TALF will be expanded to cover these so-called “legacy assets”, but the timing is still unclear.

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