Posts (RSS)Fed Extends TALF to Help Save Commercial Properties
The Federal Reserve has announced it would extend to the middle of next year its Term Asset-Backed Securities Loan Facilities to help the struggling commercial real estate industry. The TALF program would have expired this December 31.
TALF was designed to boost lending in the commercial property sector. According to analysts, TALF has been able to lower the costs of consumer borrowing and to rejuvenate trading in asset-backed securities markets.
With support from the Treasury Department, the Fed extended TALF for new commercial mortgage-backed securities to June 30 next year and TALF for new asset-backed securities and legacy securities backed by commercial properties to March 31 next year.
The Fed said it decided to extend TALF because of the continued weakness in the markets for CMBS and ABS backed by business and consumer loans. In recent weeks, lawmakers and the commercial property industry have been calling the federal government to help the commercial property sector, which has been struggling from vacancies, foreclosures, tight lending and declining values.
Scott Buchta of Guggenheim Capital Markets said the extension indicates that TALF has been effective in improving the securities markets and that federal officials recognize that the asset-backed markets are still struggling.
Real estate analysts said the commercial property sector is being clobbered by declines in revenues from office, apartment and retail buildings. In recent weeks, the commercial real estate sector has been pointed out in many news items as the next sector to collapse because of the lack of lending for property investors and developers whose loans are due this year.
Lenders have been hesitant in refinancing commercial property loans taken out during the boom with rosy revenue expectations. Since the meltdown, revenues from commercial real estate have been falling and prices now are 35 percent below their level in October 2007. Developers with maturing commercial loans had to renegotiate with their lenders or succumb to bankruptcy or foreclosure.
Mall-owner General Growth Properties blamed its failure on the investment of its loans in CMBS.
Additionally, the Fed said federal officials had considered the call to extend the TALF to residential mortgage securities and other types of collateralized securities, but did not pursue it because these types have been receiving help from the Treasury Department’s public-private investment program. However, the Fed said it will reconsider its decision if conditions warrant an extension to other types of securities.