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It seems an inauspicious start. The Federal Reserve received no applications in the first month of its programme to lend against new commercial mortgage-backed securities. “Expanded Talf” – or the term asset-backed securities loan facility – offers loans to buyers of CMBS securitised this year and will soon be extended to include legacy securities.
Lack of interest is no great surprise. Lending against other assets, such as consumer loans, also got off to a slow start as investors struggled with the terms and conditions. Moreover, structuring a new CMBS deal takes time.
Is Talf up to the task in any case? Some $200bn of commercial property loans packaged into securities are due to mature by 2012, according to data provider Trepp, selected to monitor collateral under the programme. Add whole loans and the total is closer to $1,300bn. The CMBS market, which once spewed out $200bn of securities annually, is closed. And with property values down 40 per cent, high loan-to-value deals struck before the peak are under water.
Early CMBS Talf deals are likely to involve single borrowers with large loans, rather than the traditional CMBS structures that pooled hundreds of loans, diversified across sectors and regions. Assembling a so-called conduit and getting buyers comfortable with all the risks is daunting while the market remains in flux. That means the mid-market – think strip malls across America – could be without aid for the foreseeable future.
It is unclear if – or how – Talf will develop to serve this broader market. The problem is that of the $200bn due to mature, 46 per cent by value consists of loans of less than $25m, while 14 per cent falls between $25m and $50m. Talf, perhaps, can avert large CMBS wrecks. Saving the rest of the market is a trickier proposition.
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