Fed expands TALF program to aid commercial real estate
The Federal Reserve said Friday that it would launch in June a long-expected program to help thaw the market for commercial real estate mortgages.
The program is an expansion of the central bank’s Term Asset-Backed Securities Loan Facility, or TALF, which was implemented in March to help stimulate consumer lending -- including credit cards, auto loans and other instruments -- in response to the country’s credit crisis. The TALF also includes support for student loans and small-business loans.
For real estate, the Fed is tweaking the terms to offer five-year loans to investors who are willing to buy commercial mortgage-backed securities, demand for which has largely dried up.
The TALF loans currently offered by the Fed can have a term of no longer than three years, but the length of a commercial mortgage is usually longer than that. Government officials hope that making loans for as long as five years will make the program more attractive.
The Commercial Mortgage Securities Assn. applauded the move, saying in a statement that a five-year term would provide more flexibility to borrowers as they deal with the market’s downturn.
But Gary Mozer, managing director and principal of George Smith Partners Inc., a Los Angeles real estate investment bank, said the change in TALF would have a limited effect on the commercial real estate market.
“The guys who can play in the TALF league are really only the big boys. It’s not for the masses,” Mozer said. “Personally, I don’t think it’s good enough right now.”
The Fed, however, said the availability of TALF loans for commercial real estate would prevent mortgage defaults by fueling the sale of distressed properties such as apartments, malls and office parks.
Jeff Friedman, principal at commercial real estate lender Mesa West Capital of Los Angeles, said the Fed’s announcement on TALF was just the first step of what would probably be an evolution of the program to stimulate the commercial market.
“Expanding TALF loans to five years makes it more usable to the market,” Friedman said.
But a major potential problem remains, he said, because TALF is set to expire Dec. 31, which is too short a time for most lenders to issue, rate and aggregate loans to sell as securities to investors.
“Usually, it takes 30 to 60 days just to close a commercial real estate loan, and each one is really individual to the situation of the project,” Friedman said. “These aren’t commodity loans like auto loans or student loans.”
Overall, the TALF has the potential to generate as much as $1 trillion in lending for households and businesses.
In the $200-billion consumer-lending part of the program, investors use the money to buy newly issued securities backed by auto and student loans, credit cards and other debt. However, just $1.7 billion in loans was requested for the second round of funding in April -- down from $4.7 billion in March.
--
