Expansion of TALF to Cover CMBS and Loans Gets Praise from Industry
- May 05, 2009
By Anuradha Kher, Online News EditorWashington, D.C.–The Federal Reserve’s Term Asset Backed Securities Loan Facility (TALF) has been expanded to cover commercial real estate backed securities (CMBS) and loans. In addition, the loans provided to investors under TALF to purchase the securities will have five-year terms, which better match the needs of CMBS investors. Previously, the loans were only for three years and were aimed at consumer credit, such as car loans and credit cards. The five-year loans for CMBS purchases will begin in June, and the Fed will extend up to a total of $100 billion in such loans. With a large amount of commercial real estate debt coming due soon, the TALF program is critical in getting credit flowing again, according to many industry observers.”This is very positive news for the multifamily business and the entire commercial real estate community,” Tobey Price Hubbard, managing principal at Blackstar Capital Partners, tells MHN. “Extending TALF to CMBS is vital to provide liquidity to a marketplace that only two years ago was awash with capital and today is relatively barren. Furthermore the FED has fortunately acknowledged the problems associated with real estate’s longer term investment horizon and extended the TALF loan maturity to 5 years vs. the initial 3 year term. This will provide owners more flexibility in accessing debt and by definition should lower a borrowers cost of capital.”The next step for the FED will hopefully be the extension of TALF to include legacy CMBS, a vital next step to achieve the goal of a properly functioning secondary market, albeit likely a shadow of its former self, adds Hubbard. John A. Courson, president and CEO of the Mortgage Bankers Association (MBA), also praised the FED’s latest move. He says, “This longer program length option will allow the CMBS TALF program to more effectively match the maturity dates of the loans that comprise the CMBS. This longer duration option is an essential element for the success of the CMBS TALF program. We anticipate this to enhance liquidity in the CMBS market. Only CMBS issued after Jan. 1, 2009 will be eligible to participate in the CMBS TALF program. The National Association of Real Estate Investment Trusts (NAREIT) also applauded the Fed’s latest move.“It is a tremendously important step in helping to begin to re-establishing confidence and credit in commercial real estate finance and investment,” says President and CEO of NAREIT, Steven A. Wechsler.“This program can be a catalyst to jumpstart the stalled credit markets and provide the much-needed funding to refinance a large volume of good, performing commercial real estate loans maturing over the next three years, helping to prevent what otherwise could become a wave of foreclosures that would drag our economy deeper into recession,” Wechsler adds.