Goldman Sachs Seeks to Restart Commercial-Backed Debt

Goldman Sachs Group Inc. may sell the first commercial-mortgage bond since June 2008, taking advantage of an untapped Federal Reserve program. The five-year, $400 million loan to Developers Diversified Realty Corp. made by a unit of the N.Y.-based bank is secured by 28 shopping centers. The loan will be used to repay debt on those properties and others, and to reduce the outstanding amounts of credit facilities, Developers Diversified says.

“Developers Diversified and Goldman Sachs are working with the Fed to qualify the loan for the central bank’s Term Asset-Backed Securities Loan Facility (TALF) to unfreeze the $700 billion market for securities backed by commercial mortgages,” according to a statement released by Developers Diversified.

“An actual close at reasonable terms would be a significant positive for new-issue TALF which has been slow to get off the ground,” said Aaron Bryson, an analyst at Barclays Capital in New York. The pipeline of issuers under TALF has shrunk as unsecured debt markets opened up to real estate companies, and this deal would mark the first since the Fed program was opened to newly issued commercial-mortgage-backed securities in June.

Sales of U.S. commercial mortgage-backed debt slumped to $12.2 billion last year from a record $237 billion in 2007 as the credit crisis sapped demand, choking off financing to borrowers with maturing debt, according to JPMorgan Chase & Co. data. The TALF was opened in March to revive the market for securities backed by consumer loans. The program draws investors by offering Fed loans toward the purchase of top-rated debt. The program has helped spur $135.7 billion in sales of consumer and business asset-backed securities.