TALF Extension Positive for Commercial Real Estate Credit Markets

The Federal Reserve and Treasury has announced that it will extend the Term Asset-Backed Securities Loan Facility (TALF) for six months for newly issued commercial mortgage-backed securities (CMBS) and three months for so-called legacy CMBS. “This action sends a clear signal to markets that the Fed and the Treasury understand the gravity of the problem in commercial real estate credit markets,” says Jeffrey D. DeBoer, president and chief executive officer of The Real Estate Roundtable.

The TALF, with a capacity of as much as $1 trillion, has been extended from the original sunset date of Dec. 31, 2009, to June 30, 2010, for newly issued CMBS, and to March 31, 2010, for other asset-backed securities and CMBS sold before January 1, 2010.

DeBoer added, “Unfortunately, the credit markets are essentially frozen, which makes it virtually impossible for borrowers to refinance maturing commercial real estate loans.” The lack of a functioning credit market is putting downward pressure on property values and is causing an increasing number of commercial property owners to face maturity defaults on their loans. The size of the problem is significant today and, if not addressed, could threaten positive economic growth signs that are starting to appear, say commercial real estate experts.

Maturing debt in this sector continues to expand. With an average $400 billion of commercial real estate debt maturities each year for the next decade, the credit market as it is currently functioning does not have the capacity to absorb this demand, concludes DeBoer.

Due to the long lead time necessary to assemble TALF-eligible CMBS transactions, it was important to extend the program’s remaining term to address the massive credit shortfall to the sector. With this extension, DeBoer is optimistic that the program will not end before it has a chance to make a difference.