Real Estate Forum Magazine - January 2009 edition
Member of the commercial real estate community are pressing the federal government to extend part of the bailout package to the industry.
The Commercial Mortgage Securities Association, joined by 11 industry groups, has asked Congress for $20 billion in TARP funds, a 2.9% fraction of the overall $700 billion allotted for the bailout. That money would then be leveraged with a Federal Reserve Bank facility, ranging from $200 billion to $500 billion.
“Currently, banks and the CMBS market represent 75% of all outstanding commercial real estate loans,” stated the coalition in a letter to the House Financial Service Committee. “The CMBS market has ceased to function with respect to new issuances, and existing bonds trade at highly excessive spreads, all of which heralds systemic dysfunction.”
A sizeable $530 billion of commercial mortgages is set to come due in the next three years, with roughly $160 billion maturing this year, according to Foresight Analytics LCC. With the drought in the credit markets, industry advocates fear record defaults and foreclosures.
The coalition is recommending that the Federal Reserve Bank of New York put TARP funds to work to create a commercial lending facility. It would provide the private market with liquidity, permit the extension of new credit and assist in refinancing performing loans held by banks or in CMBS pools.
Any action to restore liquidity in the markets is generally welcomed throughout the industry. But some observers caution that even with a federal bailout, the commercial real estate sector needs painful de-leveraging to return to a state of normalcy. Maturing debt obligations will come under greater distress this year with office rents poised to fall an additional 20% and vacancies likely rising 25% by year-end, according to a recent analysis by Blumberg Capital Partners.
“Creating a refinancing stimulus is helpful to thaw the credit freeze, but these ticking debt time bombs will make it difficult for our public officials to get their arms around the problem,” says Philip Blumberg, chairman and CEO of the Coral Gables, FL-based firm.
Meanwhile, Rep. Barney Frank (D-MA) has introduced the TARP Reform and Accountability Act calling for allocation of funds for foreclosure mitigation. To the delight of industry advocates, the bill includes a provision addressing commercial loans.
The legislation, now before Congress, would amend TARP and grand authority to the Treasury to take action “to establish or support facilities to support the availability of commercial loans, including through purchase of asset-backed securities, directly or through the Federal Reserve System or reserve banks.”
Brendan Reilly, SVP of government relations for CMSA, told GlobeSt.com, “Congress understands the industry is suffering from liquidity issues, and that may lead to widespread defaults.” He said the coalition was not wedded to an extension of TALF. “It could be a separate facility if that works better. What is important is that an allocation of TARP funds needs to be used for CRE.”
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From the cover story, “Cleaning Up on Toxic Assets” (click to view PDF of full article)
