TALF financing may elude NYC
Despite the recent extension of the deadlines for the federal Term Asset-Backed Securities Loan Facility, or TALF, real estate finance experts are divided on whether the program will have any direct impact on New York City commercial real estate even after the program is expected to be up and running next month.
Since the Federal Reserve created the TALF program, it has not been used to finance any new commercial mortgage-backed securities pools yet, and experts said that was in part because the credit markets have improved in recent months.
“We are not seeing any impact” on loans secured by New York City properties, said Russell Schildkraut, a principal with financial advisory firm Ackman-Ziff Real Estate Group.
Some real estate investment trusts are preparing new CMBS pools with loans nationally, but not with New York City properties, insiders said.
One executive at an international bank, who requested anonymity, said he did not believe any deals with New York City assets would be completed before the June 30, 2010, deadline for TALF funding.
But others said that down the line New York City properties will be included in newly issued CMBS packages supported by the federal program.
“There will certainly be some… assets in the city that will be pooled into [CMBS] structures,” Enoch Lawrence, senior vice president of capital markets for CB Richard Ellis, said. But, he added: “It is a race against time.”
The number of delinquent securitized loans in the New York metro area was $1.1 billion in July, according to the most recent data from mortgage tracking firm Trepp, but is expected to rise higher next year as more loans mature, experts said.
Since the Federal Reserve announced in May 2009 that TALF would cover newly issued CMBS loans there have been no completed securitizations of new loan pools in the country using the program, according to the Federal Reserve. The program provides financing for the purchase of the highest rated, or triple A, CMBS bonds.
The Fed extended the TALF deadline for newly issued securities earlier this month until June 30, 2010, noting the complexities in creating securitized loan pools.
A central impediment to the use of TALF, experts said, is that because its goal is to stoke the CMBS market, it requires well-performing, income-producing properties, not troubled assets.
Broadly speaking, there are two types of potential users, but neither is rushing to do TALF-financed deals with New York City properties, Schildkraut said.
Larger-sized borrowers, such as real estate investment trusts, would likely not use TALF-financed structures because they can now borrow more cheaply through traditional channels for loans over $50 or $100 million. In addition, the real estate trusts would need to add large amounts of equity to reach the loan-to-value ratio required by TALF.
“The problem is that with the old CMBS, the loans are larger than most lenders would underwrite today,” said Harold Baker, president of Harold D. Baker & Company which structures real estate financing.
On the other hand, smaller loans under $50 million are having more luck getting loans from traditional portfolio lenders where it is cheaper and less complex, Schildkraut said.
But others foresee TALF being used in New York City lending as early as this year.
Hays Ellisen, a partner with law firm Katten Muchin Rosenman, and chair of the firm’s securitization practice, expected the federal program will have an impact after deals begin flowing, perhaps in September.
“There is wide agreement that TALF is a good thing,” he said. “I have clients who are commercial real estate investors who are interested in TALF.”