Tuesday, March 3, 2009

Good News and Bad News for SRS

It should be good news for commercial real estate.

The Federal Reserve and the Treasury announced Tuesday the launch of the long-anticipated Term Asset-Backed Securities Loan Facility. Eventually, it is expected to cover securitized loans tied to commercial properties such as buildings, hotels and apartments.

But some are worried the TALF program may not be enough to attract investors to the commercial-property sector in its current form.

There is a mismatch between the terms of the TALF funds -- which are three years -- and most commercial mortgages that are packaged into bonds, which typically run for seven or 10 years, with balloon payments at the end.

An investor using TALF funds to buy commercial mortgage-backed securities would have to line up alternative funding sources or plan to sell the assets to repay the TALF loan when it expires after three years.

"Purchasing long-term assets with shorter-term financing is a recipe for disaster," says Andy Solomon, a managing director in charge of commercial property debt investments at Angelo Gordon & Co.

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