TALF extension gets applauded

The latest approach of the Federal Reserve to extend the emergency program to help re-start vigorously credit markets by means of providing loans to buy bonds backed by commercial real estate mortgages has been heralded widely. Even the CRE capital market participants and industry advocates have praised and stated that the additional time may finally infuse enough investor confidence in the program to push the commercial mortgage securitization market, motionless since last year.

As per the latest declaration of the central bank and U.S. Treasury, it will extend the government’s Term Asset-Backed Securities Loan Facility (TALF) by another three months for previously issued, or “legacy” commercial mortgage-backed securities (CMBS) and asset-backed securities through March 30, 2010; and another six months for new CMBS issues, through June 30, 2010. The program, set up to provide up to $1 trillion in low-cost financing, was originally scheduled to expire Dec. 31.

“Conditions in financial markets have improved considerably in recent months. Nonetheless, the markets for asset-backed securities backed by consumer and business loans and for commercial mortgage-backed securities are still impaired and seem likely to remain so for some time,” the Fed and Treasury said in a joint statement. The Fed said it will continue to monitor financial conditions and will consider in the future whether conditions warrant a further extension of the TALF.

As indicated by Real Estate Roundtable, the action is well-timed and it also said that it “sends a clear message to markets that the Fed and the Treasury understand the gravity of the problem in commercial real estate markets.”

Speaking on this, Enoch Lawrence, Senior Vice President of capital markets in CBRE’s New York office said, “What you’re really dealing with in the CMBS market is a lack of confidence. By the first deadline, there really wasn’t any time to get new origination deals put together and get out to the market to see what their impact would be.” “It may not be fair to judge the program yet because many of the market participants feel it really hasn’t had time to start working.”