Fed Boosts Efforts To Help Commercial Real Estate

Hopefully this will help the commercial real estate industry from hitting the lows that residential real estate experienced. The question is...is it too little, too late?

(Updates with more details on new TALF terms.)

By Maya Jackson Randall

Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- The Federal Reserve is broadening efforts to get credit flowing to the commercial real estate market, announcing Tuesday that it will soon accept older bonds as collateral under its Term Asset-Backed Securities Loan Facility.

Starting in July, existing commercial mortgage-backed securities, which the Fed calls legacy bonds, will become eligible as collateral under TALF, the Fed said in a statement.

Until the announcement, the Fed had only agreed to accept newly issued bonds as collateral under TALF, a key program that aims to unfreeze credit markets by providing investors with loans to buy securities. Under those terms, investors could only purchase new commercial mortgage-backed securities, or CMBS, issued this year.

However, the change the Fed announced Tuesday makes commercial real-estate bonds created before 2009 eligible, expanding the scope of securities covered by the government lending facility.

The Fed said the TALF expansion should help borrowers finance new commercial properties and refinance old mortgages on better terms, enhancing its efforts to revive the commercial real estate mortgage market, which came to a standstill in the middle of last year.

"The extension of eligible TALF collateral to include legacy CMBS is intended to promote price discovery and liquidity for legacy CMBS," the Fed said. "The objective...is to restart the market for legacy securities and, by doing so, stimulate the extension of new credit by helping to ease balance sheet pressures on banks and other financial institutions."

To be eligible, the Fed said, newly issued and legacy CMBS must have at least two triple-A ratings from DBRS, Fitch Ratings, Moody's Investors Service, Realpoint or Standard & Poor's, and must not have a rating below triple-A from any of these ratings agencies.

Additionally, the Fed noted that it is in the process of reviewing how best to make use of the ratings agencies.

"The Federal Reserve is formalizing procedures for determining the set of rating agencies whose ratings will be accepted for various types of eligible collateral in the Federal Reserve's credit programs," the statement said.

The Fed added that the initial subscription for TALF loans collateralized by newly issued CMBS will be June 16. The initial legacy CMBS subscription date will be in late July. A specific date will be announced "shortly," the Fed said.

-By Maya Jackson Randall, Dow Jones Newswires;

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