TALF Prompts $3B Sale by Commercial Property Companies

July 30, 2009
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Commercial property companies may sell about $3 billion of mortgage-backed bonds starting in September as part of the Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF), the U.S. program to revive lending for shopping malls, skyscrapers, and hotels.

The National Association of Real Estate Investment Trusts estimates that more than a dozen real estate investment trusts will participate in TALF. The transactions would be the first new issues in the $700 billion U.S. market for commercial mortgage-backed securities since it shut down in 2008 as credit markets froze. Plummeting commercial property real estate values and accelerating defaults prompted real estate investment trusts (REITs) to turn to the stock market to raise capital to pay debt.

TALF was started in March to help thaw credit by lending to investors who want to buy securities backed by auto and credit card loans. The $1 trillion program was expanded to include bonds backed by commercial mortgages. Investors who buy the securities submit them to TALF as collateral and the government lends the investors a percentage of the purchase price, thereby subsidizing the investment.