Capital Markets
Q&A with Peter Baccile
by Christopher M. Wright
With the industry in
the midst of hun-
kering down and
battling the credit
crisis, nothing is
more important than
reestablishing liquid capital mar-
kets for commercial real estate,
according to J.P. Morgan Securi-
ties’ Vice Chairman Peter Baccile.
Portfolio sat down with Baccile to learn about the efforts the
industry is making in Washington to jump-start liquidity.
Portfolio: By one estimate,
$400 billion of commercial
mortgages will come due this
year, but credit markets are not
functioning. What should the
government do?
Baccile: There are a number of
ideas, but the one I’m focused
on is the expansion of the TALF
program [Term Asset-Backed
Securities Loan Facility] or the
creation of a similar program to
include commercial mortgage-backed securities (CMBS).
The Obama administration’s
Financial Stability Plan outlined
by Treasury Secretary Geithner calls for using an expanded
TALF loan facility to finance the
purchase of newly underwritten
CMBS. Currently, there is limited financing available to fund
the purchase of these securities.
Portfolio: There seems to be
a lot of confusion about the
TALF Approach. How exactly
would it work?
Baccile: We’re not talking about
buying old loans that were underwritten using the aggressive
underwriting criteria of the past
few years. The Obama plan only
pertains to newly underwritten, highly rated loans based on
today’s lending criteria, property
values, and cash flows.
Such a facility would serve as
a catalyst to re-open the markets.
Without the ability to re-sell,
originators won’t create new
loans. However, the government
program to fund CMBS investors will maintain a meaningful
but reasonable haircut, leading to
a sharing of the risk and return
between the private and public
sectors, helping the market to return to a more normalized function. Over time, investors should
regain confidence and government participation will be phased
out. It might take five or seven
years, but lenders will come back,
offer more competitive rates and
the government will get repaid as
properties are refinanced by new
investors.
Because we’re not talking
about overvalued or toxic assets,
this activity would not represent
a huge risk for the taxpayer. It
reestablishes a viable market
that can work if lenders maintain their discipline.
Therefore, it is not a bailout.
We’re not trying to save any-
NAME: Peter Baccile
TITLE: Vice Chairman of J.P.
Morgan Securities Inc.
BORN: 1962
EXPERIENCE: Baccile, who
joined JPMorgan in 1986,
has completed over $150
billion in M&A, debt and
equity transactions during his
investment banking career.
Before becoming vice chairman,
he headed General Industries
Investment Banking and
was global head of real estate
investment banking for 10 years.
Named one of Dealmaker
magazine’s top 50 most influential M&A players in
2007, Baccile is a trustee of
the Urban Land Institute and
the International Council of
Shopping Centers.
body. We’re trying to reestablish
ordinary market functions and
prevent future, bigger problems.
Portfolio: How important is
government involvement?
