Taking Stock
Taking Aim at the Credit Crisis
A
s we approach the mid-
point of 2009, REITs
and the broader real
estate industry are
continuing to face the
challenges of a severely
credit constrained environment.
Several of the articles in this
issue of Real Estate Portfolio focus
on how various companies are
dealing with this challenging
market. However, new federal
programs due to launch in the
weeks ahead may help provide
relief for a commercial real estate
market sorely in need of liquidity to deal with loans maturing
in 2009 and beyond—primarily
good, solid, performing loans
that should be refinanced.
Last February, Treasury
Secretary Timothy Geithner
announced that the Term Asset-Backed Securities Loan Facility
(TALF), a federal loan program
established to provide financing
primarily for the purchase of
asset-backed securities, would
Russ Fischella
be expanded to include new
AAA-CMBS. NAREIT provided significant input toward
this extension, which, in March,
was further broadened to include
legacy CMBS originally rated
AAA.
This additional expansion of
TALF was part of the announcement of the Obama administration’s Public-Private Investment
Program (PPIP), a plan that will
use up to $1 trillion in federal
equity co-investment, loans and
debt guarantees to incentivize
large investors to buy legacy
loans and mortgage backed securities from banks.
The program is designed to
create exactly what the commercial real estate credit market
needs most—a secondary market
into which banks can sell their
mortgage-backed loans and securities. Removing these assets
from their balance sheets should
free the banks to do new lending,
including refinancing the performing commercial real estate
loans that are coming due—
some $400 billion worth of loans
in 2009 and another $800 billion
in 2010 and 2011.
Through its private-sector
pricing mechanism, under which
investors will make bids for specific assets directly to the banks
that hold them, and banks will
determine at what price they are
willing to sell, the program will
have the potential to re-establish
price discovery for CMBS. By
establishing pricing for the top
layer of these securities originally rated AAA, the program
may provide the basis to begin
establishing price discovery for
the layers of legacy CMBS below
this level, furnishing the spark
that can re-ignite the dormant
CMBS market.
Certainly, there are unan-swered questions that accompany
these programs that NAREIT
and the industry will continue
to monitor. Will banks be willing to sell their assets—which,
in many cases, may not have
been marked-to-market—at
prices that value-seeking private
investors are willing to pay? Will
banks that do sell assets use the
funds to make new loans?
We will begin to learn the
answers to these and many other
questions about the PPIP in
the weeks ahead. But today, the
PPIP and the expanded TALF
represent the most far-reaching
and promising potential solutions that have been posed to
combat the crisis in credit and
confidence that are weighing
down the commercial real estate
market.
Connie Moore
NAREIT CHAIR
PRESIDENT AND CEO
BRE PROPERTIES INC.
