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PERE 2009: TALF not ‘meaningful’ to commercial real estate liquidity

Amid speculation the US government could extend the life of one of its bailout programmes, TARP, real estate economist Sam Chandan argues at the PERE Forum that rebuilding the securitisation market would have more impact on the challenges facing the industry.

The US government’s TARP programme will not be a “meaningful” answer to solving the illiquidity problems facing the commercial real estate industry, according to economist Sam Chandan.

Chandan, speaking on the final day of the PERE Forum: New York, said that the Term Asset-Backed Securities Loan Facility could not be expected to be the catalyst for a “sustained resurgence” in lending activity.

Indeed, Chandan, president and chief economist of Real Estate Econometrics and an adjunct professor of real estate at the Wharton School of the University of Pennyslvania, said more targeted attention at the securitisation market was required to help solve the “vexing” challenges facing commercial real estate.

“That will be the important test, how we structure securitisation where risk and incentives are aligned,” he told PERE on the fringes of the conference. Originators having “skin in the game” was crucial to getting the system moving again, he added.

The first new issuance of CMBS financed under the TALF programme was priced by the US mall owner Developers Diversified Realty. DDR was able to price the deal below existing levels for the CMBS issues. Its $323 million AAA-rated five-year notes came at a narrower 1.4 percentage point premium to the five-year interest rate swap benchmark, or a yield of 3.807 percent, according to Reuters.

Underwriter Goldman Sachs lowered yield premiums from earlier guidance levels of 1.6 to 1.75 percentage points, due to the strong buyer interest, the report added.

Chandan said though one deal, involving a single borrower and lender failed to “speak to the nature of the structural challenges facing commercial real estate”.

He told delegates at the forum jobs growth would be crucial in determining how long the commercial real estate recession would last.

He argued that, historically, jobs growth hasn’t been seen for a couple of years following the technical end of a recession adding that occupancy in the apartment and industrial sectors might not start to see a recovery until late 2011, with office and retail following in 2012 and hotels and general credit availability sometime in 2013.

It came as The Washington Post reported the Obama administration was poised to extend the life of the $700 billion Troubled Asset Relief Programme (TARP) and potentially use much of the leftover funds to reduce the national debt. No final decision has been taken, the report said, but roughly $200 billion could be put toward paying down the $12 trillion national debt.