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TALF-style plan needed to help refinance performing loans

The US government should introduce a programme to help commercial real estate investors with performing loans refinance debt that is coming due warning the asset class would be the “second shoe to drop”.

The US government should introduce a TALF-style bailout programme focused on helping commercial real estate investors struggling to refinance performing loans, according to Tishman Construction’s Daniel Tishman.

The chief executive officer of the New York-based development firm warned commercial real estate would be the “second shoe to drop” following the crisis in the residential housing sector.

Speaking to CNBC, Tishman warned an assistance programme similar to the US’ Term Asset-Backed Securities Loan Facility (TALF) was vital if the US government wanted to avoid a massive number of defaults.

With many financial institutions having withdrawn liquidity from real estate capital markets in the wake of the credit crisis, Tishman said many borrowers with performing loans faced potential default, even though they had “good assets with cash flow”. “[The government] has to be creative,” he added.

There is an estimated $3 trillion to $3.5 trillion of outstanding commercial real estate debt in the US, around $700 billion in CMBS. A majority of the CMBS debt is due between 2010 and 2012.

Tishman said roughly 20 percent to 50 percent of the outstanding debt could be considered “underwater”, depending on the type of property.