this week saw commercial mortgage-backed securities (CMBS)-eligible Term Asset-Backed Loan Facility (TALF) demand outstrip supply. And TALF has a long way to go, as new issuance remains low on "anemic" lending.
CMBS spreads pushed wider this week in the midst of the second legacy TALF facility, which brought in $2.3bn of bids
. The Federal Reserve
received no bids for new issuance CMBS in this week's facility.
Barclays estimated 2005 vintage last cash flow triple-As -- a highly TALF-eligible product -- widened around 30bps this week despite the 340% gain in bids from the previous facility CMBS TALF facility. Investors fueled selling pressure as they looked to book profits or shed exposure, according to Barclays' securitization research report Friday.
Barclays estimates there were $4.1bn of TALF-eligible bid lists since the July facility, which led to bloated dealer inventories and larger hedging demand. It expects bids on CMBS TALF facilities to increase in future subscription dates, although demand so far has failed to absorb the surge in selling pressure.
Although the Fed recently extended the deadlines
of both the legacy and new issue CMBS-eligible TALF programs through March 31, 2010, from December 31, commercial real estate lending remained "anemic" on tighter underwriting standards and falling appraisal values.
"[N]ew issue TALF would lend support to the refinancing of maturing loans and hopefully restart the CMBS market," Barclays said in the research report. "The deterioration of fundamentals, coupled with aggressive underwriting of recent vintage loans, will still prove to be a difficult hurdle to overcome, especially given the magnitude of the decline in property values."
New appraisals reinforce the picture of deteriorating commercial property value, with an average decline in valuation of 49% since the previous appraisal on all sectors of commercial real estate, Barclays said. The multi-family (apartment housing) sector showed a 46% decline since the previous valuation while office properties slipped 51% and hotel properties fell 56%.
Write to Diana Golobay