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CMBS TALF May Bring New Issue in November: Sources

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The US securitization industry is looking for a pick-up in commercial mortgage-backed securities (CMBS) activity with a possible wave of new issuance made possible by a federal lending program, while the European CMBS market remains pressured. The deals would appear later this month through the Federal Reserve's CMBS-eligible Term Asset-Backed Securities Loan Facility (TALF) for new issuance. Industry reports indicate a number of firms are gearing up to sell the first round of debt under the Fed's CMBS TALF program for new issuance. The firms include Developers Diversified Realty Corp. (DDR), which in October said it obtained new first mortgage financing of $400m from Goldman Sachs Commercial Mortgage Capital, an affiliate of Goldman Sachs & Co. (GS). "The Company and Goldman Sachs are continuing to work with the Federal Reserve to make the newly-originated loan eligible for the TALF program," DDR said at the time. Another major firm discussed in industry reports, Fortress Investment Group (FIG), may have as much as $650m in commercial mortgages to package into one of the first new-issue CMBS eligible for TALF funding. Despite the positive signs of potential new CMBS issuance in the US, existing European CMBS continues to work through weak performance and troubled credit. The London arm of Standard & Poor's Ratings Services said it continues to downgrade European CMBS over ongoing credit problems. Downgrades continued Wednesday with 11 ratings actions and news that S&P is reviewing its European CMBS criteria. S&P said said it anticipates refinancing problems mostly beginning 2011, and indicated European commercial property markets could experience 20 to 50% peak-to-trough market value declines. "It also appears likely, in our view, that over the coming years the amount of debt available to borrowers to refinance their loans may be materially lower than the debt outstanding in the sector," S&P said. "New credit in the sector has contracted markedly, financing from the capital markets is limited, and some banks have either withdrawn from non-domestic commercial real estate lending or been required to reduce their debt burden." S&P has a smaller market share of ratings in the UK than other credit-rating agencies. Write to Diana Golobay.

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