(Changes headline, adds possible deals, background)
By Al Yoon
NEW YORK, June 16 The Federal Reserve's new lending facility for commercial mortgage-backed securities came up dry in June as issuers, including Developers Diversified Realty, were still preparing deals.
Investors requested no loans from the Fed for commercial mortgage bonds on Tuesday, the deadline for the first available funds under an emergency U.S. central bank program to unlock credit in the $700 billion market, according to the New York Fed's web site.
"Nobody was expecting any deals to be ready in June," said Darrell Wheeler, head of securitized asset strategy at Citigroup Global Market. He said they would come in July at the earliest, and more likely August or September due to the complexity of the origination and structuring process compared with other assets eligible for a similar Fed program.
Commercial mortgage bonds are the latest asset class to be added to the Fed's Term Asset-Backed Securities Loan Facility, which aims to lower borrowing costs in the sector by offering investors temporary funding for the assets. Desperation for fresh credit in the market is palpable, with many loans defaulting due to the lack of financing.
The inability to refinance commercial loans has already led to the biggest U.S. real estate bankruptcy this year, by General Growth Properties Inc., a real estate investment trust, and exacerbated the impact of the recession.
Other REITs, including Developers Diversified Realty (DDR.N), are planning CMBS deals that would be eligible. Developers has on deck two potential issues for $250 million and $300 million, David Oakes, Developers' senior executive vice president of finance, said in an e-mail.
Simon Property Group (SPG.N) Chief Financial Officer Stephen Sterrett said the No. 1 U.S. REIT was currently evaluating options with bankers.
William Dudley, president of the New York Fed, on June 4 underscored the importance of the CMBS TALF program, noting that a continued lack of funding would increase loan defaults and further pressure the capital positions of banks that are holders of the assets. The roll-out for CMBS is key for the overall success of the TALF program, he said.
"They (the Fed) went out in June to let the market know the program is up and running, and so (market participants) that are serious with moving forward with CMBS know that it's out there," said Kevin Petrasic, a lawyer in the banking and financial institutions group at international law firm Paul Hastings. (Additional reporting by Ilaina Jonas and Nancy Leinfuss; Editing by Dan Grebler)