UPDATE 2-Developers Diversified sees TALF deal in the fall

* Expects to close on first TALF deal in the fall

* Shares close up 6.37 percent

* Lowers FFO forecast to shr/$2.00 to $2.15
(Adds outlook, updates stock price with closing)

By Ilaina Jonas

NEW YORK, July 24 (Reuters) - Mall and shopping center
owner Developers Diversified Realty Corp (DDR.N) said it
expects to complete its first government-sponsored finance deal
in the fall, making it potentially the first borrower under the
Term Asset-Backed Securities Loan Facility (TALF) program.

The real estate investment trust, which owns 690 shopping
centers in the United States, Brazil and Canada, is working on
two deals to raise up to $600 million under the program, which
is meant to help jump-start the moribund commercial mortgage-
backed securities (CMBS) market.

"We are making good progress on our TALF-eligible CMBS
financings and due diligence is progressing as expected,"
Developers Diversified Chief Investment Officer David Oakes
said in a conference call with analysts on Friday.

The call followed the release of the company's
second-quarter results, in which the company reported funds
from operations of 51 cents per share, excluding a long list of
one-time items.

The company expects to use the proceeds to meet its
near-term debt maturities.

"In some cases, we will be repaying existing mortgages with
near-term maturities and replacing them with longer duration
debt," Oakes said. "In other cases, the new proceeds will be
used to pay unsecured debt."

The U.S. government's TALF program aims to lower borrowing
costs in the sector by offering investors temporary funding for
the assets.

The CMBS market accounts for about 20 to 25 percent of the
$3.4 trillion of outstanding commercial mortgages.

But its importance in keeping real estate sales flowing has
mushroomed. In 2007, it accounted for 50 percent of mortgages
issued, reaching $230.19 billion, according to the Commercial
Mortgage Securities Association. Yet when the credit markets
seized at the end of that year, issuance fell to $12.15 in 2008
and to just $559 million so far this year.

The inability to refinance commercial loans already has led
to the biggest U.S. real estate bankruptcy this year, by mall
owner General Growth Properties Inc GGWPQ.PK, and exacerbated
the impact of the recession.

At the end of the second quarter, Developers Diversified
had about $5.6 billion in debt maturing through 2012. Through
the TALF deals, selling assets, repurchasing its own debt,
equity injections and mortgages, the company expects to
decrease that to $4.8 billion by year end and to $4.5 billion
by the end of next year.

"With the capital that we are accessing, we are
well-positioned to address all of our maturities for 2010, 11
and 12," Chairman and Chief Executive Officer Scott Wolstein
said during the conference call.

The company's shares closed up 6.37 percent, or 34 cents,
at $5.68 on the New York Stock Exchange, ahead of the benchmark
MSCI U.S. REIT Index .RMZ, which was up about 0.6 percent.

Developers Diversified also cut its full-year funds from
operations outlook to $2.00 to $2.15 per share from $2.10 to
$2.25, citing lower projected gains from land sales, net
operating income lost from asset sales, higher interest expense
and a more conservative outlook regarding development leasing.

Analysts had forecast $2.34 per share, according to Reuters
Estimates.
(Reporting by Ilaina Jonas; editing by Andre Grenon and
Matthew Lewis)