UPDATE 1-JPMorgan tests CMBS demand with Inland Western bond

(Changes headline, adds details and background)

By Al Yoon

NEW YORK Dec 3 (Reuters) - JPMorgan Chase & Co. is preparing a $500 million commercial mortgage-backed security backed by retail properties of the Inland Western Retail Real Estate Trust, according to a term sheet shown to investors.

The issue, which is not eligible for the Federal Reserve's emergency funding program, brings to three the bolt of CMBS in the past month that have revived issuance of the securitized assets after a more than one-year freeze.

It also shows large banks are beginning to offer lending in the market for office, apartment and retail buildings that has suffered from the economic recession and lack of credit. Difficult refinancing on properties which have lost a third or more of their values has resulted in soaring defaults this year, and the problem is seen worsening in 2010.

JPMorgan originated a $625 million 10-year loan to Inland Western, a company which owns 299 shopping centers.

The loan includes a two-part $125 million mezzanine debt, according to the term sheet reviewed by Reuters. Properties include 55 retail buildings across 23 states.

For Inland Western, the new loan addresses nearly all its 2009 maturing debt and a "substantial portion" of that due in 2010, Chief Executive Officer Steven Grimes said in a statement on Tuesday.

Terms of the Inland Western loan are far more conservative than in years past. It was a similar case with a $400 million five-year CMBS for Developers Diversified Realty Corp. sold in November and a seven-year $460 million bond backed by properties owned by private equity giant Fortress Investment Group., sold earlier on Thursday.

The $500 million first loan for Inland Western represents 58.9 percent of the properties' appraised values, compared with loan-to-value ratios that often ran 75 percent or higher during the real estate boom.

Oak Brook, Illinois-based Inland Western has refinanced, paid down or eliminated $1.3 billion in debt. It aims to extend $401 million in loans.

The new issue is not eligible for financing under the Federal Reserve's emergency Term-Asset Backed Securities Loan Facility (TALF,) suggesting investors are confident with the collateral and want to forego the cost of Fed financing.

Less than a quarter of the Developers Diversified issue, so far the only new CMBS eligible for TALF, was funded that way.

In another first, the Inland Western bond is rated by Realpoint, a rating company dedicated to commercial mortgages. Underwriters sought ratings from Standard & Poor's, but not Moody's Investors Service or Fitch Ratings.

(Reporting by Al Yoon; Editing by Andrew Hay)

((albert.yoon@thomsonreuters.com; +1 646-223-6347; Reuters Messaging: albert.yoon.reuters.com@reuters.net))