(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
(Additional reporting by Ilaina Jonas and Nancy Leinfuss;
Editing by Dan Grebler)