(Adds details, comment and background)
By Nancy Leinfuss and Al Yoon
NEW YORK Nov 17 Investors requested $2.14
billion in loans under a Federal Reserve program to boost
commercial real estate lending, with just a fraction earmarked
for the first new issue since 2008, according to New York Fed.
The total included just $72.2 million to support the first
new commercial mortgage-backed security since the onset of the
credit crisis shuttered the market, the Fed said on Tuesday.
New issue funding was less than a quarter of the $400
million issued on Monday by mall owner Developers Diversified
Realty Corp (DDR.N), signaling investors saw the deal as clean
enough to buy without incurring costs of Fed funding, analysts
said. Some $324 million was eligible for Fed funding.
Demand for the Developers Diversified deal was so strong
underwriter Goldman Sachs twice cut yields and still unloaded
the bonds into a market void of competing issues.
"Given the relative tightness of the pricing level, most
buyers bought the bonds for quality and liquidity rather than
for a leveraged return using" the Fed's program, said Scott
Buchta, a strategist at Guggenheim Capital Markets in Chicago.
The funding is part of the Fed's Term-Asset Backed Loan
Facility, or TALF, an emergency loan facility designed to
revive consumer lending by offering investors the incentive of
low-cost financing to purchase debt. It was later expanded to
commercial mortgages in an attempt to unlock that market where
a lack of credit has exacerbated defaults.
Investor requests under the November TALF for existing CMBS
declined to $1.42 billion from $2.1 billion in October.
While establishing demand is the goal of the Fed program,
few expect that the Developers Diversified deal will spark a
significant market for bonds that are backed by one of the most
troublesome U.S. economic sectors.
The Developers Diversified issue took months to complete,
in part as the Fed likely scrutinized the properties with a
low-bar for rejection, analysts said.
"It's a stretch to predict this portends a deluge of
deals," said Ken Lore, co-head of Bingham McCutchen's real
estate practice. A lot of borrowers don't have the properties
that would match the quality of that deal, he added.
The Fed has already restarted the market for other
asset-backed securities that were threatened at the thick of
the credit crisis in early 2009. Yields on bonds supported by
auto loans and credit card revolving debt have plunged after
TALF funding whet appetites of investors.
As the ABS market continues on its path to recovery,
issuers have relied less on TALF.
A dramatic tightening in consumer ABS from record wide
levels as investor demand improved and liquidity returned to
the market has allowed issuers to once again sell their
securities without use of the loan facility.
(Editing by Andrew Hay)