While the government’s efforts to revive the
commercial mortgage-backed securities (CMBS) industry are
still in the early stages, many investment firms are now
readying TALF funds to strike when the iron grows hot.
What’s more, several conduit lenders are taking
steps to re-open their securitized loan platforms, looking
to originate new conduit loans this summer to be sold
through TALF in the fall. This next wave of conduit loans
will be very conservatively underwritten, but the trend
signals the first step in a process that could
significantly enhance the liquidity of the multifamily
TALF funds for consumer-backed securities have already
been launched by Prudential Financial, Morgan Stanley
Investment Management, PIMCO, and Citigroup. But many
investors, such as Standish Mellon Asset Management, are
choosing to sit out the first few consumer TALF offerings,
eager to see how the concept played out.
“We weren’t sure whether it would be
something that was going to fit within our product
offering,” says Tom Graf, managing director of
structured products and global workout solutions at the
Boston-based Standish Mellon. “But as we went
through several TALF subscription periods, it became
apparent to us that this was something we could be
The company recently opened two TALF funds—one
aimed at investing in new CMBS and consumer asset-backed
securities, and a second fund focused on legacy assets,
such as CMBS issued before 2009.
TALF is basically a loan program, providing low-cost
debt to CMBS investors to help spur interest in the market.
TALF investors need only $15 in their own equity to achieve
$100 of purchasing power. The hope is that increased
investor interest will ultimately lower interest rates on
new conduit loan originations.
The early efforts have been positive, and many firms are
targeting rates of return in the 10 percent to 16 percent
range. Many more investment firms are expected to announce
TALF funds in the coming days, buoyed by the early success
of the program, and growing more comfortable with the
prospect of partnering with the government.
One lesson Standish Mellon took from watching the early
TALF consumer efforts is that early adopters will see the
greatest payback. “Given how this program has
played out in its early stages, spreads have started to
tighten, so the yield spread premium that you’re
getting to buy that same asset is lower now than it was
originally,” Graf says.
While TALF has already been successful at spurring auto
and student loan investment, the CMBS version of TALF has
been slow going. The first deadline for investors to
request TALF loans for new issue CMBS came and went on June
16 without a single application. But the lack of initial
interest wasn’t surprising, given that no new CMBS
issuances have been offered through the program, and it
remains unclear what legacy CMBS will be offered.
“We’ve heard rumors of new issue CMBS
forthcoming,” Graf says. “There may be
some deals in the works, but not for the [June 16]
Much depends on how quickly conduit lenders can put
together a well-diversified pool of loans—for
different property types and geographic location, which is
a requirement of the TALF program.
“The first real test is when the first CMBS is
formed, sold, and priced,” probably no sooner than
September, says Spencer Levy, senior managing director at
CBRE's Restructuring Services Group based in Washington,
D.C. “We’re speaking with
several major players that are opening their warehouse
lines and lending in this environment specifically for this
Levy also believes that the first CMBS issuance under
TALF may be a single-borrower transaction, such as a REIT
with a diversified pool that recently recapitalized by
renegotiating credit lines.
For a basic primer on the TALF and TARP programs,