Formerly active conduit lenders are quietly reopening
their platforms in anticipation of the
government’s TALF program for CMBS.
Wells Fargo and Prudential are two lenders working
behind the scenes to partially re-open their dormant shops,
according to mortgage bankers who spoke on the condition of
anonymity.
Wells Fargo is selectively looking for bigger
deals—$60 million and up—that would max
out at about 55 percent or 60 percent leverage, according
to industry watchers. But Wells Fargo is mostly looking for
office and retail properties, since it’s difficult
to compete with Fannie Mae and Freddie Mac for multifamily
deals. Meanwhile, the buzz on Prudential is that it will
soon open a $1 billion equity line dedicated to originating
loans for TALF. When asked about the re-opening of their
conduit line, a spokesperson for Prudential would neither
deny nor confirm the possibility.
It’s too early to say whether these conduit
lenders really plan to open for business. They’re
only opening their conduit lines for favored, larger
clients, cautiously dipping their toes into the water with
an eye on the TALF program.
TALF, which provides low-cost loans to CMBS investors in
hopes of reviving the securitization market, is still just
beginning to get off the ground. Given that these lenders
are only now beginning to originate loans, it would take
about 90 days before they could be pooled, sold, and
securitized.
But TALF could also make an immediate splash through a
single-borrower issuance, wherein a large REIT raises
financing for multiple properties, for instance, creating
an instant pool. Indeed, the lending industry is buzzing
that such an issuance is being worked on behind the
scenes.
“You might have a very high-quality REIT, for
example, that could have a very geographically diverse
portfolio as well as diverse property types,” says
Tom Graf, managing director of Boston-based Standish Mellon
Asset Management, which aims to invest in TALF CMBS.
“That could potentially be one of the first deals
that come to market.”
Indeed, REIT Developers Diversified Realty raised its
hand for such an execution in a second-quarter conference
call. Referencing TALF, the company’s chief
investment officer David Oakes said, “We're in the
queue with one of the major investment banks to do a
significant self-financing when that becomes
available.”
Retail, office, hospitality, and industrial properties
seem to be the best fit for these early conduit executions,
since those sectors don’t have the
government-sponsored enterprises to turn to. But for
multifamily properties that don’t qualify for
agency financing—perhaps because they are located
in markets where Fannie and Freddie are overexposed and
therefore less inclined to lend—there might be a
fit.
These early rumblings are just the opening salvo in what
figures to be a long effort toward re-establishing a market
many believed was dead this year. While the consumer
asset-backed securities (ABS) side of TALF has been
successful in lowering spreads on auto and student loans,
for instance, the CMBS portion of TALF isn’t there
yet. “In the ABS world, it’s had a
dramatic impact on spreads and has gotten it to a position
where that type of conduit origination makes
sense,” says Steve Miller, director of debt
research and risk management at Boston-based market
research firm Property and Portfolio Research. “I
don’t know if it will be as quick as what happened
in the ABS world, but I’m sure that’s
what they’re trying to emulate.
“There is still a big gap between the implied
spreads for securitized products versus what lenders who
are now lending are doing,” Miller continues.
“Until that gap gets minimized, its hard to see it
making sense to do a new securitized lending
platform.”
For a basic primer on the TALF and TARP programs,
click here.