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Nov. Round of TALF CMBS May Bring New Issue

Developers Diversified Realty Corp. (DDR) is selling $400 million of debt in the first deal to be sold under the Federal Reserve's Term ABS Loan Facility (TALF) new-issue CMBS program, according to published reports.

Goldman Sachs is underwriting the deal, which includes five-year fixed-rated debt, market sources said on Monday.

In early October, shopping mall REIT DDR announced that it obtained a $400 million secured loan from Goldman Sachs, which many expected to be securitized under the TALF program.

On Nov. 4, The Wall Street Journal reported that the “Fed had indicated progress with reviewing the 28 shopping centers owned by DDR and underlying the $400 million loan”.

Barclays Capital analysts said that any progress on the new-issue front would be mildly positive for CMBS and, more broadly, commercial real estate. However, because the DDR issue has been expected for several months now, it still not indicative of a near-term revival in securitized issuance and will likely have no meaningful impact on spreads.

“Many long-term questions around the CMBS structure remain unanswered, particularly around the effect of FAS 166/167 on special servicers, potential Congressional actions on risk retention, and the role of rating agencies,” analysts said. “Furthermore, the economics still do not appear favorable for broad-based CMBS origination. Major REITs still typically have better financing options on an unsecured basis.”

Still, DDR’s sale comes as market reports indicate that Bank of America is also readying a $650 million offering for Fortress Investment Group. The deal would be backed by office and industrial properties in Florida and could be issued via TALF.

 

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