The Fed Extends TALF Program for Commercial Real Estae Lending

The Fed Extends TALF Program for Commercial Real Estate Lending - But Will It Help?
The Federal Reserve and Treasury Department announced this week that they will be extending the TALF (Term Asset-Backed Loan Facility) program into 2010 to stimulate new activity in the commercial real estate industry.


The TALF program, launched about six months ago as part of the government’s stimulus effort, works with banks and lending institutions to make credit available, including loans for new commercial construction.

Critics of the program have said that the TALF is well-intentioned, but too small to make a significant difference, and that it cannot stimulate the lending necessary to boost the industry.

Economists around the country are in near-agreement that the Great Recession has come to an end, but the technical definition of an end to a recession and the impact on consumers and businesses are two different things. With the economy starting to show life again (residential housing is stabilizing, unemployment is finding balance, and industrial output is on the rise), is it too soon to expect the commercial real estate industry to bounce back, even with the help of the TALF program?

Vacancies are still rising in most markets across the U.S., and landlords/property owners have been forced in many cases to lower rents just to stabilize occupancy in their buildings. All of this puts a great deal of stress on property owners who are struggling to meet their mortgage commitments, and the credit crunch that froze the credit market in 2008 has yet to thaw, leaving owners with few places to turn when they want to roll over their debts. The end result is often bankruptcy, mortgage default or a forced property sale.

Are there multi-millions of dollars in commercial mortgages currently teetering on the brink of default? And, if so, how will that impact the lending market as the economic recovery takes hold? The Fed and Treasury believe the extended TALF program (now running through June 2010) will help spur investors, staving off the worst of the possible mortgage defaults on the horizon. But many experts agree that the TALF program has had some success in CMBS markets, but that companies facing defaults will benefit little from the extended program.

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