August 2009


From the Wall Street Journal By Anusha Shrivastava Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–About $12 billion in consumer loan-backed deals have emerged ahead of a loan-application deadline for cheap funding under a Federal Reserve program.

Issuers include Ford Motor Co. (F) unit Ford Motor Credit, Chesapeake Funding LLC, Nissan Motor Co. (NSANY) and American Express (AXP).

Ford has a $2 billion deal eligible for the central bank’s Term Asset-Backed Securities Loan Facility, or TALF. The loan deadline for the consumer asset-backed securities portion of the facility is Sept. 3.

Discover (DFS) has a $1 billion credit-card-loan-backed deal while Chesapeake Funding LLC has a $750 million auto and other vehicle lease-backed deal.

Hyundai Motor Co. (005380.SE) is another issuer in the market, with a deal eligible for funding under TALF.

The $1.32 billion deal, dubbed Hyundai Auto Receivables Trust, HART 2009-A, will be backed by a pool of prime retail loan contracts secured by new and used automobiles and light-duty trucks originated and serviced by Hyundai Capital America. The deal is Hyundai’s first securitization of the year and joins the growing list of deals emerging ahead of the seventh loan application deadline for TALF.

General Electric Capital Corp. has a $618.4 million deal, backed by equipment loans like those secured by transportation, industrial and construction equipment. Joint leads are Bank of America Merrill Lynch and Barclays Capital.

American Express Co. has a $1 billion credit-card-loan-backed deal that has price guidance in the area of 140 basis points over the one-month London Interbank Offered Rate. American Express had sold a $1 billion credit-card-loan-backed deal in June at 135 basis points over one-month LIBOR. Joint leads on the current deal are Barclays Capital, JP Morgan and RBS.

Nissan is in the market with a $1.024 billion auto-loan-backed deal. Dubbed NALT 2009-B, it is due to price on Sept. 2, a day ahead of the loan application deadline for this round of TALF.

The deal is jointly led by Citigroup, Deutsche Bank and JP Morgan.

Nissan was among the first batch of issuers in March when TALF was launched. At the time, it sold a $1.3 billion auto-loan-backed deal at 180 basis points over a benchmark.

On Wednesday, Bank of America Merrill Lynch offered a $1.995 billion auto-loan-backed deal, eligible for TALF, according to a person familiar with the matter. Bank of America’s deal, dubbed BAAT 2009-2, is jointly led by Bank of America/Merrill Lynch, Barclays Capital, Citigroup, Credit Suisse and Royal Bank of Scotland.

Last month, Bank of America (BAC) sold a $3.993 billion auto-loan-backed deal at 135 basis points over a benchmark. That was the bank’s first deal eligible under TALF.

Through TALF, investors can procure cheap loans to buy newly created consumer-loan-backed and new and existing commercial mortgage-backed bonds. The program was set up in March to revitalize the securitization market, shuttered following the bankruptcy of Lehman Brothers Holdings Inc. That market, in which banks sell loans packaged as securities on to investors, is vital to keeping credit flowing to the broader economy.

Initially targeted at securities backed by consumer loans, it was expanded to include commercial mortgage-loan-backed bonds. The program was set to expire Dec. 31, but last week the Fed and the Treasury Department extended their support, citing “impaired” conditions in financial markets.

TALF loans against newly issued asset-backed securities and existing commercial mortgage-backed securities will be extended through March 31, 2010. For newly issued CMBS, which take a significant amount of time to put together, the extension is until June 30, 2010.

Since the launch of the program, $85.45 billion in consumer-loan-backed deals have been sold, the bulk using non-recourse loans at attractive rates from the Fed.

Last month, $8.26 billion worth of TALF-eligible consumer-loan-backed deals were sold. In July, that figure was $12.7 billion.

There have been no new CMBS deals, but some are said to be in the works. Blogger Note: added bold and contrasting color for emphasis. The biggest problem facing commercial real estate is the capital markets’ lack of liquidity. CMBS issuance went from $230 billion in 2007 to $12 billion in 2008 to less than a billion dollars YTD in 2009 (send an e-mail to dave@bisonfinancial.com and I will supply you with my research source materials). While I am an avowed Free Market Capitalist… this move by the government is what we need to get liquidity in the capital markets.

The next loan application deadline for the ABS portion of the program is Sept. 3, and for CMBS it is Sept. 17.

-By Anusha Shrivastava, Dow Jones Newswires; 212-416-2227; anusha.shrivastava@dowjones.com

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Aug 25, 2009
By: Tonie Auer, Contributing Correspondent
Commercial Property Executive

Strong interest in public markets and the slow but steady return of securitization provide some indicators that relief in the commercial real estate market may be on the way, according to the latest capital markets report by Cushman & Wakefield Sonnenblick-Goldman.

“We’re seeing some of the basic ingredients for some return of the securitization market starting to appear,” Doug Hercher, executive vice president of Cushman & Wakefield Sonnenblick-Goldman, told CPE. “It has really been over a year since the last significant public commercial real estate securitization took place in the U.S.,” he said, noting there have been some in Europe during that time.

The market is starting to see prices on senior CMBS improving significantly, Hercher said. The highly successful launch of Starwood’s mortgage REIT, which raised $800 million in its IPO, demonstrates that there is strong interest in the public markets in vehicles that will provide debt liquidity for CRE, Christopher T. Moyer, analyst with Cushman & Wakefield Sonnenblick-Goldman, said in the report.

“The Starwood REIT is an example of a company formed to take advantage of the liquidity and TALF program,” Hercher said.

Some of that capital will be used to purchase existing CMBS bonds, but much of it is committed to new loan origination and should be placed quite quickly given the strong demand for financing, Moyer stated. Starwood is targeting loans on high quality real estate at 8 to 9 percent rates with 1 to 3 percent loan fees. In some instances, they will be competing with cheaper life company and bank capital, which may require them to venture further up the capital stack, Moyer added.

“We’re also starting to see pricing and underwriting become more reliable now that people are a little more comfortable with things,” Hercher said. “That is an improving development because, ultimately, in commercial real estate everyone should want to see securitization come back and be a provider of liquidity. It won’t be like 2006 and 2007, but it would provide a strong sense of liquidity in the marketplace, especially for the bigger deals which are difficult to transact right now.”

Blogger Comment: Other stories about renewed interest in CMBS bonds include China’s sovereign wealth fund to invest up to $2 billion in U.S. mortgages and TALF Update: Fed Gets $2.3 Billion of Commercial Mortgage Requests

Anecdotal evidence suggests that the CRE portfolios of many regional banks continue to be over-valued by 20 to 50 percent, Moyer said in the summary. In fairness to those banks, many of their assets are difficult-to-value development deals, land parcels and value-add office/industrial. As a result, until the banks generate enough earnings to allow them to comfortably book those losses – either through sales or writedowns – it is expected that impaired loan portfolios and REO will sit on their balance sheets, Moyer added.

Additionally, Moyer’s summary stated that as Cushman & Wakefield Sonnenblick-Goldman analysts predicted in late June, AAA spreads rallied strongly through the summer, with five-year and 10-year senior bonds tightening 175bps to T+375 and 125bps to T+600, respectively.

“The success of the TALF program has led to its being extended by three months for legacy bonds and six months for new issues. For new loans, the TALF program will be most attractive at low leverage levels, generally under 50 percent, since the mezzanine and B-note funding required to achieve 55 to 65 percent LTV financing is still relatively expensive,” Moyer stated.

Both the qualitative and quantitative feedback heard suggests that the housing market has bottomed, according to the summary. Whether it’s the stories from brokers in western Florida who report that inventory is down to six months, having been as high as 14 months in late 2008, or the Case-Shiller Top 20 Markets index, which in May turned positive for the first time since mid-2006 and showed even stronger month-over-month home price growth in June, it is clear that prices and mortgage rates are low enough to pull people off the sidelines, Moyer stated.

By Jody Shenn on Bloomberg.com

Aug. 20 (Bloomberg) — Investors asked the Federal Reserve for $2.3 billion of loans against commercial-mortgage-backed securities created before this year, an expansion from $668.9 million in its financing program’s first round a month earlier.

The central bank got no requests for newly issued bonds backed by loans on skyscrapers, shopping malls, apartments or hotels, the New York Fed said today on its Web site. That part of the Term Asset-Backed Securities Loan Facility, or TALF, hasn’t been used since its start three months ago.

BLOGGER COMMENT: The biggest problem facing commercial real estate is the capital markets’ lack of liquidity. CMBS issuance went from $230 billion in 2007 to $12 billion in 2008 to less than a billion dollars YTD in 2009 (send an e-mail to dave@bisonfinancial.com and I will supply you with my research source materials). Higher vacancies and higher reserves can be built into financial models to determine an underwritten cash flow (UCF). We can apply a stressed interest rate and a higher than normal debt coverage ratio to the UCF to determine very conservative maximum loan proceeds. As delightful a math exercise that might be… when there is no functioning capital market to provide liquidity, there are no transactions in some market segments. What used to get easily financed with a non-recourse loan at 80% of cost now will only justify 40-60% LTC/LTV (lesser of) financing from long term investors such as insurance companies and pension funds based on the new ultra conservative underwriting standards. This makes commercial real estate a “rich man’s game” once again and will knock all the amateurs out of the business. For those with massive amounts of cash and a long time horizon this is the greatest buying opportunity of our lifetimes. The only thing that can change this inevitability is government involvement in the capital markets through a program like TALF where at least the lowest risk AAA piece has liquidity once again.

“I would not call this a blow-out number by any stretch of the imagination, but certainly relative to what we saw in July it was positive and definitely within the range of what people were thinking,” said James Grady, managing director in New York for Deutsche Asset Management, a unit of Deutsche Bank AG that oversees $240 billion of investments.

Wall Street profits and the $700 billion CMBS market, which rallied amid the opening of TALF to the debt and start of Treasury Secretary Timothy Geithner’s Public-Private Investment Program, may depend on the programs’ results.

While the average price of top-rated commercial-mortgage securities is up 8 percent since June to almost 90 cents on the dollar, last week values began weakening as buying in anticipation of investor demand tied to the programs eased, according to Merrill Lynch & Co. index data.

Looking Ahead

“With dealer inventories now fairly bloated across the Street, we will need to see not only a sizable subscription next Thursday, but will also need the Fed to remain accommodative with respect to the bonds it accepts as TALF-eligible collateral,” Alan Todd, a JPMorgan Chase & Co. analyst in New York, wrote in Aug. 14 report.

TALF loan requests of less than $1 billion would be a “disappointment” to the market, while requests of more than $2 billion would probably be “well received,” he said in a telephone interview today before the announcement.

Investment banks have been recently buying commercial- mortgage securities being offering for sale “pretty aggressively in the expectation that TALF buyers would materialize,” Grady said in a telephone interview. The investors typically will seek to acquire the bonds a few days before, or the same day that, the Fed accepts requests, he said.

Fed Chairman Ben S. Bernanke this week extended the TALF for commercial-mortgage bonds into next year as he seeks to stabilize a market where property values have fallen 36 percent from their October 2007 peak, according to Moody’s Investors Service data. Banks and insurers own more than $2 trillion of U.S. commercial real-estate debt not packaged into bonds.

Top Rating Required

Last month, the Fed refused to accept only one commercial- mortgage bond as TALF collateral, announcing the decision about a week after disclosing the loan requests without saying why it found the debt too risky. At a minimum, the securities must carry top credit ratings, not be under review for downgrades and rank among the senior-most classes of a securitization.

The central bank is receiving advice on the decisions from Trepp LLC, a New York-based research firm, and Pacific Investment Management Co., the Newport Beach, California-based firm that manages the world’s largest bond fund.

The PPIP, which the government announced July 8 would begin with nine asset managers raising as much as $10 billion and receiving as much as $30 billion in taxpayer capital and loans, accepts a broader range of commercial- and residential-mortgage bonds originally rated AAA.

Sales History

The Fed is seeking to revive commercial-mortgage bond sales after issuance halted as the cost to sell the debt became too high to originate new real-estate loans. That choked off financing to borrowers including those seeking to refinance $165 billion of debt this year. In 2007, a record $237 billion of commercial-mortgage bonds were sold, before sales fell to $12.2 billion last year and none this year, according to JPMorgan.

The Fed extended the commercial-mortgage TALF to June 30, 2010, from Dec. 31. The Aug. 17 announcement followed a letter to Bernanke from 41 House members — including Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, and Carolyn Maloney, a New York Democrat who heads the Joint Economic Committee — asking for a one-year extension after property owners stepped up lobbying for a later deadline.

Spreads Over Benchmarks

Yields over benchmark interest-rate swaps on so-called super senior commercial-mortgage securities issued in 2006 that are likely TALF-eligible were about 4 percentage points earlier today, according to JPMorgan data. Spreads on similar bonds that aren’t eligible were 5.5 percentage points.

Since Aug. 7, spreads have widened between about 0.50 percentage point and 1 percentage point, with prices for ineligible debt weakening the most, Todd said. In November, the spreads topped out at record highs between about 13 percentage points and 15 percentage points, he said.

The average price of top-rated CMBS securities has eased from a high this year of 91.2 cents on the dollar on Aug. 13, after climbing from a 2009 low of 72 cents in February, according to Merrill Lynch index data.

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BLOGGER COMMENT: Yesterday I attended the Florida ICSC Conference in Orlando, FL.  I spent time with developers & investors that need access to capital as well as sources of capital. Deals are still getting done, but with more equity required than in previous years. See below for a great overview on the show from the Florida Real Estate Journal.

KISSIMMEE – Some 3,300 commercial real estate professionals attended the International Council of Shopping Centers’ 2009 Florida Conference yesterday and today at the Gaylord Palms Resort & Convention Center.

Here are some highlights from the event:

– A gap persists between buyers and sellers of commercial property, and investors need to manage their yield expectations, said Trish Blasi of Calamar Enterprises in Aventura. Not all commercial property owners are in financial trouble, she said, as a good deal of interest-only debt has yet to mature.

– Commercial real estate will be under stress for another two to three years, with rising vacancies and falling rental rates, said Manny De Zarraga of Holliday Fenoglio Fowler LP, but new buyers could include foreign players and recapitalized domestic REITs.

– Whether the loan on your property has been securitized or is in a portfolio somewhere, the keys to a restructuring or a workout are constant communication with the lender/servicer, developing your own plan to fix things, and a willingness to contribute money to the solution, said a panel of experts on the subject.

– Greg Sembler, CEO of The Sembler Company, told Florida Real Estate Journal he is most concerned about the dramatic fall in liquidity for commercial real estate financing. Until that returns, he said, the company will emphasize leasing, management and single-tenant development.

– Local tenants will be an important driver in restoring occupancy to retail centers, Mike Longmore, senior VP with Jones Lang LaSalle, told Florida Real Estate Journal. Based on JLL’s latest national survey, Longmore said he expects a U-shaped economic recovery with perhaps a very protracted bottom.

August 12, 2009 11:05 AM EDT

ORLANDO, Fla., Aug. 12 /PRNewswire/ — Sales of existing single-family homes in Florida rose 23 percent in second quarter 2009 compared to the same period a year earlier, according to the latest housing statistics from the Florida Association of Realtors(R) (FAR). A total of 43,125 existing homes sold statewide in 2Q 2009; during the same period the year before, a total of 35,008 existing homes sold. It marks the fourth consecutive quarter that Florida has seen higher existing year-to-year home sales, according to FAR.

BLOGGER COMMENT: Residential and commercial real estate are interconnected. The faster the residential market hits bottom, stabilizes and recovers the better it will be for commercial real estate.

Sales of existing condominiums statewide in the second quarter rose 29 percent compared to the same time the previous year. This marks the third consecutive quarter for increased statewide sales in both the existing home and condo markets compared to year-ago levels.

Statewide sales activity in 2Q 2009 also increased over 1Q 2009’s sales figure in both the existing home and existing condo markets, FAR records show. For 2Q 2009, statewide sales of existing homes rose 37.2 percent over the 1Q 2009 figure; existing condo sales statewide in 2Q 2009 increased 45.3 percent over the 1Q 2009 level.

“In spite of the challenges with the economy, most people – 83 percent – still believe that buying a home is a good financial decision, according to a recent survey from the National Association of Realtors(R) (NAR),” says 2009 FAR President Cynthia Shelton, CCIM, CRE, a broker and director of investment sales with Colliers Arnold in Orlando. (CCIM stands for Certified Commercial Investment Member and CRE is the Counselor of Real Estate designation). “Many homebuyers are realizing that this is the time to buy – with a good selection of housing inventory, affordable pricing and low mortgage rates.

“In fact, three-fourths of those responding to the 2009 National Housing Pulse Survey said they think now is a good time to purchase a home, a number that has increased steadily the past two years,” she says. “However, providing solid financing options for homebuyers is key to returning stability to the housing market, and buyers also need programs that help with downpayment and closing costs. That’s why the federal $8,000 first-time homebuyer tax credit and other programs enabling eligible buyers to access that tax credit for downpayment or closing costs are so important – programs like the Florida Homebuyer Opportunity Program.”

Sixteen of Florida’s metropolitan statistical areas (MSAs) reported increased sales of existing homes in the second quarter compared to the same three-month-period a year earlier, while 12 MSAs showed gains in condo sales.

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