The rock-bottom bar in CMBS

October 9, 2009

There’s a bit of a bit of buzz surrounding what could be the first CMBS deal in more than a year. Bloomberg is carrying a story about how Goldman Sachs will sell the first bond that would be eligible under the Fed’s TALF program.

But the buzz should be more about how the bar has fallen so low in commercial real estate financing.

From Bloomberg:

Goldman Sachs Group Inc., seeking to take advantage of an untapped Federal Reserve program, may sell the first commercial-mortgage bond since June 2008, backed by a $400 million loan to an Ohio property owner.

The five-year loan to Developers Diversified Realty Corp. made by a unit of the New York-based bank is secured by 28 shopping centers. It will be used to repay debt on those properties and others, and to reduce the outstanding amounts of credit facilities, Developers Diversified said yesterday in a statement.

But the deal has been expected for months. Reuters reporter Al Yoon reported the Developers deal was in the pipeline back in June. That it’s taken this long to get the deal ready is one of the reasons TALF is wrong tool for the job of getting much needed financing to commercial real estate.

Also, for perspective, a $400 million loan is peanuts next to the billions of dollars of loans out there that need to be refinanced. Many of those loans simply won’t qualify for refinancing because their loan to value ratios have been obliterated by the falling value of commercial property.

The TALF option doesn’t seem to be working and hopefully the government’s brain trust is coming up with something better.

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What is the outlook for those seeking commercial refinancing? Is there about to be a swell of commercial defaults due to a deteriorating business environment and the inability of many businesses to weather the storm until the current climate changes?