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Commercial real estate in the dumps

David Bodamer over at Clusterstock has some interesting color from a commercial real estate conference where the mood was decidedly grim. Rather than being cheered by the hope that the Fed’s inclusion to commercial mortgage bonds its TALF program will alleviate the stress, participants seem resigned that the worst is yet to come.

I, too, am doubtful that central bank policy will be able to do much to stem the pain. The double-whammy of loose lending standards and overly optimistic assumptions during the boom coupled with the severe downturn in the economy mean the big losses are yet to come.  The commercial sector typically lags other parts of the economy.

This bit I found particularly interesting since it means that banks are still hoping and praying that if they can wait the ugliness out, maybe, everything will be OK.

…There was a consensus that banks largely are trying to delay the days of reckoning when they will have to recognize losses and writedowns by extending loans as much as they can. The phrase “pretend and extend” came up more than once, as in, banks are pretending that borrowers can pay off their loans and therefore granting extensions to them. However, no one thinks that can go on forever. As (Ruth) Barone (partner with Glenmere Capital Partners) described the process with dealing with troubled borrowers, “Banks are granting extensions at low rates and hoping the economy recovers quickly enough to get the loans performing. But things have gotten worse instead of better.”

Commercial real estate still looking for a lift

Chalk up another stumble for TALF, the Fed’s program to revitalize the securitization market. After expanding the program to include commercial mortgage-backed securities, the Federal Reserve on Tuesday reported that no one showed up to take advantage of the central bank’s attractive financing.  Granted this was the inaugural round for loans to investors with eligible CMBS collateral, so it may take some time to take off.

But it certainly sends a worrying signal about how much this program will help unclog the frozen CMBS market – essential if developers and commercial real estate owners hope to refinance loans coming due.