tarting in July, the Fed will allow investors participating in its Term Asset-Backed Securities Loan Facility to purchase existing securities backed by loans for apartment complexes, office buildings, retail shopping centers and other commercial property. In effect, the Fed will provide investors with large loans to buy highly rated securities.
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If the Fed’s efforts to start up commercial real estate lending works, it could begin to help an industry that many analysts believe is on the verge of massive losses. Between this year and 2011, $814 billion in commercial real estate loans are expected to mature, research firm Foresight Analytics estimates.
With banks reluctant to lend, the market for so-called commercial mortgage-backed securities is virtually moribund. And with operating earnings from many commercial properties plummeting, there could be a wave of foreclosures on office, retail and other commercial properties absent new sources of lending.
So Essentially the Fed is going to start buying a Trillion dollars of Toxic
CRE Mortgages.
Retail is in a steady downward slide. WIth Circuit City Bankrupt, 18 M SF of retail is on the block. With Lowes and Home Depot shutting Locations, a few million more will come on from them. With Families saving, way less is being consumed. CRE is valued entirely on discounted cash flow. If the cash flows are collapsing, then it’s worthless property. Even if you assume in 2 years the cash flow returns it’s still awful.
So why is the Fed doing this? Just trying to bail out the banks, principally Goldman.
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