(This story, in slightly different form, originally appeared in Incisive Media's Daily Business Review.)

MIAMI-In a sign of just how bad the commercial real estate market is, South Florida property owners and investors are all but ignoring new federal rescue programs that they say are confusing and beyond their reach. Some are calling instead for the government to scrap the programs and let the marketplace hit bottom. That way, they say, the recovery can really begin.

Even though some industry groups have touted the federal programs as a boon to commercial real estate, local and regional developers and investors figure they will get little help from the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF) and Public-Private Investment Program (PPIP). Instead, they're forming their own funds to acquire properties or distressed loans, seeking refinancing on mortgages and loan extensions.

Whether that will be sufficient to bring normality to the marketplace, no one knows. But many owners believe it's better than dealing with the federal government.

"The government is trying to address the [market] problem without addressing it," says consultant Paul Jones, founder of investment banking firm Pyramid Realty Group in Coral Gables, who is assisting investors in the formation of private funds. "From a wartime perspective, they're sort of doing an air attack."

Why? Because the TALF program is intended to jump-start the securitization market, which deals in huge pools of mortgages, says Howard Taft, senior managing director of the Aztec Group in Coconut Grove. And the PPIP is intended to help banks unload distressed debt from their balance sheets to buyers in a partnership of government money and private investments.

Though some local developers like Fort Lauderdale-based Stiles Corp. have considered participating in the PPIP program, president Doug Eagon is cautious about having the government as a partner in a program still full of questions. "Given the vagaries of working with new federal programs, our first focus is if we can refinance and extend loans through our existing relationships with lenders before resorting to uncharted territory," Eagon says.

Huge national megamillion-dollar funds undeterred by government regulations may want to deal with the programs, but the local and regional developers and investors are left to fend for themselves, says Angelo Bianco, senior vice president of Crocker Partners in Boca Raton. Even the big investment houses apparently aren't sold on the TALF program. There were no takers by a June 16 deadline for one portion of the program. The Fed now is trying again with a subsequent offering for July.

The Fed in May made a splash when it announced that bonds called commercial mortgage-backed securities (CMBS) would be allowed as collateral for TALF. That was considered a jump-start for the frozen CMBS market, whose backbone is commercial properties.

TALF presumably would make $1 trillion in loans available nationwide, thawing a frozen CMBS market that currently has billions of dollars of unsecuritized commercial property loans sitting on bank books that will mature within a few years, Taft says. Many of those loans will require refinancing within the next three years.

The catch is that the TALF money will be loaned at far more conservative terms than those during the prior CMBS market. And with property values in a significant freefall, refinancing will require more equity from borrowers.

If that refinancing isn't available, the unsecuritized loans will remain on lenders' books, says Charles Foschini, vice chairman of South Florida markets for CBRE/Melody Institutional Group in Miami. Or, mezzanine lenders can step in to provide what's tantamount to gap financing, Taft says.

The Aztec Group is working with lenders that Taft declines to identify to supply mezzanine financing and allow refinancings––and ultimately securitizations––to happen. Given that credit markets for commercial property deals have all but closed since the financial crisis began in 2007, the announcement of the programs initially was greeted enthusiastically. But no one has since stepped up to ask for a loan to buy new CMBS.

In July, the Fed will begin accepting requests for loans to buy older CMBS issued during the market heyday. PPIP, meanwhile, would marry public financing with private capital to acquire distressed assets from troubled banks and financial institutions.

There is some concern that those distressed assets will be even more distressed than investors would want to deal with, Eagon says. So property owners are finding their own way.

Some will rely on their own private funds; others will make use of funds being created by advisers like Taft and Jones. Still others will rely on long-term relationships with lenders for loan refinancing or extensions.

But with property values dropping, loans coming due and equity requirements rising, most owners have few if any options to save their properties. If all else fails, they'll give back the keys to lenders.

A far better solution would be to let the marketplace find its own bottom, or resurrect an agency akin to the Resolution Trust Corp. that bought and disposed of distressed properties and debt in the wake of the savings-and-loan crisis of the late 1980s, says Jeremy Shapiro, former First Industrial Realty Trust senior regional director and now president of Mainstream Investment Realty in Miami, who is working with private investors in the formation of acquisition funds. "The government programs are keeping the market from reaching the bottom," Shapiro says.

In a move reminiscent of Resolution Trust Corp. efforts of the early 1990s, the FDIC opened a second satellite office recently in Jacksonville––the other is in California––and is recruiting hundreds of workers to handle asset resolution and other distressed-property issues in eastern states, according to a statement on the agency's Web site. According to a report last week in the trade publication Commercial Real Estate Direct, the FDIC is preparing to offer almost $6 billion in assets from almost 20 failed banks.

"We need to clear these [distressed] assets out like the RTC did in the 1990s, let our economy adjust, and let the market work," says Steve Beauchamp, president of Mangrove Advisory Group in Fort Lauderdale. "If we want to go down the same path as the Japanese, then investors should go ahead and do the TALF and PPIP programs," he says, referring to Japan's so-called "lost decade" of the 1990s after a real estate bubble burst spurred deflation, recession and a banking crisis. "And we're heading in that direction."

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Investors Shun Federal Rescue Programs

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