CRE Clarifies Its Fed Request

This was hardly a secret--indeed the Real Estate Roundtable told GlobeSt.com last month that it was speaking to the Treasury Department about expanding Term Asset-Backed Securities Loan Facility, or TALF, established in November, to support the new-issue ABS sector.

The buzz generated by the article, though, apparently spurred the Roundtable and the real estate industry in general to make its case as clearly as possible--as the Congressional atmosphere becomes ever more antagonistic against anything smacking of a request for more bailout money.

The Roundtable is proposing a few different possible paths that will get the industry to the same destination: a more liquid financing environment. Essentially, Jeffrey D. DeBoer, president & CEO of the Rountable told listeners, that they are proposing that a federal credit facility either be established – or TALF be expanded for this purpose – to purchase highly-rated CRE securities. These would be securities based on newly originated loans. Such a facility would be comparable in size to TALF, DeBoer said.

The Real Estate Roundtable is not the only institution lobbying Congress for this type of mechanism. The Commercial Mortgage Securities Association and Treasury officials already have met twice on this issue in Washington, most recently in early December, a spokesman for CMSA tells GlobeSt.com.

"We expect to be back for a potential third meeting with Treasury to discuss TARP, TALF and explore ways to alleviate this illiquidity." The National Association of Realtors is also working furiously behind the scenes. Steven Good, chair of the National Association of Realtors' Commercial Alliance Committee--as well as president and CEO of Sheldon Good & Co. in Chicago, told GlobeSt.com that the committee just held an emergency meeting last week to work on proposals for the Obama Administration.

The reason for the urgency may not be apparent at the moment--although it is clear that the commercial real estate industry has slowed measurably in Q4. Rather, what these associations are working hard to prevent are widespread commercial loan defaults next year. The problem is that even if borrowers could find lenders willing to refinance--which they probably cannot in this environment--they will have to refinance the loans using current valuations, current LTVs and current underwriting. Without a doubt, borrowers will have to come up with cash they probably don't have

There was $93.8 billion of CMBS originated in 2004--the height of the market, Barbara Trachtenberg, a partner in DLA Piper's Real Estate practice in Boston and President-Elect of NEWIRE (New England Women in Real Estate), points out. "Most CMBS loan maturities are for five years," she tells GlobeSt.com. "That gives you an idea of what we will be seeing come to market over the next few years."

The real estate industry understands what is heading its way--the problem is, Congress and most certainly most taxpayers do not. Bailout fatigue has clearly set in.

For this to work, the consensus is the real estate industry is going to have to be clear about what it needs – and what will happen if it doesn't get what it needs. "Congress has to understand what the larger picture is," Jane Smith, a partner with the law firm of Fulbright and Jaworski and 2009 president of CREW, tells GlobeSt.com. "This is a looming crisis and a piecemeal solution will not be the right remedy."

Elizabeth Holtzman, co-chair of the government relations practice at Herrick, Feinstein and a former Congressperson herself, tells GlobeSt.com that the key for commercial real estate entities is to convince Treasury and Congress that their failure to offer the industry a rescue package would harm the national economy and the communities where distressed real estate is located.

"This problem affects some of the major financial centers in the country," she says, noting that her firm has the largest commercial real estate practice among law firms in New York City. "Commercial real estate entities will have to shatter perceptions in Washington that they should have known better, that they got themselves into trouble, and that they're wealthy people and entities that withstand the storm."

That skepticism confronted auto and financial services industry rescue, she acknowledges. Being chronologically behind financial institutions and auto makers, though, is a double-edged sword--as the real estate industry can see what resonated in Washington and adjust its arguments accordingly, she adds. "Nothing's impossible, but the industry will have to make a strong showing that a rescue is in the national economic interest and the economic interest of many key regions."