Thank you for sharing!

Your article was successfully shared with the contacts you provided.

WASHINGTON, DC-The Term Asset-Backed Securities Loan Facility can be officially deemed a success, at least from the perspective of the capital-constrained commercial real estate sector: Developers Diversified Realty Corp. sold $400 million of debt backed by shopping centers–the first offering of commercial-mortgage bonds through the program.

The terms were private, but media reports say the top-rated portion of the deal priced to yield 140 basis points more than benchmark swap rates, and that investor demand reduced the spread by 1.75 percentage points.

With that deal complete, the industry is looking to see how soon–not if–it will be replicated. An informal survey by GlobeSt.com finds that, for the first time in a long while, there is hope the capital markets may begin to thaw sooner rather than later.

With the AAA tranche pricing at 1.4% over a five-year interest rate swap bankmark, Diversified’s closing is an encouraging start for the CMBS new issuance market, Ling Yu, an affiliate with global consulting firm LECG, tells GlobeSt.com.

“The closing of deal demonstrates that the market is willing to look at the merit of the transaction and invest in it,” she says. “For example, the deal has only one borrower and one asset type: retail. However, the shopping centers included in the transaction have high occupancy rates of 95% and there are large discount retail franchises in the shopping centers, which generally perform well during an economic downturn.”

The market now has an aptitude for a deal with good collateral, well structured, and demonstrated good performance history during the current recession, she continues. “However, with increasing delinquency rates for each sector of the outstanding $789.8-billion CMBS market, it will take a long time to reach the $230-billion 2007 issuance level. Some of CMBS outstanding bonds might need to be extended or re-structured instead of being refinanced.”

“The question was never whether the CMBS market would come back, but when and how,” agrees Ellen Marshall, co-chair of the Banking and Specialty Finance 
Practice Group at Manatt, Phelps & Phillips. “This is a strong signal that the mechanics work for getting a deal done that includes TALF financing.”

Thanks to the Diversified transaction, TALF financing should now be easier to arrange, even for CMBS transactions involving more diversified asset pools, she tells GlobeSt.com. “And clearly the pricing evidences that investors are not inherently shy of investing in CMBS. Both the TALF-eligible tranches and the junior tranches evidently sold well. There will probably be continued attention to asset quality and due diligence, as long as there is volatility in commercial real estate. The deals that will get done will be those that have careful underwriting at the asset level. That’s a good thing.”

In fact, concluded Anthony Sanders, a finance professor at George Mason University, Developers Diversified CMBS deal could eventually lead to the federal government allowing banks to sell distressed commercial loans through CMBS deals. “There is a good chance this deal could jump start the CMBS market with desperately needed transactions,” he says.

Bottom line, Laura Swihart, real estate partner in Winston & Strawn’s New York office, tells GlobeSt.com–the Diversified offering is good for the CMBS market, but it is only a start.

“I believe the market will recover in time and securitization is a viable and excellent financing vehicle for mortgage loans–if properly underwritten and structured.”

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?


GlobeSt. Multifamily Fall 2022Event

Join the industry's top owners, investors, developers, brokers & financiers at THE MULTIFAMILY EVENT OF THE YEAR!

Get More Information

GlobeSt Net Lease Fall 2022Event

This conference brings together the industry's most influential & knowledgeable real estate executives from the net lease sector.

Get More Information

GlobeSt. INDUSTRIAL 2022Event

This conference brings together the industry's most influential & knowledgeable industrial real estate executives

Get More Information


Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2022 ALM Global, LLC. All Rights Reserved.