“I think it’s fair to characterize this result as disappointing, and a little disconcerting.”
That was the nut of a 5:29 p.m. email on Tuesday from Sam Chandan, chief economist and president of Real Estate Econometrics, and a faculty member at Wharton. He was talking about the incredibly arcane, nearly impossible to understand government program called TALF, or the Term Asset-Backed Securities Loan Facility.
Tuesday was the first deadline for investors seeking New York Fed-issued loans to invest in commercial mortgage-backed securities. There were, according to the Fed’s Web site, no requests for such low-interest loans. None. That means, said Dr. Chandan, that not one private equity firm, not one hedge fund submitted a request to the Fed, which administers the program nationwide, for TALF funding.
The New York Fed’s Web site defines TALF thusly: “Under the TALF, the New York Fed will provide non-recourse funding to any eligible borrower owning eligible collateral. On fixed days each month, borrowers will be able to request one or more three-year or, in certain cases, five-year TALF loans.”
“The government’s role in this is to provide loans,” Dr. Chandan patiently explained for what was likely the hundredth time. “You borrow from the New York Fed to make the investment. The loans are attractive because they are low cost. The interest rates are low.” Now investors will have to wait for the next application window, a month from now (not that they’re beating down the doors for such financing, or even timidly knocking at the doors).
This, after the Real Estate Roundtable, a D.C.-based advocate for developers, lobbied hard to include commercial real estate in the industries encompassed by TALF (student loans, auto loans, and the like were initially covered).
“What we are advocating is, once TALF is running and is functioning for consumer loans and small-business loans, the same concept would work in the commercial real estate arena,” Jeffrey DeBoer, the Roundtable’s president, told The Observer in January. “A commercial, TALF-like facility could provide financing to buy triple-A securities backed by commercial loan mortgages. Then banks would be more willing to make the loans. … That is the crux of what we’re asking for.”
In February, Treasury Secretary Tim Geithner gave the industry what it wanted.
Mr. DeBoer didn’t immediately respond to a request for comment Tuesday evening.
But here’s one working hypothesis: maybe private equity didn’t consider the Fed’s interest rates attractive enough?