Five-Year Terms Coming for TALF

If the latest rumors — not to mention a recent flurry of news reports — are any guide, the Federal Reserve Bank is going to allow longer loan terms under the TALF, or Term Asset-Backed Securities Loan Facility program. Specifically, it will permit five-year loans in the program; currently it is limited to three year-terms. There is anecdotal reason to believe the rumors are true: the Federal Reserve has been receptive to the arguments by the commercial real estate community that 1) a crisis is looming with upcoming CBMS debt that will require refinancing and 2) there is no other place for this debt to be refinanced other than the government – at least not right now. Problem has been, the government has moved at a glacier pace to respond to these issues. When TALF was first unveiled last year, it didn’t include commercial real estate backed loans at all; it was aimed primarily at the consumer markets. Later real estate was brought back into the fold; but at terms that were not a practical solution to the industry woes. So here we are now: hopefully on the cusp of another step forward no matter how delayed. However there are a number of other measures that need to be taken – some of which are more amorphous than merely allowing five-year loan terms. Chief among these is a greater sense of certainty about the role of the government and what it expects from participants. The flap over the AIG bonuses – no matter how justified the outrage – has had a chilling affect on the industry. The reasons are both self-serving – no self-respecting, profit-seeking banker is going to rush to embrace a program that limits his or her pay – as well as practical. If the government can backpedal on contracts when public fury is whipped up, how will it react when TALF or PPIP (the Public Private Investment Partnership program for toxic debt) becomes a target for public ire? Some of these doubts may be hindering TALF’s progress already — although that is a difficult call to make with any certainty. For sure TALF has not gotten off to a rousing start: in the first round only $4.7 billion in loans was requested; that number dropped to $1.7 billion in the second round. It may be that the borrowers are waiting to see how the program unfolds; or to get a better sense of where the economy is heading. But those numbers do not bode well for commercial real estate – even if a five-year loan term is part of the mix.