Newsletter Volume 1

FED Throws TALF Lifeline to 

 Commercial Real Estate 

By Alister Bull 

WASHINGTON (Reuters) - The U.S. Federal Reserve threw the battered com- 

mercial property sector a lifeline by granting it access to an emergency program 

set up last year to unlock credit markets frozen by a global financial crisis. 

The Fed said its $200 billion Term Asset-Backed Securities Loan Facility, which 

it has already said may grow to $1 trillion in size, will be opened from June to 

commercial mortgage-backed securities that were issued in 2009. 

The TALF was launched last November as policy-makers fought a financial crisis 

sparked by the collapse of the U.S. housing market that has inflicted the worst 

recession in a generation. 

“The inclusion of CMBS as eligible collateral for TALF loans will help prevent 

defaults on economically viable commercial properties, increase the capacity of 

current holders of maturing mortgages to make additional loans, and facilitate the 

sale of distressed properties,” it said in a statement. 

“CMBS accounted for almost half of all new commercial mortgage originations 

in 2007,” the Fed said. 

Risk premiums on commercial mortgage-backed securities rose after the Fed’s 

announcement, with traders disappointed that the expansion did not include older 

and lower rated assets. As part of a broader government effort to remove bad as- 

sets from bank balance sheets, the Treasury has said the TALF will be expanded 

to cover these so-called “legacy assets”, but the timing is still unclear. 

Risk premiums on a derivative index of “AAA” rated CMBS climbed about 0.5 

percentage point on Friday, to more than 5 percentage points above its interest rate 

benchmark. The spread has declined from nearly 8 percentage points in March. 

The Fed also said the TALF would be opened to securities backed by loans used 

by small businesses to obtain property and casualty insurance. 

Currently, all TALF loans have maturities of three years. The Fed said from June, 

TALF loans with maturities of five years would be available for CMBS, as well as 

securities backed by student loans and loans to small businesses. 

It also said that up to $100 billion of TALF loans could have five-year maturi- 

ties, and that limit will be kept under evaluation, in a hint that it could be lifted 

if necessary. 

U.S. central bankers are wary about clogging up the Fed’s balance sheet with lon- 

ger-dated assets that may hamper their ability to reduce its size as the economy 

recovers, which will be important to keep inflation in check. 

The Fed balance sheet has already been more than doubled in size as policy- 

makers pumped over $1 trillion into credit markets to prevent the financial crisis 

getting much worse. 

To allay these concerns, interest on collateral financed with a five-year loan may 

be diverted toward an accelerated repayment of the loan, especially in years four 

and five, to encourage borrowers to exit the program and return to the private 

sector. 

The Fed launched its TALF program in November 2008 as an emergency re- 

sponse to the seizure of the asset-backed securities market amid panic over losses 

following the failure of investment bank Lehman Brothers in September. 

The decision to allow loans of up to five years bows to steady pressure from the 

investment community, which the central bank had initially resisted because of 

concerns that it would make the task of managing its balance sheet harder. 

Commercial real estate is following the slump in residential property as the U.S. 

recession reduces land values and the revenue needed to pay debt. 

Fed officials have said they are concerned about the possibility of rising problems 

in commercial properties, which could increase pressure on commercial banks. 

Citigroup estimates commercial property delinquencies could rise to 4 percent 

this year and 8 percent in 2010 from about 2.5 percent last month. 

Longer-term financing matters to investors in commercial real estate debt because 

the underlying mortgages are usually for longer terms, and investors would be less 

willing to hold these securities without the longer-term financing. 

(Additional reporting by Mark Felsenthal in Washington and Al Yoon and Kris- 

tina Cooke in York; Editing by Andrea Ricci) 

CCRB Services

Chicago Commercial Realty Brokerage is an unconventional commercial real estate firm because we offer business consultation together with the conventional real estate services. We specialize in tenant and buyer representation.  We don’t carry any listings since there is an abundance of inventory already on the market. 

 

We are serious about our services and we deal with serious clients who are ready, willing and able to make a move.  You have no time to wait for our services while we work with “tire kickers” so this is why we charge a retainer; to ensure that our time and effort is respected and more importantly yours is as well.  Our fee is simple; we set up a minimum retainer of $495 and a maximum retainer of $4,950.  Everything in between will be charged one tenth of one percent of the buyer’s median purchasing budget. 

 

As far as leases are considered we collect a minimum of $495 and a maximum retainer of $4,950.  Leases falling in between the minimum and maximum will be charged a retainer of 1% of the anticipated 12 months lease budget.

 

Aside from the prompt service we provide, what also differentiates us from other traditional brokerage houses is that we offer business consultation that can reduce overhead costs, save jobs and help business go green in the process.  This is a multifaceted approach to aid small to medium sized companies survive these tough economic times.  Our earnings will directly correspond to the amount of money we will save the client.  There are no actual out-of-pocket expenses, as the client will agree to pay CCRB the difference in the savings of rent for a 1-3 month period, depending on the amount of savings incurred.  

 

Through our business consultation we will review the current space of the business, determine the amount of space per employee, review the current lease/mortgage, consult with our brilliant team of IT professionals, debt consolidators, and telecom professionals and devise a plan to cut overhead, salary and utilities.  

 

As an example of what could be done for an office size of 25 people.  After analysis it is determined that16 office based employees can work from home with a computer system called a thin client.  This allows employees to access all programs from the central server located in the main office.  It is very secure as it only allows the home-based employees access to files and programs permitted by the owner or the head of the office.  The cost for this technology is relatively inexpensive and the overall cost savings can pay for the technology within four to six months of installation. 

 

As far as the communications aspect of the business, a simple VOIP phone system can be utilized so that no matter where an employee is stationed, he/she has complete access to make and receive phone calls wherever an Internet connection is available

 

By allowing employees to work from home, a small salary cut is likely as they most likely will be more than willing to take a small cut in order to save money in the long run.  The employee will not have to pay for fuel, vehicle maintenance, new wardrobes, and dry-cleaning, and other daily expenses such as going out to lunch, parking and commuting time.

 

Management may feel as if they are losing control by allowing employees the “freedom” from working at home.  This may not be the case as there are several ways to monitor the employees’ production.  With both the VOIP phone system and the slim client management can view the amount of time spent on the computer and on the phone.  Also, a proactive approach to looking at an employee’s production is a simple and perhaps the most effective way to monitor them. 

 

When we talk about going green and sending workers home to work, we a talking about lessening the company’s carbon footprint.  By reducing the amount utilities used in the office, reducing the greenhouse gasses used by the daily commute, and even relocating to a Leed certified building, the company can take the lead in environmental conservation.

 

Our initial evaluation of an office is free of charge.