Economic Update – Commercial RE Industry Seeks Longer Terms Under TALF

Commercial real estate defaults are predicted to continue their upward march for the foreseeable future as the industry groans under the weight of un-refinanceable debt and sagging property values. That’s why commercial real estate lobbyists are busy asking for–pleading for–five-year loans via the Term Asset-Backed Securities Loan Facility (TALF) for commercial real estate refinance, instead of the standard three-year terms. The difference, it’s hoped, will provide a bridge to a time when credit is easier to get and property values have recovered. Whatever TALF ends up offering the commercial real estate industry, that doesn’t mean that commercial property owners are helpless to look after either own interests, say industry insiders. Especially those who might be in a position to capitalize on the opportunities offered by a down market. “Now is the time. A property owner should look for potential opportunities to expand the business by positioning the firm to buy distressed assets or mortgages that have been taken back by lenders, or by taking over assets which have been poorly managed by other investment managers,” Jana Langston, a principal with Wheaton, Ill.-based real estate service provider Sight on Site L.L.C., told CPN recently following her participation in panel discussion for Commercial Real Estate Chicago Executive Women (CREW) of Chicago focusing on maximizing assets in difficult economic times. Inside the organization, she continued, operating expenses need to be controled–everyone’s already doing that, but the point needs constant reiteration–and “owners should set up the procedures and processes so they’ll be able to take advantage of those opportunities when they become available,” Langston said. Talk of nationalizing major banks was all the rage in the United States earlier this year, but the federal government has been reluctant to do it thus far, at least in terms of dramatic, highly visible acts. The German government, on the other hand, has decided to pull the trigger on a major nationalization bid, moving on Thursday to take over Hypo Real Estate Holding AG, which was bailed out by the Bundesbank late last year through €50 billion in credit lines and €52 billion in loan guarantees. The Germans aren’t taking any half measures, either–the Bundesrepublik has tendered an offer of €1.39 ($1.84) per share for 100 percent of the company, a 15.8 percent premium over the bank’s share price on Wednesday. Munich-based Hypo Real Estate provides financing for investors, building societies and developers, as well as real estate funds, and is considered too big to fail. At least that’s the take-away from a statement by the German government’s bank rescue fund: “… if HRE were to become insolvent, this would have substantial, barely quantifiable consequences for the national and international financial markets,” the fund noted, adding that it intends to recapitalize the bank. It’s an offer the shareholders can’t refuse. If they do, the government has the power to expropriate the bank. German stocks responded by reaching a two-month high. Wall Street seemed positively optimistic as well on Thursday, seemingly buoyed by the first-quarter numbers from Wells Fargo, which showed a profit for the quarter. The Dow Jones Industrial Average, ahead of a market closing for Good Friday, gained a thumping 246.27 points, or 3.14 percent. The S&P 500 was up 3.81 percent, and the Nasdaq gained 3.89 percent.