Commercial Real Estate Direct Staff Report

The CMBS market finally might be coming to life, largely because of a federal government subsidized financing program.

No fewer than five transactions - including one backed by mortgages from Freddie Mac - are being geared up and could be brought to market in the coming months. All but the Freddie deal are being orchestrated by REITs or other real estate companies looking to address maturing debt. And they each rely on the government's Term Asset-Backed Securities Loan Facility, or TALF, under which investors would be able to leverage the acquisition of AAA rated bonds.

The cheap financing would allow investors to goose their yields.

The exact timing of each prospective deal couldn't be determined, but they're likely to start hitting the market starting within the next few weeks and run into the end of the year and possibly early next.

The transactions could total some $4 billion or more and would bring some life to the new-issue CMBS market, which has seen a relative dearth of issuance since last year's relatively paltry $12.1 billion of domestic transactions. So far this year, only three deals have been issued, but none could be considered traditional.

Freddie issued a $1.1 billion transaction in June. But it guaranteed payment on $851.8 million of bonds. The two other deals were a $250 million transaction backed by the cash flows from 1,167 cell-phone towers owned by Crown Castle International and a $450 million deal backed by cash flow from net-leased CVS stores.

As has been reported, Developers Diversified Realty Corp. could be the first out of the gate. It could raise more than $600 million through two transactions that would be issued through Goldman Sachs and Citigroup, respectively. The Beachwood, Ohio, REIT would put up about 60 of its properties as collateral and would use proceeds of the bond transactions to address debt that is slated to mature next year and in 2011.

The REIT, commonly referred to as DDR, has said that the transaction should hit the market in the fall.

Right behind it would be transactions that would allow a REIT sponsored by Inland Real Estate Group, as well as Simon Property Group and Vornado Realty Trust to address some of their upcoming maturities. Each is expected to issue transactions of between $500 million and $1 billion through JPMorgan Securities.

And Freddie Mac will likely launch a follow-up to its June transaction that would be similar in size. There's also word that Westfield Group and Macerich Co. might be considering TALF-assisted deals.

Comments? E-mail Orest Mandzy or call him at (215) 504-2860, Ext. 211.