Building  Owners  and  Managers  Association  International

Building Owners and Managers Association International

Commercial Real Estate Credit Crisis

BOMA Position

Credit capacity and liquidity must be restored to the commercial real estate industry.


Commercial real estate currently faces an unprecedented liquidity challenge.  Simultaneously, it is threatened by a severe economic downturn that is forcing many businesses to slash payrolls and shed real estate space, and causing others to declare bankruptcy or go out of business altogether.  Banks have tightened lending standards and most are not extending performing loans. Furthermore, the $900 billion Commercial Mortgage Backed Securities Market has come to a standstill, despite low delinquency rates and cash-flowing properties.  In addition to the challenge of refinancing maturing debt, borrowers are also facing the threat of rising foreclosures and delinquencies.   As part of its attempt to address the current credit crisis, the federal government has implemented two different programs.

Term Asset-Backed Securities Loan Facility (TALF)

Established in November 2008, the Term Asset-Backed Securities Loan Facility (TALF) enables the New York Fed to provide non-recourse loans to qualified borrowers with eligible collateral. The classes of eligible collateral have been rolled out in stages, with auto, credit card, equipment, and student loan securities included in the initial rounds. In May, the New York Fed announced that newly issued commercial mortgage-backed securities (CMBS) are eligible for subscription starting June 16 and legacy CMBS (i.e., issued before January 1, 2009) will be eligible in July. The New York Fed expects to make available up to $100 billion for such loans. The Federal Reserve has indicated that both new and legacy CMBS must have at least two triple-A ratings.  

Public-Private Investment Program (PPIP)

The Public-Private Investment Program (PIP) is an effort on the part of Treasury – in conjunction with the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve – to repair balance sheets throughout our financial system and ensure that credit is available to the households and businesses, large and small, that will help drive us toward recovery.

Using $75 to $100 billion in Troubled Asset Relief Program (TARP) capital and capital from private investors, the PPIP will generate $500 billion in purchasing power to buy legacy assets – with the potential to expand to $1 trillion over time.

PPIP has two parts, addressing both the legacy loans and legacy securities clogging the balance sheets of financial firms:

  • Legacy Loans: To cleanse bank balance sheets of troubled legacy loans and reduce the overhang of uncertainty associated with these assets, the FDIC and Treasury are launching a program to attract private capital to purchase eligible legacy loans from participating banks through the provision of FDIC debt guarantees and Treasury equity co-investment.
  • Legacy Securities: The goal of this program is to restart the market for legacy securities, allowing banks and other financial institutions to free up capital and stimulate the extension of new credit. The resulting process of price discovery will also reduce the uncertainty surrounding the financial institutions holding these securities, potentially enabling them to raise new private capital. The Legacy Securities Program consists of two related parts designed to draw private capital into these markets by providing debt financing from the Federal Reserve under the Term Asset-Backed Securities Loan Facility (TALF) and through matching private capital raised for dedicated funds targeting legacy securities.

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