Thursday, April 16, 2009

Will TALF 3.0 Be Enough For A CRE Lazarus Act

Several reports came out today on CNBC and other MSM conduits about a brand new government effort which may consider expanding the already many-times revised TALF program to capture all sorts of commercial real estate securities, including the uber toxic ones, and extend the duration on TALF loans from the established 3 years to 5 or more years. First off it bears pointing out that as much as CNBC would like to make this piece of "news" into something phenomenal for the CRE market, it is not news, and was in fact reported by Bloomberg over a week ago. Just how many times can the market regurgitate the same piece of news and how many times can the same early am headline appear that xyz market is higher in early trading on recovery hopes. Doesn't the same story get old after a while? Apparently not - after all we are dealing with a market that has the attention span of tweaked out NYMEX trader on speed.

Aside from the fact the a CMBS lengthening may or may not occur, the (f)utility of such an action would be obvious upon further examination. The obvious reason why the CRE lobby is pushing for a 5 year period instead of 3, is because, as Zero Hedge pointed out, the bulk of CMBS and whole loan defaults are projected to really skyrocket in 2012/2013, just out of the current 3 year maturity horizon. Of course, purchasers of these TALF conduits are unlikely to be blind, retarded and illiterate at the same time and should be able to do the math for themselves (and if they can't, they can listen to Atlanta Fed president Lockhart, and if even that is too difficult they are more than welcome to peruse Zero Hedge analyses discussing the default cliff in CMBS). Lastly, the TALF has been a disappointment from the very beginning, as ZH speculated, and even if the 3-to-5 year extension is granted it is guaranteed to generate exactly 0 additional interest from potential investors (and probably negative interest, as with 3 years, at least the TALF loan matures inside the CRE default tsunami).

Now the real question is who is really behind the push for this amendment. As Bloomberg points out, the lobbying effort is spearheaded by one Christopher Hoeffel, who is president of the Commercial Mortgage Securities Association trade group. A cursory check of Chris Hoeffel, indicates that he is also a managing director at none other than Investcorp, a "leading provider and manager of alternative investment products, serving high-net-worth private and institutional clients." Investcorp, on its website indicates, that it currently has $13 billion in assets under management.

Chris is a managing director in Investcorp's real estate team, who joined "in 2008 and has senior level responsibility for sourcing, structuring, financing, underwriting, and closing new debt investments for the group. Chris joined Investcorp from JP Morgan / Bear Stearns & Co. where he was a senior managing director and global co-head of Commercial Mortgages."

It would likely be safe to assume that among the assets that Chris manages for his clients at Investcorp, the majority include commercial mortgages. Maybe Chris, Tim Geithner, or the Fed can provide a little clarity on just how much Investcorp would benefit if Chris (the non-profit guy) manages to convince the administration to provide these largely beneficial terms to CRE securities holders, and how much Chris (the for-profit guy) would benefit as a result.

But the plot thickens. Reading further down Investcorp's website one comes to the following blurb:
The success of the business is underpinned by Investcorp's unique placement capability in the six Gulf Co-operation Council countries of the Arabian Gulf, where we have focused on providing a high level of personal services to our investor base of high-net-worth individuals and institutions. Investcorp captures the growth dynamics of Gulf capital and of the alternative investment industry, combined with international best practice management disciplines.
As if there have not been enough rumblings that the bailout of the GSEs and of bank bondholders has been exclusively to the benefit of foreign investors, among them predominantly China and... Gulf sovereign wealth funds...

So let's recap: Gulf investors, commercial mortgage investments, JP Morgan, a trade group front... The list should probably necessitate some answers from someone before Geithner inevitably bends over backward and grants the TALF expansion, which, of course, like the current version of TALF 2.0 will be largely useless, but regardless U.S. taxpayers have a right to know who is conflicted in what and why.

As Chris was kind enough to personally submit a question to the FDIC regarding the yet another miserably planned wealth transfer initiative known as the PPIP (below), we can see that he himself is an inquisitive soul, and would not begrudge Zero Hedge readers the curiosity of explaining the motivations of his actions and his conflicts of interest (if any, of course).

hoeffel zerohedge
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