Fed’s Latest Stimulus Includes CMBS Relief

Yesterday the Federal Reserve announced it was pumping more money into the beleaguered US economy: an additional $2.3 trillion that will commit hundreds of billions of dollars in loans to mid-sized business, as well as much-needed support to states and large counties. This new stimulus also includes support for CMBS, as the Term Asset-Backed Securities Loan Facility (TALF) will now include legacy CMBS as eligible collateral, according to the CRE Finance Council. Eligible CMBS securities must have been issued prior to March 23, 2020, while securities related to other asset classes are only eligible if they were issued after this date.

Last month, the Fed began purchasing CMBS issued by the GSEs, marking a first for the Fed’s Open Market Operations. But that support didn’t extend to private label CMBS.

This latest move by the Fed is an important step in the market’s recovery, according to Lisa Pendergast, executive director of the CRE Finance Council. Referring to a similar Fed facility set up in the financial crisis a decade ago, she said that TALF 1.0 had an immediate and positive impact on restoring stability to the CMBS market “and that the recovery in the secondary market was imperative in order to restart CMBS lending and issuance.”

The expanded TALF term sheet requires that the underlying credit exposures for CMBS must be real property located in the US or one of its territories. Also, CMBS securities related to single-asset single-borrower and commercial real estate collateralized loan obligations are not eligible at this time, according to CREFC. It says it will advocate the Federal Reserve and Treasury to include CRE CLOs into TALF.