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TALF Launched. Will Commercial Real Estate Investment Bounce Back?

The TALF (Term Asset-Backed Securities Loan Facility) funds rollout began on March 5th, will it spur commercial real estate investment as promised?

Commercial property values are falling nation wide. Construction and Development are at a dead stop around the country because no one can get financing.

In ailing Detroit, 8 of 13 approved developments are on hold.

In California, the tax rolls of many counties are negative. The national economic downturn and falling commercial real estate values throughout the state are at the heart of tax revenue loss. While homeowners are getting relief through government programs, most commercial real estate owners are not. The mortgage crisis hit people where they live but the ramifications of a devalued commercial real estate market are rippling across the state. County programs are being slashed. The Inland Empire, boom-towns east of Los Angeles for the last decade, is crashing.

Should Connecticut see Commercial Real Estate values fall in a similar manner, a city like New Haven, which has already begun laying off city employees would be devastated by negative tax income. 124,000 residents: more than 160 non-profit organizations.

Around Chicago, luxury condominium developments have stopped mid-construction as have mixed-use developments.

Nationally, heirs of Howard Hughes may soon own a mall portfolio by default. Mall giant General Growth Properties, bought Rouse in 2004 and inherited its commitment to pay half the appraised value of property related to The Hughes family's master planned community outside Las Vegas, Summerlin. The only problem? General Growth Properties stock has dropped 98%. To make the payment, GGP would effectively give all their stock to the Hughes heirs.

The government used the "Domino Effect" to justify entry into the Vietnam War, but leaders couldn't see that building an economy on consumerism wasn't going to splinter when people stopped spending?

Talk about a real domino effect. Buying ceases. Stores are shuttered, clerks are laid off, logisitics workers are laid off, no new mall construction, trades people are laid off, call center workers for catalogue workers are laid off, truckers move less product. It?s a Domino Effect that looks like one of those Guinness Book attempts dominos falling one after the other in circles, up and down stairs, on ramps, off ramps and ends in an explosion of falling real estate values.

Meanwhile in Connecticut and New England as a whole commercial values hold steady. New England Manufacturers will outpace the rest of the country in revenues. In a contrarian move, they project revenue.

Our Commercial Real Estate Market is not imploding. We've been here before, 1989-1992. It was a blip on national radar but devastating to Connecticut and the rest of the colonies. We learned. Exponential growth has not been the norm over the past ten years.

Still, nerves are on edge and the question remains:

Will TALF funds, which are available for three years while most commercial mortgages packaged into bonds run seven to ten years, really spur investment and lending?

The disconnect in the years between fund monies and traditional commercial mortgage terms of ten years has not gone unnoticed.


March 8, 2009


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