Commercial Property Debt Fears

New debt fears over commercial property

By Aline van Duyn in New York

Published: May 28 2009 23:39 | Last updated: May 28 2009 23:39

Fears among credit investors have risen that threatened ratings downgrades of commercial property debt might thwart US government efforts to revive the markets that help fund office blocks, shopping centres and other commercial real estate.

Standard & Poor’s warned this week that it was likely to downgrade tens of billions of dollars in triple A securities backed by recent real estate loans – with 90 per cent of the securities backed by 2007 mortgages likely to face rating cuts.

The move took the market by surprise and triggered a sharp fall in the value of triple A rated commercial mortgage-backed securities. The ratings are important because the Federal Reserve said last week that its $1,000bn term asset-backed securities loan facility (Talf) could only be used in the CMBS market for securities that are rated triple A.

Talf represents a crucial policy response to the collapse of markets for securities backed by commercial mortgages and other loans. Borrowing costs for commercial properties had come down in recent weeks on hopes Talf would help revive the market, which tends to determine the interest rates available on new commercial mortgages. Full Story