Oct. 9 (Bloomberg) -- Goldman Sachs Group Inc., seeking to take advantage of an untapped Federal Reserve program, may sell the first commercial-mortgage bond since June 2008, backed by a $400 million loan to an Ohio property owner.
The five-year loan to Developers Diversified Realty Corp. made by a unit of the New York-based bank is secured by 28 shopping centers. It will be used to repay debt on those properties and others, and to reduce the outstanding amounts of credit facilities, Developers Diversified said yesterday in a statement.
Developers Diversified and Goldman Sachs are working with the Fed to qualify the loan for the government’s program to unfreeze the $700 billion market for securities backed by commercial mortgages. The Fed expanded its Term Asset-Backed Securities Loan Facility to newly issued commercial real estate debt in June. No sales have been completed since then.
“The DDR deal has been expected for months,” said Aaron Bryson, an analyst at Barclays Capital in New York. “An actual close at reasonable terms would be a significant positive for new-issue TALF which has been slow to get off the ground.”
Sales of U.S. commercial mortgage-backed debt slumped to $12.2 billon last year from a record $237 billion in 2007 as the credit crisis sapped demand, choking off financing to borrowers with maturing debt, according to JPMorgan Chase & Co. data.
“We are pleased to announce continued progress raising long-term capital to retire short-term debt,” David Oakes, chief investment officer of the Beachwood, Ohio-based company, said in the statement. “We look forward to announcing additional progress in the coming months.” Michael DuVally, a Goldman Sachs spokesman, declined to comment.
Reviving a Market
The U.S. government pushed to revive the market for commercial real estate amid a pullback in lending and a 36 percent drop in property prices from their October 2007 peak.
About $524 billion of commercial mortgages held by U.S. banks and thrifts are scheduled to come due before 2012, half of which probably won’t qualify for refinancing because they exceed 90 percent of the property’s value, according to distressed investor Lone Star Funds.
At least $410 billion, or two-thirds, of commercial mortgages bundled and sold as bonds coming due by 2018 will have difficulty refinancing, according to data from Deutsche Bank AG.
The initial TALF deals may provide price points for new loan originations, said Darrell Wheeler, an analyst at Citigroup Inc. in New York.
“If price levels remain stable enough, several issuers will start originating smaller loans for multi-loan CMBS pools that will not require TALF financing support,” Wheeler said in an e-mail.
Goldman Sachs, the world’s largest securities firm before converting to a bank last year to win the protection of the Federal Reserve, garnered record revenue from fixed-income trading in the second quarter. It set aside $11.4 billion to pay compensation in the first half of the year, an all-time high.
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