While securitizing consumer loans, including auto loans and credit card debt, increases liquidity for loan originators, securitizing commercial loans, especially Commercial Mortgage-Backed Securities (CMBS), is absolutely vital to making the real estate market function effectively. In fact, the drying up of the CMBS marketplace — issuances decreased from USD237 billion in 2007 to USD12.2 billion in 2008, all in the first six months, according to JP Morgan Chase & Co. — has caused commercial real estate transactions to grind to a halt.
In 2009 alone, USD171 billion of commercial mortgages mature, according to the Mortgage Bankers Association. With a frozen credit market, holders of this maturing debt are likely to find new financing extremely difficult to obtain or prohibitively expensive, increasing the likelihood of loan defaults and possibly adding more stress to the balance sheets of already-fragile lenders. One bright spot is the inclusion of CMBS financing in the U.S. Government-sponsored Term Asset-Backed Securities Loan Facility (TALF).
Designed to stimulate the credit markets and restore stability by supporting the purchase of asset-backed securities for auto loans, credit card debt and small-business loans, TALF loans will also be expanded to include newly originated CMBS and assets collateralized by corporate debt. While originally envisioned as a USD20 billion program, leveraged to USD100 billion, updated figures reflect a USD100 billion program, leveraged to USD1 trillion. Another key debate is related to the term of TALF loans, initially conceived for three-year durations, appropriately timed for many types of asset-backed securities. However, a longer loan term for CMBS — five years at least — is needed to have a stimulative effect on the marketplace.
KPMG believes that a more liquid credit market is likely to have a positive impact on the economy, freeing up financing for transactions of all kinds and, hopefully, stimulating job growth. With unemployment rates continuing to rise across the globe, addressing this issue is a top priority of the U.S. government and its counterparts. While much attention has been paid to the impact of residential real estate, the return to vitality of commercial real estate will be a key element in determining the scope and duration of the global recession.
As the credit markets return to life, we recognize the issues and opportunities ahead for the industry. Asset valuation continues to challenge both buyers and sellers, new tax structures add increasing complexity, and timing transactions to maximize gain has never been more mission-critical. KPMG firms can help our clients address these new realities, while simultaneously positioning themselves to leverage the possibilities created. Our U.S. firm’s Building, Construction & Real Estate professionals offer a broad portfolio of services and capabilities to assist clients to succeed in these turbulent times, including:
- economic and valuation services to help determine value in an illiquid marketplace
- financial modeling and transaction advice to guide your deals
- advising on international, federal, state and local taxes
- assessing your enterprise risk management from evolving factors
- executing commercial, operational and financial due diligence to identify key information
- restructuring troubled assets to maximize performance
- liquidity services to evaluate financing needs
- establishing project management capabilities to achieve organizational strategies
Our regional lead partners for the Building, Construction and Real Estate practice include:
Americas region:
Raymond Milnes Jr.
Asia Pacific region:
Andrew WeirEurope, Middle East & Africa region:
Jonathan ThompsonSelected Building, Construction and Real Estate member firms' practices, among others, include
Australia,
Belgium,
Canada,
China,
India,
Ireland,
Poland,
Switzerland,
United Kingdom and
United States.
