UPDATE: Freddie To Sell $1 Billion Commercial Mortgage Bonds -Source
May 22 2009 - 3:06PM
Dow Jones News
Freddie Mac (FRE) is expected to sell nearly $1 billion of
commercial mortgage bonds backed by multifamily loans Tuesday in an
attempt to bolster the battered apartment sector, according to a
person familiar with the deal.
This would be the first time that a commercial mortgage bond is
sold with the backing of a government-sponsored enterprise. It also
would be the first large commercial mortgage bond deal in nearly a
year.
This transaction is expected to open up a new way for Freddie to
raise liquidity and support the troubled multifamily market.
Apartment and condominium complexes have been the most troubled in
the real-estate sector.
Speculative developers built huge condominium towers and
apartment complexes at the peak of the housing bubble, especially
in states like Florida, Arizona, Nevada and California. When the
housing market collapsed, these loans gradually started turning
south. They are the worst performing type of property among
commercial mortgages.
Delinquency rates in loans with apartments and condos as
collateral have skyrocketed to 5.12% in April, according to RBS
research. The loss severity on this property type is more than 25%,
as more than 754 loans have been liquidated.
Data released earlier this week show that new home construction
in the U.S. fell to a fresh low in April, as a result of a sharp
drop in ground breakings for high-rise towers and multifamily
dwellings.
So far, both Freddie and Fannie Mae (FNM), have held multifamily
loans that they purchase on their books without securitizing them.
This move is expected to free up Freddie's capital, so that it can
invest more in multifamily loans.
This comes at a time when Fannie also has started packaging
residential loans it holds in its portfolio into securities.
Fannie, however, hasn't sold them to investors yet.
Freddie, on the other hand, has sold these multifamily loans
that were held in its investment portfolio to a Deutsche Bank
Trust, which will package and sell these bonds. The deal will be
led by Deutsche Bank, according to the person familiar with the
matter.
Market participants say this is a positive sign for the market
and raises the prospect of more such deals from the GSEs.
Also, the implicit backing of the government is expected to make
these otherwise risky investments more appealing to investors.
-By Prabha Natarajan, Dow Jones Newswires; 201-938-5071;
prabha.natarajan@dowjones.com