Investors show no appetite for Fed program to bolster commercial real estate loans

Commercial real estate loans draw no interest

WASHINGTON — Investors showed no appetite for commercial real estate loans in the debut of a government plan intended to boost their availability.

The Federal Reserve Bank of New York said it received no investor requests for loans by Tuesday’s deadline. Investors would use the money to buy newly issued securities backed by commercial real estate loans.

The Fed has been counting on this new option — part of the broader Term-Asset-Backed Securities Loan Facility, or TALF — to increase the availability of commercial real estate loans, help prevent defaults and facilitate the sale of distressed properties.

The TALF is intended to boost the availability of loans to consumers and small businesses at cheaper rates. Investors have requested a total of $28.5 billion worth of loans under that part of the program to buy newly issued securities backed by auto and student loans, credit cards, business equipment and loans guaranteed by the Small Business Administration.

The Fed next month will add existing commercial real-estate securities — such as those made months or years ago. Those securities have especially weighed down banks’ balance sheets as the recession deepened.

“That’s a bigger problem and more hopes are pinned on that,” said Michael Feroli, an economist at JPMorgan Economics, adding that investors probably needed more time to get ready. “It’s ambitious to think investors would be ready to pile into a whole new asset class in such a short time.”

The broader TALF program, which started in March, had gotten off to a lethargic start. It has been hobbled by rule changes, investor worries about financial privacy and fears that participants might become ensnared in an anti-bailout backlash from the public and Congress.

The program has the potential to generate up to $1 trillion in lending for households and businesses, according to the government. Spurring such lending is vital to turning around the economy.