The issuance of two successive commercial mortgage bonds with little or no support from the Federal Reserve's Term Asset-Backed Securities Loan Facility has raised the possibility that this corner of the debt market may spark its own revival.

When the market for bonds backed by commercial mortgages was dormant for more than a year, concern mounted that the securitization of loans made for hotels, office buildings and stores would not return anytime soon. Falling occupancy rates and rising delinquency rates made the picture even more dire.

Talf was initially intended for securities backed by consumer loans. In May the Fed extended it to the commercial mortgage market, hoping to spur activity. For the first few months investors tapped the program to buy existing commercial mortgage bonds, but no new issuance was in sight.

Things changed last week. The real estate investment trust Developers Diversified Realty Corp. priced a $400 million deal, the first commercial-mortgage-backed security issue in more than a year. Its success proved two things: that investors were willing to buy well-structured, conservatively underwritten bonds, and that they were willing to make these purchases with little government support.

In the DDR deal, buyers sought only $72 million in cheap loans from Talf. The rest of the $323 million triple-A portion was sold to unleveraged investors such as banks, pension funds and insurance companies.

"There is a growing consensus that the need for Talf is much diminished today versus at the beginning of the year," said Lisa Pendergast, head of CMBS strategy and risk at Jefferies and the incoming president of the Commercial Mortgage Securities Association.

Bank of America Corp. is set to announce a $460 million deal backed by office and industrial properties in Florida. This deal will be a real test of buyers' appetite for these CMBS, because there is no government support.

Investors are looking at whether the properties held as collateral on these loans are leased to good tenants and produce a steady flow of income with no looming lease terminations, and they are looking at the overall transparency of the deal, Innaurato said.

While true recovery is unlikely until commercial real estate hits bottom, liquidity is likely to return much sooner.

This also paves the way for the end of the Talf program in June.

Many had said the program would have to be extended to give commercial real estate time to recover.

"The issue no longer is that you need Talf to bring new CMBS offer to the market, rather it's trying to get banks and lenders to originate new loans," Pendergast said.

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