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PREA: No large scale US programme for commercial real estate

The US government has no plans to launch another "large-scale" bailout programme for the commercial property sector, but could help through TARP if the industry faces serious problems, the PREA conference was told today.

The US government has no plans to launch any more large-scale aid programmes to help the commercial real estate industry, even though Treasury officials acknowlegde the industry could face “significant problems” in the future.

Speaking at the annual fall conference of the US Pension Real Estate Association (PREA) in Beverly Hills today, David Miller, acting chief investment officer of the Treasury Department's Office of Financial Stability, said the problems facing the industry in terms of looming debt maturities were on the minds of politicians and government officers. “We acknowledge there are signiciant problems facing commercial real estate.”

However, Miller added such “acknowledgement” wouldn't translate into another government bailout programme. “From where we stand now there's no current plans for a specific commercial real estate large-scale programme.”

Since the credit crisis last year, an array of industry veterans have urged the US government to create an RTC-style warehouse to force the disposition of toxic real estate assets from bank and financial institution balance sheets. Instead the government has launched public-private partnerships intended to create auctions for real estate-related assets, including the Public-Private Investment Program (PPIP) and Term Asset-Backed Securities Loan Facility (TALF) plans.

Miller, who stressed his views were not necessarily those of the government, said the market was starting to deal with problematic issues itself. “The private markets are able to anticipate and hopefully adjust [to the problems ahead].”

He did reveal though that if the commercial real estate industry did suffer a serious fallout from the $1 trillion of commercial real estate debt set to mature over the next three years, it did have capacity to inject capital through its original Troubled Asset Relief Program (TARP). But Miller noted, it would have to be a “significant” problem for the Treasury to intervene with taxpayers' money.

During the panel on the impact of government programmes on the future of real estate, BlackRock managing director Sacha Bacro said plans such as PPIP and TALF had helped “bring systemic risk off the table”.

Michael Gordon, co-founder and chief executive officer of Angelo Gordon, meanwhile added that the PPIP programme, whereby private capital is matched by government financing, was a “very attractive” opportunity providing fund managers with leverage “far below commercial rates. It makes it very compelling.” Angelo Gordon, in a joint venture with GE Capital, was one of nine managers to be selected to take part in the legacy securities part of the PPIP programme in the summer.

Miller told the conference that of the nine fund managers, five had closed on $3 billion of private capital, with the remaining managers expected to close their offerings “very shortly, in the next couple of weeks”.