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Can TALF Save Commercial Real Estate

|Includes: RWR, SPG, Vanguard Real Estate ETF (VNQ)
By Kevin Grewal, Editorial Director at
In an attempt to bolster the U.S. economy and save the commercial real estate market, the Fed extended its Term Asset-Backed Securities Loan Facility (TALF) program by three to six months. 
The extension of the program is meant to restart the credit markets, try to further fix an impaired financial market and prevent an already battered sector from falling even further, however many are wary if it will work.
On one hand, the program has the potential to generate up to $1 trillion in lending to households and businesses by enabling investors to use the funds of the program to buy new asset- backed securities which are backed by auto and student loans, credit cards, business equipment and loans guaranteed by the Small Business Administration as well as commercial real-estate debt. 
Additionally, the TALF loans have reduced borrowing costs in some markets. Since the TALF started in March, the gap, or spread, on top-rated securities backed by consumer loans relative to benchmark interest rates has fallen to 0.60 percentage point and the spread on AAA debt backed by commercial real estate has dropped 7.2%to 4.6 percentage points more than U.S. Treasuries, reports Barclays Capital. 
On the other hand, many believe that consumer spending and confidence is the only thing that will prevent the commercial real estate market from weakening. It is the consumer that drives corporate revenues which enable companies to prosper and grow. Corporate America will not add additional square footage in times of lean management, even though they may beat Wall Street’s profit expectations.
In a nutshell, although TALF has been beneficial and has reduced the cost of borrowing, it is ultimately on the consumer to determine the fate of commercial real estate.
Some equities that could potentially be influenced by the extension of TALF are the following:
Simon Property Group (NYSE:SPG), nearly doubling from a March low of $26.19 to close at $58.12 on Monday
SPDR Dow Jones REIT (NYSEARCA:RWR) closing at $39.55 on Monday after witnessing a March low of $22.97, an increase of 72%.
The Vanguard REIT Index ETF (NYSEARCA:VNQ) up 71% from a March low of $21.15 to close at $36.24 on Monday.
In addition to the previously mentioned factors that will influence the commercial real estate market, there are inherent risks when investing in equities and a good way to mitigate these risks is through the utilization of an exit strategy. According to the latest data from, an upward trend in the aforementioned equities could come to an end at the following price levels: SPGat $56.55; RWR at $38.38; VNQ at $35.09. Keep in mind that these price levels change as the markets fluctuate and updated data can be accessed at