Property Lender Bets on TALF Expansion
Commercial-property lender Monticello Asset Management is planning a structured-product investment program with a twist.
Like the managers of many newly forming vehicles, Monticello aims to finance its purchases with a combination of investor capital and leverage from the Federal Reserve’s Term Asset-Backed Securities Loan Facility. But the New York firm is taking aim at securities that don’t currently qualify for use in the emergency program.
Namely, it is eyeing collateralized loan obligations backed by bridge loans on healthcare facilities and transactions underpinned by loans on renewable-energy projects. The bet is that the Fed will soon expand TALF to allow for such products, boosting their values.
TALF, unveiled on March 23, aims to stimulate business and consumer lending amid the coronavirus crisis by offering up to $100 billion of government financing to investors that pledge certain triple-A-rated structured products as collateral. Currently, the only qualifying asset types are auto loans and leases, student loans, credit-card receivables, equipment loans and leases, dealer-floorplan loans, insurance-premium loans, Small Business Administration loans and certain corporate loans and commercial mortgages.
On the commercial mortgage side, only outstanding multi-borrower securities qualify. But industry participants have been lobbying for the inclusion of CLOs and single-borrower, single-asset paper, along with new deals across qualifying formats.
The first round of TALF subscriptions saw investors use the funding only for bonds backed by commercial mortgages, insurance-premium loans and small-business loans. That in part reflected the fact that deals in many other assets classes are selling at spreads that make the financing uneconomical.
“We’re seeing TALF evolve. A lot of potential opportunities were barely in the money,” Monticello co-founder Alan Litt said. “Should criteria be expanded, we feel we can use our specialized skills evaluating the collateral.”
Monticello is housing the capital it raises in separate accounts. While the up-front costs of starting such an initiative can be heavy, Monticello felt it was important to be in TALF from the beginning. “We’re taking a wait-and-see attitude,” co-founder Thomas Lally said.
None of Monticello’s principals participated in the original version of TALF, launched in 2009. Investment-banking firm EA Markets is advising Monticello on the effort.
Litt and Lally started Monticello with Litt’s brother, Jonathan Litt. The brothers previously played leading roles at Kohl Cos. Lally, a market veteran, last was at Ladder Capital.
Monticello has originated some $2.2 billion of bridge loans and mortgages since forming in 2014. In the healthcare sector, it specializes in financing skilled-nursing, assisted-living, memory-care and senior housing facilities. Its renewable-energy activities mainly have entailed short-term financing of projects destined for tax-credit equity or government-backed funding.
Monticello mainly has funded its activities by raising capital from private investors. It also has securitized some of its loans via privately placed, unrated transactions.
CORRECTION (7/6/20): This article has been revised. The name of the firm advising Monticello is EA Markets.