Nov. 9 (Bloomberg) -- Goldman Sachs Group Inc. is underwriting $400 million of bonds backed by an Ohio real estate company’s shopping centers in the first sale to tap a U.S. program to unlock lending in the commercial mortgage market.

The bond is backed by 28 properties owned by Developers Diversified Realty Corp., according to people familiar with the transaction who declined to be identified because terms are private. The offering comes a month after Goldman Sachs made a loan to the Beachwood, Ohio-based company in part to repay debt on the properties and others.

The Federal Reserve opened its Term Asset Backed Securities Loan Facility in June to newly issued commercial mortgage-backed securities to stimulate lending and avert a wave of foreclosures as borrowers fail to refinance. There have been no new sales of the debt since June 2008, according to data compiled by Bloomberg.

“It would be good for the market psyche to actually see a new deal done,” said Kent Born, senior managing director at PPM America Inc., an investment manager in Chicago. “But as a practical matter it’s not going to get us back to the type of deals that were the bread and butter of the market merely two years ago.”

Investors can take out loans from the Fed’s TALF to purchase the top-rated securities from Developers Diversified. The TALF was started in March to revive the market for debt backed by consumer and small-business loans.

Fortress Sale

The Developers Diversified sale comes as Bank of America Corp. puts together a $650 million offering for Fortress Investment Group LLC, backed by office and industrial properties in Florida, according to a person familiar with the transaction. The issue may be sold outside the Fed program, the person said.

Both the Developers Diversified and Fortress offerings are different from the commercial-mortgage backed securities sold during the boom in that they’re from single borrowers. Securities sold as the market peaked in 2007 bundled loans from as many as 300 borrowers, according to data compiled by Bloomberg.

The process of pooling debt from so many borrowers can take several months, and banks are hesitant to write new loans and hold them on their books, said Christopher Hoeffel, a managing director real estate investor Investcorp International Inc. in New York.

JPMorgan’s Plans

As credit markets have stabilized and financial institutions make bets the worst has passed, signs are emerging that some banks are willing to take on the risk. During the past two weeks, JPMorgan Chase & Co. began quoting loans to commercial borrowers with the intent of pooling them to be sold as bonds, though no loans have been closed yet, according to a person familiar with the program.

“This is a very positive sign for the market,” Hoeffel said. “While it’s only a toe in the water, banks are actually taking the execution risk of a securitized exit.”

New underwriting standards are stringent, and the proceeds available to borrowers will not be enough to pay off existing debt for many property owners, Hoeffel said.

“There will need to be additional capital from outside the banks, in the form of equity, preferred equity or mezzanine debt, in order to make deals work,” Hoeffel said in an e-mail.

Banks wary of holding loans during the time it takes to build a pipeline have limited assets to dedicate to new commercial real estate loans, Hoeffel added.

The government has made reviving the commercial-mortgage bond market a priority as plunging property values and a pullback in lending threaten to derail an economic recovery. U.S. commercial real estate prices are down 40.6 percent from the October 2007 peaks, according to Moody’s Investors Service.

Sales of commercial mortgage-backed debt slumped to $12.2 billion last year from a record $237 billion in 2007, according to JPMorgan Chase & Co.

To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

Last Updated: November 9, 2009 11:57 EST