June 17 (Bloomberg) -- The Federal Reserve received no requests from investors for loans to buy new commercial mortgage-backed securities under an emergency program aimed at reducing borrowing costs and reviving U.S. economic growth.

The New York Fed announced the absence of loan requests yesterday, the first monthly deadline for investors to apply for loans to buy new CMBS through the Term Asset-Backed Securities Loan Facility, or TALF. No issuers have publicly announced debt that’s eligible for the program.

New York Fed President William Dudley set expectations low, saying in a June 4 speech that he didn’t foresee any activity because the securitization process “takes quite a while to ramp up.” He asked his audience not to “take that as a mark of the success of the CMBS effort, please.”

The stakes of TALF aid for CMBS extend beyond the markets for office and retail space. Worsening problems in the commercial mortgage market may accelerate the drop in property values, increase defaults and weaken banks’ finances, Dudley said in the speech.

The Fed has made $25.2 billion in TALF loans for other securities, including those backed by auto and credit-card debt.

“This is not an embarrassment for the Fed, but it does show there is a slow discovery process on the part of investors and originators,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.

‘Toughest to Crack’

Among asset classes targeted by the Fed through the TALF, “commercial real estate is going to be the toughest to crack as its financing is very long-term in nature,” Rupkey said.

Yesterday’s deadline applied to securities issued this year. In late July, the Fed will start accepting investor requests for loans to purchase older CMBS.

The Fed, acceding to an industry request in May, authorized TALF loans of as long as five years, up from three years for other parts of the TALF. Real estate groups including the Mortgage Bankers Association had lobbied the Fed for the extended loan terms.

Fed officials hope the TALF -- an emergency program that may make as much as $1 trillion in loans -- will help revive the $760 billion market for CMBS. That in turn may lower interest rates and expand the availability of loans for the commercial real estate market.

“The revival of the CMBS market is essential to stabilizing the commercial real estate market,” Dudley said in the speech.

Slow Start

A slow start for the TALF’s CMBS support would mirror the first phase for other asset-backed debt, which began in March with $4.7 billion in requests followed by $1.7 billion in April. Loan requests exceeded $10 billion in both May and this month.

Demand in March and April was hampered in part by investor opposition to government restrictions on hiring foreign workers for firms that accepted the subsidized loans, and concern that Congress would try to tax earnings retroactively.

“This will take a while,” said Louis Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm. “It may very well be that when we see sharp increases in TALF participation, that that’s going to be a signal that the markets are in fact healed.”

Sales of CMBS plummeted to $12.2 billion last year, compared with a record $237 billion in 2007, according to estimates by JPMorgan Chase & Co. There have been no sales of the debt since June 2008.

Fed Chairman Ben S. Bernanke said in congressional testimony on May 5 that lending conditions in the commercial real estate sector are “still severely strained.”

Deals have been few partly because it can take as long as six months from the time a loan is originated to when it’s securitized.

In addition, the Fed posted the legal forms for CMBS in the TALF on June 9, leaving little time for participants, said Chip MacDonald, a partner at law firm Jones Day in Atlanta.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

Last Updated: June 17, 2009 00:01 EDT