DDR plans to outsource its monster mall debt to taxpayers

Developers Diversified plans to pursue Fed funds

Crain’s Cleveland Business
June 17, 2009

In an effort to retire debt outstanding, Developers Diversified Realty Corp. (NYSE: DDR) plans to pursue funding for $300 million to $600 million through the Federal Reserve Board’s new lending program for commercial mortgage-backed securities.

Scott Wolstein, Developers Diversified chairman and CEO, said in a phone interview that the Beachwood real estate investment trust is pursuing the program because commercial real estate lending sources largely have dried up and the major active source of such loans — life insurers — has too little capacity to meet demand. Moreover, loans through the Fed program will cost at least 100 basis points less than conventional commercial loans.

David Oakes, chief investment officer of Developers Diversified, said in a June 3 conference call at an annual conference held by the National Association of Real Estate Investment Trusts that DDR might be the first company to access the new Fed program.

However, Mr. Wolstein downplayed the significance of being first in line. He said at least a dozen real estate companies are pursuing the program and it has adequate funding for all of them.

“We’ve got lots of loans that mature in 2010, 2011 and 2012,” Mr. Wolstein said. “This will allow us to borrow loans with a maturity in 2014. As loans mature, you can generally extend them a year at a time (with the same lender). We think it would be prudent to do this. Clearly, the Fed is doing this because they think they can help repair the capital market and make more money available.”

Developers Diversified is working with two investment banks Mr. Wolstein declined to identify on the two potential loan packages. Mr. Wolstein said Developers Diversified is likely to issue the package in September. The Fed launched the program this week.
Thanks to Evan and Citizen S