Category: Capital and Credit

House Passes Legislation to Transition Away From LIBOR With Solution for “Tough Legacy” Contracts

Posted on by Trey Jackson

Libor transition to SOFR image

Legislation passed by the House of Representatives on Dec. 8 would protect trillions in “tough legacy” contracts that use the London Interbank Offered Rate (LIBOR) as a reference rate for financial transactions. The Real Estate Roundtable and a broad coalition of industry groups have long-supported this protective measure. (Industry Coalition letter, Dec. 7 and Bloomberg, Dec. 8)

LIBOR and CRE 

  • House lawmakers approved the Adjustable Interest Rate (LIBOR) Act (H.R. 4616) by a vote of 415-9, sending the bill to the Senate as the use of LIBOR faces retirement in 2023. Banks will not be able to issue new loans or other financial contracts using LIBOR as of Jan. 1, 2022. (Wall Street Journal, Dec. 3)
  • LIBOR is currently used in outstanding financial contracts – including commercial real estate debt, mortgages, student loans and derivatives – worth an estimated $223 trillion. (Roundtable Weekly, July 30)

 Tough Legacy Issues Addressed

  • The House bill includes provisions that address the transition of the most troublesome LIBOR-based contracts – referred to as “tough legacy” – to a replacement benchmark when LIBOR sunsets. These contracts have insufficient fallback language or include provisions that cannot be amended.
  • The bill also provides a safe harbor for market participants switching existing LIBOR-referencing financial contracts to a replacement benchmark for debt instruments, such as the Secured Overnight Financing Rate (SOFR).  The bill also includes a federal preemption.
  • The Real Estate Roundtable and 17 national trade groups also previously submitted letters April 14 and July 27 to House Financial Services Committee policymakers in support of legislation to address “tough legacy” contracts during the transition away from LIBOR. 

The House bill provides that when LIBOR reaches its final replacement date (June 30, 2023), all contracts with no adequate fallback provisions for an alternative benchmark substitute will be replaced with SOFR. 

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House Committee Advances Bill to Expedite Emergency Rental Assistance; Treasury and FHFA Loosen Fannie, Freddie Mortgage Purchase Restrictions

Posted on by Trey Jackson

House Financial Services Committee graphic

The House Financial Services Committee (HFSC) on Sept. 14 advanced the “Expediting Assistance to Renters and Landlords Act of 2021” by a vote of 28-22 after a hearing last week that focused on urgent reforms needed to the Treasury Department’s Emergency Rental Assistance Program (ERAP). (Bill text and section-by-section)

  • H.R. 5196 would allow property owners to directly apply for rental arrears after meeting certain requirements. Landlords could apply for pandemic-related rental aid without getting the tenant’s signature, but could not evict those tenants for 120 days. (HFSC memorandum, Sept. 7 and PoliticoPro, Sept. 14) 

Assistance for Property Owners 

Emergency Rental Assistance Program graphic

  • Treasury reported that as of July 2021, only 11% ($5.1 billion) of the $46.6 billion in authorized federal rental assistance funds had been spent by state and local governments to assist approximately one million renters. (Committee Memorandum, Sept. 7) 
  • The issue of eliminating significant bottlenecks to deliver billions in rental assistance to landlords and tenants has grown more urgent in recent weeks after the Supreme Court’s Aug. 26 decision to halt the federal eviction ban. (Roundtable Weekly, Aug. 27)
  • Treasury this week announced it will speed up delivery of the remaining $13 billion in federal rental aid by targeting the high-performing state and local government grantees. (Treasury news release, Sept. 14)
  • National Multifamily Housing Council (NMHC) Chair David Schwartz (Chairman and CEO, Waterton) testified Sept. 10 on behalf of the rental housing industry at the HFSC hearing “Protecting Renters During the Pandemic: Reviewing Reforms to Expedite Emergency Rental Assistance.”
  • Schwartz supported the ramp up of rental assistance benefits and streamlining onerous application and documentation requirements, yet cautioned against the imposition of new requirements that create new barriers for property owners to participate in ERAP programs. (YouTube, full hearing and NMHC news release, Sept. 10)
  • Schwartz will join Roundtable President and CEO Jeffrey DeBoer and NMHC President Doug Bibby in a Sept. 23 multifamily webinar hosted by RealEstateConnect that will cover the economic outlook and tax law policy changes under consideration in Washington. (Register here)

Fannie, Freddie Restrictions Suspended

Fanne Mae and Freddie Mac logos

  • Treasury and the Federal Housing Finance Agency (FHFA) this week suspended Trump-era restrictions on Fannie Mae and Freddie Mac as the Biden administration reviews revisions affecting mortgage purchases. (American Banker, Sept. 14)
  • The suspended provisions include limits on Fannie and Freddie cash windows (loans acquired for cash consideration), multifamily lending, loans with higher risk characteristics, and second homes and investment properties. (FHFA news release, Sept. 14) 

Treasury stated, “FHFA will continue to measure, manage, and monitor the financial and operational risks of the Enterprises to ensure that they operate in a safe and sound manner and consistent with the public interest. During the suspension, FHFA will review the suspended requirements and consult with Treasury on any recommended revisions.” (Treasury news release, Sept. 14) 

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House Financial Services Committee Approves Bill to Transition Away from LIBOR

Posted on by Trey Jackson

Rep. Brad Sherman table mic

Legislation advanced this week by the House Financial Services Committee would help smooth the transition away from the London Interbank Offered Rate (LIBOR) as a reference rate for financial contracts. (House Financial Services Committee markup documents and videos, July 28 | Rep. Brad Sherman (D-CA), above)

Why It Matters 

  • Libor is currently used in many outstanding financial contracts – including commercial real estate debt, mortgages, student loans and derivatives – worth an estimated $223 trillion. (Committee memo, page 6)
  • The use of LIBOR for new contracts is scheduled to terminate at the end of 2021. Additionally, all LIBOR maturities will stop in June 2023, although some will cease at the beginning of next year.
  • The Adjustable Interest Rate (LIBOR) Act of 2021 was sponsored by Rep. Brad Sherman (D-CA) – chair of the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets. The bill would authorize the Federal Reserve to issue rules to “establish a clear and uniform process on a nationwide basis for replacing LIBOR in existing contracts,” with replacement benchmark rates. An amendment to the legislation was also approved during the Financial Services Committee July 29 markup.
  • The bill would also provide a safe harbor for market participants switching existing LIBOR-referencing financial contracts over to a replacement benchmark for debt instruments. This would apply to instruments such as floating-rate bonds, which require all parties to agree to terms that cannot easily be changed.  The bill also includes a federal preemption.
  • Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell recently told the Financial Stability Oversight Council that Congress urgently needed to pass legislation to allow for a smooth transition away from LIBOR. (Bloomberg, June 11)
  • Additionally, the Fed’s Alternative Reference Rates Committee (ARRC) yesterday endorsed use of Secured Overnight Financing Rate (SOFR) Term Rates, a forward-looking version of the LIBOR alternative for financial instruments. (Bloomberg, July 29)
  • As Federal Reserve Vice Chair for Supervision Randal Quarles continues to encourage the termination of the use of LIBOR by year-end, the House bill and the ARRC endorsement of SOFR Term Rates are intended to provide market participants with the tools they need to transition away from LIBOR.  

Roundtable Support 

House Financial Services Committee

  • The Real Estate Roundtable and 17 national trade groups on July 27 submitted a letter to House Financial Services Committee policymakers in support of legislation to address “tough legacy” LIBOR contracts during the transition away from the benchmark.  (Joint Trades’ Letter on Libor)
  • The joint letter noted that currently, there is no realistic ability to modify legacy contracts that cannot be converted to a non-LIBOR rate or be amended with adequate fallback language before all LIBOR maturities are scheduled to stop in June 2023.
  • The coalition letter stated, “A state-by-state piecemeal approach does not provide the necessary comprehensive protections that is achievable at the federal level given importance of the issue and the very limited time remaining until LIBOR’s end in less than two years.” 

The letter also commended Rep. Sherman and the Committee for providing a meaningful legislative solution in support of the LIBOR transition by providing fair, equitable and consistent treatment for all tough legacy contracts. 

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Financial Regulators Call for Federal Legislation to Ease LIBOR Transition

Posted on by Trey Jackson

Rep-Brad-Sherman--Chair-x475w

Officials from the Fed and other top federal financial regulatory agencies testified on April 15 before a House Financial Services subcommittee that they support federal legislation to transition away from using the London Interbank Offered Rate (Libor) as an interest rate benchmark for US dollar contracts.  (Subcommittee hearing video and background memorandum)

Libor Deadlines

  • Libor is currently used in many outstanding financial contracts – including mortgages, student loans and derivatives – worth trillions of dollars.
  • Using LIBOR for new contracts is scheduled to end at the end of 2021. Additionally, all Libor maturities will stop in June 2023, although some will cease at the beginning of next year.
  • Rep. Brad Sherman (D-CA), photo above – who chairs the House Financial Services Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets that held the hearing – has circulated draft legislation of a proposal entitled the Adjustable Interest Rate (LIBOR) Act of 2021 to smooth the transition away from Libor to the Secured Overnight Financing Rate (SOFR). (Pensions & Investments, April 16)
  • Lawmakers from both parties also voiced their support for federal Libor legislation during the hearing. Sherman stated that the need for federal action on Libor would test Congress to see if it can pass “necessary legislation that isn’t Democrat, isn’t Republican.” (CQ, April 15)

Roundtable Support

Libor transition to SOFR image

  • The Real Estate Roundtable and 17 national trade organizations on April 14 sent a letter of support for federal Libor legislation to leadership of the House Financial Services Committee.
  • The letter notes that the trillions of dollars of outstanding contracts, securities, and loans that use LIBOR for their interest rates do not have appropriate contractual language to address a permanent cessation of LIBOR. 
  • The coalition states in their letter that “Ineffective or ambiguous fallback provisions will result in uncertainty, litigation, and harm to consumers, businesses, and investors. Only federal legislation can uniformly address all 50 states, and only federal legislation can address issues such as the need for narrow relief from certain federal laws.”
  • On April 6, 2021, New York Governor Andrew Cuomo signed the first state-passed legislation (Senate Bill 297B/Assembly Bill 164B) intended to reduce risks associated with the transition away from LIBOR. Since New York law governs many of the financial products and agreements referencing LIBOR, the legislation will provide legal clarity for these contracts and will lessen the burden on New York courts. (Pensions & Investments, March 25) 

The American College of Real Estate Lawyers recently published a detailed overview of the Libor transition – “LIBOR’S Endgame: a Brief Pause, Not a Reprieve; a Safe Harbor, but a New Penalty” – by Joe Forte (Senior Legal Councel, AmTrust Title), who is a member of The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC). 

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Regulators Urge Banks to Cease Use of LIBOR for New Contracts by End of 2021 as Benchmark Rate is Scheduled to Sunset on Legacy Contracts in June 2023

Posted on by Trey Jackson

Libor transition to SOFR image

US and UK regulators are urging banks using the London Interbank Offered Rate (LIBOR) as a benchmark interest rate to stop writing new LIBOR contracts by the end of 2021, while most legacy contracts will be able to mature before use of the rate sunsets in June 2023. (Federal Reserve and Wall Street Journal, Nov. 30)

  • The UK-based ICE Benchmark Administration (IBA) announced it will consult in early December on its intention to cease US$ LIBOR. IBA intends to eliminate, subject to confirmation, one week and two month US$ LIBOR settings at the end of 2021. (Financial Conduct Authority, Dec. 4)
  • LIBOR is used as a reference rate in an estimated $200 trillion of financial contracts, including $1.3 trillion of commercial real estate loans.  UK financial authorities are phasing out LIBOR in response to manipulation concerns.
  • The Federal Reserve Board, Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation on Nov. 30 released a joint statement supporting the proposal and explaining that the June 30, 2023 proposed LIBOR cessation date would allow time for “legacy contracts”—USD LIBOR transactions executed before January 1, 2022—to mature.
  • The joint statement also notes, “Failure to prepare for disruptions to USD LIBOR, including operating with insufficiently robust fallback language, could undermine financial stability and banks’ safety and soundness.”
  • Federal Reserve Vice Chair for Supervision Randal K. Quarles on Nov. 30 said, “Today’s plan ensures that the transition away from LIBOR will be orderly and fair for everyone—market participants, businesses, and consumers.”
  • “These announcements represent critical steps in the effort to facilitate an orderly wind-down of USD LIBOR,” said John Williams, President of the Federal Reserve Bank of New York and Co-Chair of the Financial Stability Board’s Official Sector Steering Group. “They propose a clear picture of the future, to help support transition planning over the next year and beyond.”
  • The Fed has urged banks to prepare for a transition away from LIBOR to the Secured Overnight Financing Rate, which will use rates that investors offer for bank securities such as loans and assets backed by bonds, instead of relying on bank quotes.

The US Treasury Department on October 9, 2019 released proposed regulations to clarify the tax consequences of replacing LIBOR in existing financial contracts, including real estate loans. The proposed rules largely align with Roundtable recommendations submitted in June 2019. (Roundtable Weekly, June 7, 2019)

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Real Estate Coalition Urges Federal Banking Regulators to Extend Relief Period for COVID-19 Related Loan Modifications

Posted on by Trey Jackson

Logo compilation of Commercial Real Estate Coalition

A coalition of national real estate organizations, including The Real Estate Roundtable, this week urged federal banking agencies to provide additional guidance that would reaffirm financial institutions may use reasonable judgment when assessing credit risk during the unique circumstances of the pandemic – such as allowing borrowers and lenders additional time to see properties and loans through the pandemic.

  • The guidance would preserve financial institutions’ ability to continue work with borrowers and grant additional incremental accommodations that would total more than six months after December 31, without being classified as a troubled debt restructuring (TDR). (Coalition letter and MBA Newslink, Nov. 10)
  • Early in the crisis, the Federal Reserve joined the Office of the Comptroller of the Currency (OCC) and other banking regulators in a March 22 Interagency Statement that encouraged banks to avoid automatically categorizing COVID-19 related loan modifications up to 6 months as a TDR. (Roundtable Weekly, March 27)
  • The March joint statement also encouraged borrowers experiencing cash flow problems due to the pandemic to reach out to any FDIC-insured lenders about modifying their loans, without adverse consequences to the bank or the borrower that traditionally come with the TDR label.  
  • The statement included, “Short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs.  This includes short-term — for example, six months — modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.”
  • On March 24, The Roundtable called on all owners and operators of business and residential rental real estate to voluntarily, proactively work in a positive and constructive manner with their COVID-19 impacted tenants respecting current rent obligations. (Roundtable news release, March 24)

Confluence of Events

OCC logo

  • A revised interagency statement released April 7 clarified the interaction between the March 22, 2020, interagency statement and section 4013 of the CARES Act, Temporary Relief from Troubled Debt Restructurings (section 4013). 
  • Many of the modifications granted under the revised Interagency Statement and section 4013 of the CARES Act are reaching the end of their six-month terms – at that same time that CARES Act protections are set to expire on December 31, 2020.
  • This confluence of these events creates significant, urgent challenges for any financial institution seeking to extend existing modifications of Covid-19 related loans past their six-month term.
  • The Nov. 10 coalition letter states, “…we urge the Agencies to provide guidance that a loan modification with a term greater than six months (e.g., up to 18 months combined) will not automatically result in a TDR under the Interagency Statements.”
  • “Because this issue is urgent, we request that the Agencies issue such a clarification and reaffirmation as soon as possible,” the letter concludes.
  • Brooks stated, “While banks remain sound, we see potential for troubled assets ahead in commercial and residential real estate, in small business and consumer lending, and in the travel and hospitality sectors in particular. Banks, particularly those with concentrations in those assets, must take a sober view of their risks and work with customers to the maximum extent possible consistent with safety and soundness.”

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) continues its work with Washington policymakers to constructively support The Roundtable’s efforts to address the economic consequences of the COVID-19 crisis.

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Fed Announces Limited Adjustments to Main Street Lending Program Terms

Posted on by Trey Jackson

The Federal Reserve in Washington, DC

The Federal Reserve on Oct. 30 announced limited adjustments to the terms of its Main Street Lending Program (MSLP) facility in an attempt to support small and medium-sized businesses affected by the COVID-19 outbreak. (Fed news release) 

  • The MSLP has the capacity to issue up to $600 billion in loans, yet has only completed approximately 400 loans totaling $3.7 billion. (Washington Post, Oct, 30) 
  • With congressional negotiations over a pandemic relief package at an impasse, The Fed reduced the minimum loan size for three Main Street facilities from $250,000 to $100,000 and reduced fees to lenders who facilitate the loans. (Wall Street Journal and Roundtable Weekly, Oct. 30)
  • The Fed also issued a set of frequently asked questions to clarify that Paycheck Protection Program loans of up to $2 million may be excluded when determining the maximum MSLP loan size. (MSLP FAQs, Oct. 30)
  • Real Estate Roundtable and President Jeffrey DeBoer yesterday commented to CoStar, “The Main Street Lending Program won’t be energized by modest revisions. Banks need greater incentives to focus on the program, the borrower eligibility rules must be rethought, and the loan underwriting rules should better reflect the needs of troubled businesses. Without far deeper reforms to the program, its full potential assistance will continue to be untapped,” DeBoer stated. (CoStar, Nov. 5, “Modest Changes May Not Be Enough to Make Relief Effective, Head of Real Estate Industry Group Says”)
  • DeBoer testified about the MSLP on Sept. 9 before the Senate Banking, Housing and Urban Affairs Committee on how to improve access to Federal Reserve credit facilities for businesses such as manufacturing, retail, restaurants, real estate owners, and other asset-based borrowers. (Roundtable Weekly, Sept. 11)
  • DeBoer told the Committee, “The recommendations that I have made on the Main Street Lending Program … really require no additional funds from the federal government. They are administrative. They could be done tomorrow by the Treasury and the Fed if they wanted to.” (Roundtable Oral Comments and written statement / video of DeBoer’s Testimony and Q&A with Senators)
  • Fed Chairman Jay Powell testified before Congress on Sept. 23 that the central bank has “done basically all of the things that we can think of.” Powell added, “There is nothing major that we see now that would be consistent with opening it (MSLP) up further.” (American Banker, Sept. 23)
  • Last month, The Fed released its Summary of Commentary on Current Economic Conditions, showing that “commercial real estate conditions continued to deteriorate in many Districts.” (The Fed’s Beige Book, Oct. 22)
  • The Fed lending programs backed by pandemic relief legislation are set to expire at the end of December.  Fed Chairman Powell and Treasury Secretary Steven Mnuchin must decide which programs to extend into 2021. (New York Times, Nov. 5) 

The Roundtable continues to urge regulators and lawmakers to develop specific MSLP changes to bolster small business tenants and other industries struggling with the pandemic’s ongoing economic impact. 

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Main Street Lending Program’s Restrictive Terms Prevent Full Access by Impacted CRE Sectors

Posted on by Trey Jackson

The Federal Reserve in Washington, DC

The Federal Reserve yesterday released its Summary of Commentary on Current Economic Conditions, showing that “commercial real estate conditions continued to deteriorate in many Districts.” There are twelve federal reserve geographic districts that gather information for the report, which is released eight times per year. 

  • The Fed report, also known as The Beige Book, adds that CRE market exceptions are the warehouse and industrial sectors, “where construction and leasing activity remained steady.”
  • The economic turbulence inflicted by the pandemic continues to damage CRE sectors such as retail and hotels, according to an Oct. 18 article in Politico. Mike Flood, senior vice president of commercial and multifamily policy at the Mortgage Bankers Association, stated, “What’s at risk here is both the ability for people to stay in their apartments and the ability for people to go to their jobs. So unless there’s a stimulus, there’s a lot less to go back to once we get back to normal times.” (Politico, “The next economic crisis: Empty retail space”)
  • The CRS report states, “Members of Congress have called on the U.S. Treasury and the Federal Reserve to open liquidity facilities to CRE and CMBS markets.”

The MSLP & CRE

Main Street Lending Program - Federal Reserve System

The New York Times and Washington Post published articles this week on the disappointing results shown to date by the Federal Reserve’s federal lending facilities, including its Main Street Lending Program (MSLP).

  • The Oct. 21 Times article reports that of the $454 billion Congress authorized in March for the Treasury Department to support various Fed emergency lending programs, $195 billion has been allocated so far – and only $20 billion in loans have been distributed.
  • The Oct. 19 Post article reports that of the $75 billion dedicated to support the Fed’s MSLP, only $3 billion has been loaned to date. According to the Post, an ongoing obstacle to making the MSLP more effective is whether the Fed and Treasury can agree on a new set of rules to significantly expand the reach of the program.
  • A broad coalition of national hotel executives on Oct 15 urged President Trump to take action by making immediate modifications to the MSLP that would increase participation in the program and help thousands of businesses crippled by the pandemic.
  • “We strongly urge you to use your executive authority to direct the Treasury to encourage the Federal Reserve to amend and expand the Main Street Lending Program … to support struggling businesses, stem the impending wave of foreclosures, and save millions of jobs to ensure the health of the entire American economy,” the letter states.
  • The hotel coalition emphasized that overly restrictive terms imposed by the MSLP continues to prevent the hardest hit businesses it was intended to support from accessing the program. “To date, only a small fraction of $600 billion in available loans have been utilized while the remaining funds – which are so desperately needed by industries like ours – sit idle and go unused,” according to the letter.
  • Real Estate Roundtable President and CEO Jeffrey DeBoer testified about the MSLP – and how to improve access to Federal Reserve credit facilities for businesses such as manufacturing, retail, restaurants, real estate owners, and other asset-based borrowers – on Sept. 9 before the Senate Banking, Housing and Urban Affairs Committee. (Roundtable Weekly, Sept. 11)
  • The Main Street program is not working, DeBoer testified, because there is little incentive for participating banks to make the loans – and the program’s eligibility, affiliation and underwriting rules are not designed to meet the needs of the businesses in need. (Video of DeBoer’s Testimony and Q&A with Senators)
  • “The result: countless mid-sized retail businesses, restaurants, hotels, commercial and multifamily building owners are moving closer to shutting their doors forever,” DeBoer stated. (Roundtable Oral Comments and written statement)
  • DeBoer added, “The recommendations that I have made on the Main Street Lending Program … really require no additional funds from the federal government. They are administrative. They could be done tomorrow by the Treasury and the Fed if they wanted to.” (Roundtable Weekly, Sept. 11)

The Roundtable continues to work with its national real estate trade partners, membership and other stakeholders to develop effective recommendations for policymakers to improve the MSLP, as well as identify alternative strategies to bolster CRE sectors and other industries struggling with the pandemic’s ongoing economic impact.

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Senate Banking Committee Chair Urges Expansion of Fed’s Main Street Lending Program to Accommodate Commercial Real Estate

Posted on by Trey Jackson

Senate Banking Committee Chairman Mike Crapo (R-ID) on July 31 submitted a letter to Treasury Secretary Mnuchin and Fed Chair Jay Powell encouraging the expansion of the Main Street Lending Program (MSLP) by setting up an asset-based lending program and commercial real estate program.  (Sen. Crapo’s letter, July 31)

  • Specifically, the letter encourages the Treasury and Fed to:
    • Establish a facility to accommodate asset-based lending could open access to critical resources for several industries that could not otherwise access the MSLP based on earnings or cash flow metrics. Such asset-based lending would be predicated on pledged collateral.
    • Address the unique circumstances faced by commercial real estate, including securitized commercial mortgages, whether through access in the MSLP or a separate facility. Several options have been circulated and should be carefully considered in crafting the appropriate terms.
  • The letter also directs the Treasury and Fed to sidestep the need for an additional Congressional appropriation of funds by utilizing the remaining funds available under section 4003(b)(4) of the CARES Act intended for Federal Reserve 13(3) facilities.
  • A coalition of nine real estate industry groups, including The Real Estate Roundtable, on July 21 submitted a set of recommendations to the Senate Banking Committee aimed at improving the Fed’s MSLP for commercial real estate owners and tenants.  The committee is currently reviewing the effectiveness of the MSLP and other Fed credit lending facilities launched to counter the economic repercussions of the COVID-19 crisis. (Real estate coalition letter, July 21 and Roundtable Weekly, July 24)
  • The MSLP became fully operational about a month ago with $600 billion in lending capacity.  Banks who participate in the program must make loans for at least $250,000, with strict requirements, and loans cannot be approved for highly-indebted companies.
  • The program to date has attracted only eight borrowers as of July 27 – according to a report released yesterday by the central bank – and been used to support only about $100 million in loans, with more in process.  (BGov, Aug 7)
  • Separately, four U.S. Senators wrote to Treasury Secretary Mnuchin and Federal Reserve Chairman Jay Powell this week with recommendations on reforming the Fed’s MSLP credit facilities.  (Senators’ letter, Aug. 4)
  • Sens. Mike Braun (R-IN), John Cornyn (R-TX), Kelly Loeffler (R-GA) and Thom Tillis (R-NC) offer specific ways the MSLP program could be amended to better serve borrowers across the nation to save millions of American jobs, including:
    • Increase the maximum debt-to-EBITDA leverage ratio that qualifies borrowers for loans.
    • Eliminate the 200% collateralization requirement in the MSPLF and increase the maximum loan amount.
    • Permit borrowers of MSLP loans to refinance debt within at least 12 months of the maturity period, revising the present prohibition on refinancing debt until it comes within 90 days of the maturity date.

The Congressional Oversight Commission held a hearing today on the MSLP.  The bipartisan commission is a five-person panel established by the CARES Act to monitor use of coronavirus aid funds. Witnesses at today’s hearing included Federal Reserve Bank of Boston President and CEO Eric Rosengren.  The Commission has released three reports, all of which are available for review at the Congressional Oversight Commission’s website.

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Real Estate Coalition Seeks Expansion of Main Street Lending Program for CRE Borrowers; Hotel Industry Seeks COVID-19 Relief

Posted on by Trey Jackson
The Federal Reserve in Washington, DC
Federal reserve building at Washington D.C. on a sunny day.

A coalition of nine real estate industry groups, including The Real Estate Roundtable, on July 21 submitted a set of recommendations to the Senate Banking Committee aimed at improving the Fed’s Main Street Lending Program (MSLP) for commercial real estate owners and tenants.  The committee is currently reviewing the effectiveness of the MSLP and other Fed credit lending facilities launched to counter the economic repercussions of the COVID-19 crisis. (Real estate coalition letter, July 21)

  • The coalition letter states, “The impact of COVID-19 has been especially devastating to commercial real estate tenants, borrowers and lenders. As our members attempt to navigate the fall-out from this crisis, there is a deficiency of reasonably priced capital sources to address temporary liquidity deficits. Should impacted assets go into foreclosure, a downward spiral follows, affecting jobs, property values, investors at all levels (including pension funds), and state and local tax revenues. The repercussions on communities will be profound and take years from which to recover.”
  • The coalition letter makes a number of recommendations for adapting the MSLP to support real estate. 

AHLA Comment Letter Requests Additional Liquidity Assistance

The American Hotel & Lodging Association (AHLA) sent a letter to the congressional leadership this week requesting additional relief as the leisure and hospitality sector faces the loss of 4.8 million jobs since February.  AHLA is urging Congress to:

  • Provide additional liquidity for severely impacted businesses through a targeted extension of the Paycheck Protection Program (PPP).
  • Establish a Commercial Mortgage Backed Securities (CMBS) market relief fund, with a specific focus on the hotel industry, as part of the Federal Reserve’s lending options.
  • Make structural changes to the Main Street Lending Facility (MSLP) established under the CARES Act to ensure hotel companies can access the program.
  • Include limited liability language to provide a limited safe harbor from exposure liability for hotels that reopen and follow proper public health guidance.
  • Include targeted tax provisions that will benefit severely injured businesses and their employees, including tax credits for capital expenditures or expenses to meet the industry’s Safe Stay initiative.

Moody’s Report Raises Concerns About CMBS Delinquencies for Hotel and Retail

Moody’s reported yesterday that special servicing and late payment volumes have both continued to spike as ongoing COVID-19-related cash flow disruptions severely hinder retail and hotel properties backing commercial mortgage-backed securities (CMBS) loans. 

  • The report shows that significant drops in revenue per available room (RevPAR) and low rent collections among nonessential business have resulted in hotel and retail loans making up more than 91% of special servicing transfers since 1 March. The remaining 9% was primarily office and mixed-use. Mixed-use property types typically included a retail or hotel component.  (Moody’s report, July 23)

Federal Reserve officials are scheduled to meet on July 28 and 29 to discuss how and whether to provide more economic stimulus. They are expected to address interest rates and the status of several credit lending programs, but will likely not release any proposal until the fall.  (Wall Street Journal, July 22)

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