Tag: Capital and Credit

Roundtable Urges SEC to Exempt Real Estate from Proposed Safeguarding Advisory Client Rule

Posted on by Abigail Grenadier
Securities and Exchange Commission building

The Real Estate Roundtable urged the Securities and Exchange Commission (SEC) this week to exempt real estate from a proposed Safeguarding Advisory Client Rule that could severely limit advisory clients’ ability to invest by fundamentally changing the ownership and transfer rights of real estate. The proposed rule currently includes a conditional exception for real estate assets, which would impose a new layer of unclear and unnecessary oversight—and inject significant confusion into well-established transaction protections, rules, and procedures governing real estate transactions. (Roundtable letter, Oct. 30 and SEC Proposed Rule)

The “Proposing Release”

  • The Oct. 30 letter from Real Estate Roundtable President and CEO Jeffrey DeBoer reiterated current legal protections that promote the safe-keeping of real estate assets held in advisory accounts or funds. DeBoer urged the SEC “… in the strongest possible terms to exclude real estate from the scope of any final [Safeguarding] rule,” citing the ample set of existing protections that prevent real estate assets from fraudulent transfer.
  • The letter also emphasized that the SEC has not coherently explained how the Proposed Safeguarding Rule would apply to real estate.
  • Current law (the “Custody Rule”) under the Investment Advisers Act of 1940 requires an investment adviser to maintain clients’ funds and securities with a qualified custodian. The new proposed SEC rule would expand this requirement to maintain all advisory client assets with a qualified custodian.
  • Since it is not possible to maintain real estate and certain other physical investments with a qualified custodian, the proposal includes a conditional exception that includes the following language:

“In the real estate context, a deed or similar indicia of ownership that could be used to transfer beneficial ownership of a property would not qualify for the exception, but the physical buildings or land would qualify.”

  • The Roundtable’s letter challenges this “Proposing Release” as confusing, impractical, and unworkable for holding and transferring real estate deeds. It also conflicts with current state and country chain of custody legal requirements that govern real estate transactions.
  • The letter also notes the SEC could chose to make the conditional exemption available to real property, because a physical asset cannot be maintained with a qualified custodian. Additionally, the requirement to maintain custody of deeds with a qualified custodian—compared to recording the interest with a governmental authority—serves no regulatory purpose.

Existing Layers of Safeguards

SEC logo and text
  • Other existing safeguards come into play. State laws currently require signature verifications, notarizations, and accompanying IDs that provide significant hurdles to an attempted fraudulent transfer.
  • Modern real estate transactions in the United States also require buyers and lenders to obtain title insurance, which involves a title insurance company to engage in substantial due diligence of the chain of ownership. Real estate lawyers representing the buyer and/or seller represent yet another intermediary, since they are often involved in these asset transactions to provide yet another source of gatekeeper protections.
  • The Roundtable letter states the SEC must explain how it would be possible to maintain title or deed with a qualified custodian since the “Proposed Rule would fundamentally change the ownership and transfer rights of real estate.” The letter states the SEC should avoid any final rule that would limit clients’ access to, or unduly burden, investment in the real estate asset class.
  • The Proposing Release also contains no evaluation of any risk of loss for real estate assets—it only asserts such risk as a theoretical matter.
  • The Roundtable and a diverse group of 25 trade associations previously wrote to SEC Chair Gary Gensler to oppose the Safeguarding Advisory Client Rule proposal and explain the negative impacts it would have on investors, market participants, and the financial markets. This week’s letter from The Roundtable focused exclusively on the proposal’s impact on real estate assets. (Roundtable Weekly, Sept. 15)

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) Custody Rule Working Group developed this week’s comments and met today with the SEC’s Division of Investment Management about the proposal. RECPAC is scheduled to meet Nov. 8 in New York City.

#  #  #

Federal Regulators Announce Extension of Comment Period and Quantitative Impact Study on Basel III Proposal

Posted on by Abigail Grenadier

U.S. banking regulators issued two announcements on Oct. 20 related to their sweeping set of proposed rules to increase capital requirements for the nation’s largest banks, which could significantly affect liquidity available for commercial real estate transactions, impact asset values, and influence economic growth. The proposal, known as the “Basel III Endgame,” is the last major regulatory response designed to address failures from the global financial crisis of 2007-2008. (Bloomberg and Reuters, Oct. 20 | Roundtable Weekly, July 28)

Stakeholder Comments

  • The Federal Reserve, Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) announced an extension of the comment period on the Basel capital proposal from Nov. 30, 2023 to Jan. 16, 2024. Additionally, the agencies announced a quantitative impact study to clarify the estimated effects of the proposal, with data collection due the same date as the comments – Jan. 16. (Fed news releases, Oct 20)
  • While the quantitative impact study is a positive development, the timing of the study fails to provide industry participants with the opportunity to assess its results or comment on the collected data before the Jan. 16 deadline. Regulators often grant the public ample time (120 days) to analyze and comment on such an impact study after it is released.
  • The Basel proposal will be among the topics discussed at The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) Nov. 8 meeting in New York. RECPAC welcomes membership input as it works on a comment letter on the announcements and proposal. (Contact Roundtable Senior Vice President Chip Rodgers)
  • In July, the regulators jointly approved the 1,100-page proposed rulemaking, which would substantially revise the regulatory capital framework for banking organizations with total assets of $100 billion or more
  • Real Estate Roundtable President and CEO Jeffrey DeBoer stated in a March 2023 comment letter to Fed Vice Chair Michael Barr and other key regulators, “At this critical time, it is important that the agencies do not engage in pro-cyclical policies such as requiring financial institutions to increase capital and liquidity levels to reflect current mark to market models. These policies would have the unintended consequence of further diminishing liquidity and creating additional downward pressure on asset values.

Congressional Opposition

  • Last week, House Financial Services Committee Chairman Patrick McHenry (R-NC), above, and Financial Institutions and Monetary Policy Subcommittee Chairman Andy Barr (R-KY) requested the Government Accountability Office (GAO) to examine the role U.S. federal banking agencies played in developing the recent Basel proposal.  (McHenry-Barr Letter, Oct 20)
  • The House Republicans’ letter claimed the scope and process of the banking regulators’ plan is flawed, and noted how the proposal was opposed by some members on the Federal Reserve and FDIC Boards. Their letter concluded, “Given those fatal problems with your Basel III Endgame proposal, we urge that it be withdrawn.”

Goldman Sachs’ 10,000 Small Businesses Voices recently announced the launch of a multifaceted national media campaign that will urge the Federal Reserve to abandon the proposed Basel III Endgame regulation. The campaign will feature new survey data showing 87% of small business owners say it is important for their elected officials to weigh in with The Fed about the impact of new bank capital requirements.

#  #  #

Potential CRE Losses Cited as Major Economic Concern in Fed’s Financial Stability Report

Posted on by Abigail Grenadier

Elevated commercial real estate valuations are increasingly viewed as a near-term risk that could stress the U.S. financial system, according to the Federal Reserve’s October 2023 Financial Stability Report. The central bank’s semiannual report also cited inflationary pressures, interest rate increases, and global economic volatility as vulnerabilities—even though survey data was collected before the recent escalation of geopolitical tensions in the Middle East. (Fed’s Financial Stability Report, Oct. 2023)

CRE Risk Emphasized

  • Seventy-two percent of all participants in the Fed’s survey cited the potential for large losses on commercial real estate and residential real estate—along with persistent inflation and monetary tightening­—as major risks.
  • The CRE asset valuation problem noted in the Fed Report is influenced by an ongoing lack of price discovery, which creates significant refinancing challenges. GlobeSt reported Oct 24 on the report, noting that “With transactions down and many sellers holding off, waiting for improved pricing while a lot of buyers look for bargains in distress, it’s hard to tell how much properties should be worth.”

WorkPlace Return Pressure

  • The Fed report warns, “If the economy were to slow unexpectedly … investor risk appetite and asset prices might decline, and valuations in the office building sector appear particularly vulnerable given the ongoing uncertainty surrounding post-pandemic norms regarding return to work. A correction in office property valuations accompanied by even a mild recession could result in significant losses for a range of financial institutions with sizable exposures, including some regional and community banks and insurance companies.”

Additional risks that continued to feature prominently in the Fed survey were associated with the reemergence of banking-sector stress, market liquidity strains, and volatility.

#  #  #

Roundtable and Industry Coalition Urge Treasury to Delay January Implementation of Beneficial Ownership Rules

Posted on by Abigail Grenadier

The Real Estate Roundtable and a coalition of eight other national real estate groups on Oct. 13 urged Treasury Secretary Janet Yellen to delay implementation of new “beneficial ownership” rules, which will significantly impact real estate. The new regulations—scheduled to take effect on Jan. 1, 2024 under the Corporate Transparency Act (CTA)—would be implemented by Treasury’s Financial Crimes Enforcement Network (FinCEN). (Coalition letter, Oct. 13)

BOIR Proposal

  • Many real estate businesses will face a heavier compliance burden at a time when the industry faces economic challenges from decreasing office usage, and diminishing credit capacity. The businesses impacted could include numerous legal entities that own and operate real property across all asset classes as domestic corporations, LLCs and similar entities, along with foreign entities registered to do business in the United States.
  • FinCEN will be tasked with collecting and housing a centralized federal government database containing extensive, sensitive personal identifiers of the owners, senior employees, and/or advisors of certain businesses. Those entities will be required to report information about their “beneficial owners” who own at least 25% of the business or indirectly exercise “substantial control” over it. (Roundtable Weekly, Sept. 15)
  • On Sept. 27, FinCEN proposed a minor change to the current 30-day deadline for filing an initial Beneficial Ownership Information Return (BOIR). The proposal would extend the deadline to 90 days for reporting companies that were created or registered on or after Jan. 1, 2024 and before Jan. 1, 2025. No other changes were made to the final beneficial ownership reporting rule (Holland & Knight Alert, Sept. 28)

Opposition to CTA

  • House Financial Services Committee Chairman Patrick McHenry (R-NC), above, has introduced legislation—the Protecting Small Business Information Act of 2023 (H.R. 4035)—that would delay when the CTA’s beneficial ownership reporting requirements would go into effect. (McHenry news release, June 12)
  • The Roundtable and a broad coalition representing millions of businesses throughout the country wrote to Chairman McHenry last month in strong support of his legislation. (Coalition letter, Sept 12)

The Roundtable is part of a broad coalition of business trade groups that supports a National Small Business Association legal challenge (NSBA v. Janet Yellen) on the constitutionality of the Corporate Transparency Act (CTA), which became law in Jan. 2021. (Coalition statement of support, Dec. 7, 2022 and NSBA’s website on the CTA)

 #   #   #

2023 Loan Extensions Increase as Lenders and Borrowers Seek Workouts

Posted on by Abigail Grenadier

Trepp

Approximately $5.65 billion in commercial real estate loans have been modified with extensions in 2023, with nearly 73% of the total from the office sector, according to a recent Trepp report. The rise in loan extensions—sparked by higher interest rates, lower valuations, and remote work—also come at a time when commercial mortgage-backed securities (CMBS) have been subdued. (Trepp CRE Research Report)

Modification Trend

  • Trepp reported that term increases of 1-12 months comprised the largest share (37%) of extensions. The largest quarter upon maturity came in Q2 2023, when $957 million in loans were extended.
  • Office properties comprised 72.9% of the total $3.2 billion in loan extensions, or roughly $2.4 billion. Trepp stated, “Of all property types, the office sector faces the steepest refinancing challenges as office properties are struggling with occupancy and financial performance in the post-pandemic era.” (Trepp CRE Research Report)
  • The increase in modifications follows a joint policy statement from federal regulators in June that encouraged financial institutions to work with borrowers on pending loan maturities. (Agencies’ joint statement, June 29 and National Law Review, July 9)

Roundtable Advocacy

Jeffrey DeBoer during Marcus and Millichap webinar

  • In March, The Roundtable had originally requested that federal regulators accommodate commercial real estate borrowers and lenders as the industry continued to endure a difficult time of historic, post-pandemic transition—and enthusiastically welcomed the Agencies’ subsequent, joint action. (Roundtable Weekly, June 30 and Roundtable letter to regulators, March 17)
  • During a Sept. 26 Marcus & Millichap webcast, Roundtable President and CEO Jeffrey (above) said, “We’re seeing some impact. Trepp put out a report about loan modifications and extensions. Time is the most important aspect for the most challenged part of our industry, office. We have to let time settle in and let businesses and employers determine how they want to use office space going forward.”
  • Additionally, bipartisan legislation (H.R. 5580) introduced in the House last week would reduce the tax burden on a borrower that can arise when a troubled commercial real estate loan is modified as part of a debt workout. The Tenney-Higgins bill would build on existing tax provisions by effectively deferring cancellation of debt (COD) income. (Roundtable Weekly, Sept. 22)
  • The legislation, introduced by Reps Claudia Tenney (R-NY) and Brian Higgins (D-NY), could help smooth the transition to a healthy and stable post-pandemic real estate market. The Roundtable’s DeBoer was quoted in support of the House legislation by GlobeSt, Connect CRE, and Commercial Observer.

Capital and credit policy issues facing CRE, especially office assets, will be among the topics discussed during The Roundtable’s Oct. 16-17 Fall Meeting (Roundtable-level members only) in Washington.

#  #  #

House Republicans Urge Federal Regulators to Withdraw Capital Rules Proposal for Large Banks

Posted on by Abigail Grenadier

More than two dozen Republicans on the House Financial Services Committee, led by Chairman Patrick McHenry (NC), recently urged banking regulators to withdraw a sweeping set of proposed changes that would significantly increase capital requirements for large banks. The federal Agencies’ proposal—known as the “Basel III Endgame”—represents the final stages of the global regulatory response to the 2008-09 financial crisis. (Bloomberg Government, Sept. 14)

Proposed Agencies’ Rulemaking

  • In July, the Federal Reserve, Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) jointly approved the 1,100-page proposed rulemaking, which would substantially revise the regulatory capital framework for banking organizations with total assets of $100 billion or more.
  • The Agencies’ proposal would have a long phase-in period and have not impact community banks. (CNBC, Fed news release, and Interagency Overview of the Notice of Proposed Rulemaking for Amendments to the Regulatory Capital Rule, July 27)
  • Fed Chairman Jerome Powell voted for the proposal, but noted a significant tone of caution. Powell stated, “Raising capital requirements also increases the cost of, and reduces access to, credit … threatening a decline in liquidity in critical markets and a movement of some of these activities into the shadow banking sector. I look forward to hearing from all stakeholders on how best to strike that balance,” (Federal Reserve Board Chair Powell statement, July 27)
  • The House Committee Republicans’ letter claims the scope and process of the banking regulators’ plan is flawed, while noting how the proposal was opposed by some members on the Federal Reserve and FDIC Boards. The letter concludes, “Given those fatal problems with your Basel III Endgame proposal, we urge that it be withdrawn. The proposal should be replaced with one based on sound, objective analysis supported by data.”
  • A subsequent hearing on Sept. 19 held by the House Financial Services Subcommittee on Financial Institutions and Monetary Policy—“A Holistic Review of Regulators: Regulatory Overreach and Economic Consequences”—explored the interaction and economic impact of recent federal regulatory proposals, including the Basel III Endgame, new and expanded long-term debt requirements, and changes to resolution plans.
  • Subcommittee Member William Timmons (R-SC), expressed concern during the hearing about how the Basel III capital requirements may exacerbate the strain on bank capital availability. He emphasized “… the fact that billions of dollars of commercial real estate projects must be refinanced the next 36 months, and not all those projects will be profitable when their mortgage payments more than double and banks are prevented from extending additional credit due to increases in capital requirements and an unfavorable interest rate environment.” Rep. Timmons added, “That is the looming crisis that we need to be preparing for, not further restricting capital availability.” (CQ, hearing transcript)

Impact on CRE

  • The proposed changes would increase capital requirements for the nation’s largest banks by as much as 20%, with far broader indirect impacts on bank counterparties and customers and the broader financial markets. The Agencies’ rulemaking could significantly affect available liquidity for commercial real estate transactions, impact asset values, and hinder economic growth. (Roundtable Weekly, July 28)
  • Mortgage Bankers Association (MBA) President and CEO Robert Broeksmit testified during the Sept. 14 House Financial Services Committee hearing. “MBA strongly opposes certain provisions of the proposal that undermine the mortgage market and takes exception to the extremely scant economic analysis regarding how the changes will affect the economy, single-family housing market, and commercial real estate finance markets,” Broeksmit testified. (MBA Newslink, Sept. 19)
  • Real Estate Roundtable President and CEO Jeffrey DeBoer stated in a March 2023 comment letter to Fed Vice Chair Michael Barr and other key regulators, “At this critical time, it is important that the Agencies do not engage in pro-cyclical policies such as requiring financial institutions to increase capital and liquidity levels to reflect current mark to market models. These policies would have the unintended consequence of further diminishing liquidity and creating additional downward pressure on asset values. A deflationary spiral must be avoided at all costs. As recent events are only amplifying the contraction of credit, it is important for the Agencies to take measures to maintain sufficient liquidity levels and support positive economic activity.”

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) has established a working group on Basel III that is developing comments, due by Nov. 30, on the Basel III Endgame proposal.

#  #  #

Florida Proposes Positive Clarification to Law Impacting Foreign Investments in Real Estate

Posted on by Abigail Grenadier

Yesterday, the Florida Department of Commerce proposed a positive clarification to a recently enacted law impacting foreign real estate investment, with implications for similar laws in several other states. The clarification responds to a Roundtable request on Sept. 5 urging the Florida Real Estate Commission to consider specific concerns before implementing the new state law, which could impair capital formation and hinder the important role that legitimate foreign investment plays in U.S. real estate, the broader economy and job growth. (Roundtable letter, Sept. 5 and Roundtable Weekly, Sept. 8)

Section 203

  • The proposed rule published on Sept. 21 addresses the implementation of Florida Senate Bill 264 (SB 264), Section 203, signed into law on May 8. The new law aims to limit and regulate the sale and purchase of certain Florida real property by “foreign principals” from “foreign countries of concern.” The Florida Real Estate Commission will implement the new law. (SB 264 text).
  • Section 203 of the bill prohibits investment in real property near military installations and critical infrastructure.  Importantly, the de minimis exemption has been re-drafted, which (1) fixes earlier drafting errors to the Registered Investment Advisor exemption, and (2) introduces a new category of de minimis interests that categorically exempts passive indirect investment. (See highlighted areas in the Notice of Proposed Rule)
  • The proposed rule clarification remains subject to change during a 21-day public comment period and may include a formal hearing.

Section 204

  • Broader prohibitions in another area of SB 264—Section 204—generally preclude Chinese investors from acquiring “any interest” in any Florida real property anywhere in the state. Since the de minimis language and relevant statutory text are almost identical across Sections 203 and 204, The Roundtable is hopeful that similar language will be adopted during the rulemaking process for Section 204. 
  • The Sept. 5 letter from Roundtable President and CEO Jeffrey DeBoer notes that approximately $1.5 trillion of U.S. commercial real estate debt will come due in the next three years. Foreign equity investments in U.S. assets are often an important source of capital as commercial real estate owners seek to restructure, refinance or sell their properties.

DeBoer urged the Commission to “carefully consider the impact of your agency’s interpretation and implementation efforts of this new law so that it does not prohibit major investments in the state, which are safe from control by foreign countries of concern and promote growth without sacrificing the security or economic interests of Florida.” (Roundtable letter, Sept. 5)

#  #  #

Roundtable Urges Clarifications to Florida Law Restricting Certain Foreign Investments in Real Estate

Posted on by Abigail Grenadier

On Sept. 5, The Real Estate Roundtable urged the Florida Real Estate Commission to clarify their implementation of a recently enacted law that could have negative consequences for foreign real estate investment in the state. Twenty states have enacted restrictions on foreign investors in real estate or agricultural land, eight states are considering similar measures, and other states are exploring the issue. (Roundtable letter)

Restrictions on Foreign Investment

  • Governor Ron DeSantis signed into law Florida Senate Bill 264 (SB 264) on May 8. The new law aims to limit and regulate the sale and purchase of certain Florida real property by “foreign principals” from “foreign countries of concern.” The Florida Real Estate Commission will implement the new law. (SB 264 text).
  • Foreign investment is a major source of capital funding for U.S. commercial real estate projects, leading to job creation and economic growth for communities nationwide. Real estate is a critical element of Florida’s economy, and the state is one of the most popular states for foreign investment. Property taxes contribute over 18% of Florida’s overall tax revenue.
  • The letter from Roundtable President and CEO Jeffrey DeBoer notes that approximately $1.5 trillion of U.S. commercial real estate debt will come due in the next three years. Foreign equity investments in U.S. assets are often an important source of capital as commercial real estate owners seek to restructure, refinance or sell their properties.

Roundtable Concerns

  • The Roundtable’s letter supports efforts to protect the nation’s economic, military, and civil security, as well as the integrity of commercial real estate investments. The letter also reflects Roundtable members’ concerns that the new law may have a chilling effect on foreign investment in Florida real property, hinder foreign investment in U.S. real estate by legitimate enterprises, and act as a barrier to capital formation by law-abiding entities.
  • The comments detail how SB 264 expands the scope of the law beyond its publicly stated intent, which could have negative repercussions for Florida real estate markets and capital formation. (Roundtable letter)
  • The Roundtable letter includes a request for clarification about the definition of a “controlling interest” that impact exceptions to the law based on an investor’s meaningful ownership or influence. (SB 264 text).

DeBoer requests the Florida Commission to “carefully consider the impact of your agency’s interpretation and implementation efforts of this new law so that it does not prohibit major investments in the state, which are safe from control by foreign countries of concern and promote growth without sacrificing the security or economic interests of Florida.”

Federal Regulators Approve Proposal to Increase Bank Capital Requirements, Internal Dissent Signals Cautious Approach to Final Rules

Posted on by Trey Jackson

Federal Reserve building in Washington, DC

Federal bank regulators this week approved a sweeping set of proposed changes that would increase capital requirements for the nation’s largest banks by as much as 20%, which could significantly affect liquidity available for commercial real estate transactions, impact asset values, and influence economic growth. Dissenting votes on the proposed rulemaking revealed rare disagreement among regulators, and Fed Chairman Jerome Powell signaled a cautious approach to consideration of any final rule as a 120-day public comment period begins. (Axios and PoliticoPro, July 27)

New Capital Framework

  • The Fed, Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) jointly approved the proposal, which would substantially revise the regulatory capital framework for banking organizations with total assets of $100 billion or more. Stakeholder comments on the 1,100-page proposed rulemaking are due by Nov. 30. (See Interagency Overview of the Notice of Proposed Rulemaking for Amendments to the Regulatory Capital Rule, July 27)
  • Fed Chairman Powell voted for the proposal, but noted a significant tone of caution, stating, “Raising capital requirements also increases the cost of, and reduces access to, credit … threatening a decline in liquidity in critical markets and a movement of some of these activities into the shadow banking sector.” He added, “While there could be benefits of still higher capital, as always we must also consider the potential costs. As the financial system evolves, it is important that regulation evolve with it. I look forward to hearing from all stakeholders on how best to strike that balance.” (Federal Reserve Board – Statement by Chair Jerome H. Powell)
  • Statements were also issued by Fed Governors Michelle W. Bowman and Christopher J. Waller, who voted against the proposal. Extensive background information on the proposal is available on the Fed’s website, including a video of the Fed’s July 27 Open Board Meeting, Board memo, Fact Sheet, Statements and Federal Register Notices.
  • The proposed changes to large bank capital requirements would implement the final components of international banking regulations known as the Basel III “endgame” following the U.S. banking turmoil in March 2023. The agencies’ proposal would have a long phase-in period and not impact community banks. (CNBC, July 27)
  • Real Estate Roundtable President and CEO Jeffrey DeBoer stated in a March 2023 comment letter to Fed Vice Chair Michael Barr and other key regulators, “At this critical time, it is important that the Agencies do not engage in pro-cyclical policies such as requiring financial institutions to increase capital and liquidity levels to reflect current mark to market models. These policies would have the unintended consequence of further diminishing liquidity and creating additional downward pressure on asset values. A deflationary spiral must be avoided at all costs. As recent events are only amplifying the contraction of credit, it is important for the Agencies to take measures to maintain sufficient liquidity levels and support positive economic activity.”

CRE Challenges

2023 Real Estate Roundtable Chairman John Fish

  • The Wall Street Journal this week quoted Roundtable Chair John Fish, above, (SUFFOLK Chairman and CEO) and Roundtable Board Member Scott Rechler, (RXR Chairman and CEO) on the influence of the agencies and their positive joint policy statement issued last month that granted flexibility for CRE workouts. Agencies’ joint statement, June 29 and Roundtable Weekly, June 30)
  • Fish noted that the agencies’ recent policy statement “is a bridge to the other side. It’s what the real-estate industry was asking for.” Rechler also praised the new policy and added, “Since the failure of the regional banks, regulators have come on very hard.”
  • Major refinancing pressures facing CRE are shown in new Trepp data released this week, which estimates $528.7 billion of commercial mortgages will mature this year—and increase to $532.8 billion next year. (TreppTalk, July 25)
  • Trepp notes the data indicates “the market is facing a wall, if not a mountain, of maturities that would make the 2015-2017 wall of maturities look almost inconsequential. During that period, roughly $1.1 trillion of loans were scheduled to come due.”

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) plans to work on industry comments in response to the agencies’ proposed rulemaking.

#  #  #

Banks Increase CRE Workouts to Prevent Defaults

Posted on by Trey Jackson

Houston skyline

Banks are increasing their efforts to modify troubled commercial real estate loans to prevent defaults, according to recent media reports. (GlobeSt  and Bisnow, July 14)

Momentum on Modifications

  • “Lenders are offering borrowers loan extensions and modifications, selling derivatives to fix interest costs, and offering subsidized loans to investors to purchase defaulted loans” according to CRE analysts and industry data quoted by Reuters on July 12
  • The reported increase in modifications follows a joint policy statement from federal regulators last month that encouraged financial institutions to work with borrowers on pending loan maturities. (Agencies’ joint statement, June 29 and National Law Review, July 9)
  • Real Estate Roundtable President and CEO Jeffrey DeBoer commented on the positive action by regulators. “This major step forward by federal regulators provides the flexibility that The Roundtable has consistently encouraged, and the relief many in the industry need, as the economy and communities struggle to move beyond the repercussions of the global pandemic,” DeBoer said. (Roundtable Weekly, June 30 and Roundtable letter to regulators, March 17)

Need for Liquidity

RER Board Member Scott Rechler

  • On July 20, Roundtable Chair John Fish (SUFFOLK Chairman and CEO) discussed the pressures facing CRE and the recent policy accommodation from regulators on Bloomberg’s What Goes Up podcast. “The biggest problem right now is the capital markets nationally have frozen,” Fish said.
  • On July 14, Roundtable Board Member Scott Rechler, above, (RXR Chairman and CEO) joined CNBC’s Closing Bell Overtime to discuss the impact of the credit crunch and the need for more liquidity in the market. (Watch interview)
  • A July 6 article by Carl White, senior vice president of the St. Louis Fed’s Supervision, Credit and Learning Division, shows that the proportion of nonperforming CRE loans remains low on an average basis and has continued to decline since 2020.

Low occupancy rates for downtown offices in various cities are leading municipal governments to incentivize adaptive reuse by encouraging the conversion of often-older office buildings into residential properties. A report this week from RentCafe forecasts that conversions may increase by 63% in coming years, after adaptive reuse peaked from 2019 to 2020. (GlobeSt, July 19)

#  #  #