Tag: Capital and Credit

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.

#  #  #

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.

#  #  # 

Powell and Mnuchin Urge More Congressional Pandemic Fiscal Relief; Fed Releases FAQs on Main Street Lending Program; Democrats Considering New COVID-19 Package

Posted on by Trey Jackson

Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jay Powell

Federal Reserve Chairman Jay Powell (right) and Treasury Secretary Steven Mnuchin (left) testified before House and Senate committees this week to discuss the government’s pandemic response.  Powell offered no option for administrative changes to the Main Street Lending Program (MSLP) credit lending facility while Mnuchin strongly urged Congress to repurpose unused COVID-19 relief funds in another legislative pandemic aid package.  (BGov, Sept. 23 and Reuters, Sept. 24)

  • Recommendations to improve access to the MSLP were a focus of recent testimony by Roundtable President and CEO’s Jeffrey DeBoer on behalf of the industry before the Senate Banking Committee.  (Roundtable Weekly, Sept. 11)
  • Powell responded about the MSLP that the Fed has done “… basically all of the things we can think of that are clear gains (but) we are looking to do more.”  He added, “… but I would say the things that we have done have been really to widen the appeal of that program and its effectiveness … there is nothing major that we see now that would be consistent with opening it up…”  (BGov and CQ Committee transcript, Sept. 23)

Fed Updates MSLP FAQs

Federal Reserve Building DC

The Fed on Sept. 18 issued new guidance to banks for the MSLP in an attempt to encourage increased lending.  The central bank’s revised “Frequently Asked Questions” for the MSLP emphasize that lender underwriting should look back to the borrower’s pre-pandemic condition and forward to their post-pandemic prospects. The FAQs also seek to clarify the Board and Department of Treasury’s expectations regarding lender underwriting.  (Fed news release)

  • In a news conference announcing the FAQs, Powell said, “I would say it may be that further support for commercial real estate will require further action for Congress – from Congress.”

     

  • During his three committee appearances this week, Powell consistently emphasized that more fiscal relief is needed from Congress to sustain an economic recovery from the pandemic.  Mnuchin struck a similar theme in his two committee appearances while urging Congress to pass a new package that would reuse unused funds from previous COVID-19 relief authorizations for urgent needs.

     

  • Mnuchin told the Senate Banking Committee this week that up to $380 billion could be repurposed.  “It would not cost an extra penny,” Mnuchin said.  (Reuters, Sept 24)

     

  • During the Sept. 24 hearing, Senate Banking Committee Chairman Mike Crapo (R-ID) in his opening statement referred to the committee’s earlier hearing on Sept. 9 on “The Status of the Federal Reserve Emergency Lending Facilities.”

    Real Estate Roundtable President and CEO Jeffrey DeBoer

  • Chairman Crapo said, “Jeff DeBoer (above) President  and CEO of the Real Estate Roundtable painted a bleak picture of the condition of the commercial real estate market. He said, ‘It is impacting their ability to meet their debt service obligations which increases pressure on financial institutions, pension fund investors and others.’  And he said, ‘It is pushing property values down to the detriment of local governments. It is causing much stress to pools for commercial mortgage backed securities and it is threatening to result in countless commercial property foreclosures. The situation must be addressed.’”  (Crapo’s Opening Statement, Sept. 24 and DeBoer’s testimony and Q&A, Sept. 9)
  • Crapo added, “Negotiating toward a realistic package that can actually get passed and signed into law would best serve the American people during this difficult time.”

     

  • Mnuchin told the Senate Committee that he and House Speaker Nancy Pelosi (D-CA) have “agreed to continue to have discussions.” (Wall Street Journal, Sept. 24)

Democrats Considering New Aid Proposal

House Speaker Nancy Pelosi (D-CA)

Pelosi has directed her committee chairs this week to assemble a scaled back coronavirus relief package of approximately $2.4 trillion that could be used for as a basis for potential discussions with the White House and Senate Republicans. (Politico, BGov, and The Hill, Sept 24)

  • Negotiations over a COVID-19 relief bill between Democrats and Republicans broke down in August over a nearly $1 trillion gulf between their proposals. 
  • The House passed a $3.4 trillion package in May (H.R. 6800), which is more than the $1.5 trillion President Trump indicated he would support and much larger than a $650 billion package supported by Senate Republicans.
  • House Democrats could vote on a new plan next week, which would appease lawmakers from battleground election states anxious to pass a pandemic aid package before adjourning to campaign – despite chances that a Democrat-only plan is unlikely to attract Republican support.

Speaker Pelosi said last week that the House would remain in session until an agreement is reached, and House Majority Leader Steny Hoyer (D-MD) clarified that Representatives would be on call to return to the Capitol on short notice in the event a deal is reached. (BGov, Sept. 15)

#  #  #

Representative Steve Stivers Anticipates a Pandemic Risk Insurance Bill by Early 2021

Posted on by Trey Jackson

Rep. Steve Stivers (R-OH) interview - image

Rep. Steve Stivers (R-OH) discussed prospects for developing and enacting a federal pandemic risk-business continuity insurance program in an interview with Roundtable President and CEO Jeffrey DeBoer during the organization’s Fall Meeting this week.  (Video of the interview)

  • Rep. Stivers is the Ranking Member on the House Committee on Financial Services’ Subcommittee on Housing, Community Development and Insurance and played a key role in last year’s seven-year extension of the Terrorism Risk Insurance Act (TRIA).
  • DeBoer noted that the COVID-19 crisis has highlighted the lack of insurance availability for business continuity coverage for catastrophic pandemic events. Most business interruption insurance policies are denying pandemic risk-related claims, raising urgent concerns among policyholders – including owners of real estate, the event industry and professional sporting leagues.
  • Rep. Stivers emphasized the problem is growing worse and stated, “We’ve seen business interruption insurance not being willing to cover any pandemics.  I think you’re going to start to see lenders … requiring some type of pandemic coverage in their loan covenants in the coming years.”
  • While a number of legislative proposals have been introduced – including the Pandemic Risk Insurance Act of 2020 (H.R. 6983) – many are based on TRIA, which presents stark differences compared to pandemic risk.  Rep. Stivers notes in the interview how the scale and size of a terrorism attack and a pandemic are fundamentally different.  He also notes how a mandatory make-available clause that is part of the TRIA legislation is not currently part of a pandemic risk insurance bill.

Rep Steve Stivers remote interview with RER

  • Rep. Stivers (above) also said he expects a modified legislative approach to H.R. 6983 may be successful: “I believe in the first six months of next year we should have something (legislation) out of the House and pending in the Senate with the Senate starting to take action.”
  • Both DeBoer and Stivers agreed that a federal business continuity insurance program should be put into place before there is a recurrence of pandemic or government-ordered shutdown in response to a different natural catastrophe.
  • The Roundtable is working with industry partners such as Nareit and other stakeholders through the newly formed Business Continuity Coalition (BCC) to develop with policymakers an effective federal insurance program that provides the economy with the coverage it needs to provide business continuity coverage in the face of pandemic risk.  .  (Video of DeBoer’s discussion with Rep. Stivers)
  • DeBoer also asked the Congressman, as a member of the House Financial Services Committee, about the prospects for a pandemic relief bill.  Rep. Stivers responded, “I believe there will be a pandemic relief bill in the lame-duck session. The most important things to me are number one, liability protection for businesses that open.  Number 2 – some help for our state and local governments that have seen a hit in their revenues.  I’d like to see us add money for infrastructure … and for people who continue to struggle.”
  • He continued, “Instead of (increasing) unemployment insurance … I would rather see us do a temporary rental assistance program and I think it should apply to commercial as well as residential.  There’s already an eviction moratorium, but if you can’t evict somebody but you don’t get help for your rent, then you’re picking tenants over landlords and I’d like to see us fix that problem and do a temporary rental assistance program.”

Pressure for policymakers to act on another round of pandemic aid is growing since negotiations between Democrats and Republicans stalled in August.  (See story below on Coronavirus Response)

#  #  #

Business Coalition Urges Senate to Pass Corporate Diversity Legislation

Posted on by Trey Jackson

The Real Estate Roundtable and 16 other national organizations sent a letter on July 27 urging leaders of the Senate Banking Committee to advance legislation that would require public companies to report the racial, ethnic and gender composition of their boards and executive officers. (The Hill and coalition letter, July 27)

  • The act would require issuers that must register under the Securities Exchange Act of 1934 to provide data regarding diversity on corporate boards and in executive management. Such diversity reporting would occur in annual reports and proxy statements regarding election of directors filed with the Securities and Exchange Commission (SEC).
  • The bill would also require securities issuers to disclose whether it has adopted a plan or strategy to promote board- and executive-level racial, ethnic, gender, and veteran-status diversity.
  • The coalition letter addressed to the Senate Committee’s Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH), cites a 2019 PwC Annual Corporate Directors Survey to show the benefits of diversity.  The survey results show that 94% of participating board directors indicated that a diverse board brings unique perspectives; 87% responded that diversity enhances board performance; and 84% responded that it improves relationships with investors.
  • Presumptive Democratic Presidential Nominee Joe Biden this week presented a series of proposals intended to address racial economic inequality. Biden said that as president, his future appointments to the Federal Reserve would be “diverse nominees for the Board of Governors and the regional Federal Reserve Banks.” (The Wall Street Journal, and The New York Times, July 29)
  • Last week the Biden campaign indicated its desire to eliminate several current law tax provisions, including like-kind exchanges under Section 1031, to pay for a 10-year, $775 billion “caregivers” proposal.

Roundtable President and CEO Jeffrey DeBoer responded, “The long-standing like-kind exchange tax law has encouraged investment in affordable housing and other properties, generated state and local tax revenue, and spurred new jobs through labor-intensive property improvement. As a result, exchanges allow cash-strapped minority, women, and veteran-owned businesses to grow their business by temporarily deferring tax on the reinvested proceeds.”  (Entire Roundtable Statement on like-kind exchanges, July 21 and Roundtable Weekly, July 24).

#  #  #

Industry Trade Group Leaders Focus on Prospects for Stimulus Legislation and CRE Impact

Posted on by Trey Jackson

Real Estate Roundtable President and CEO Jeffrey DeBoer joined other real estate industry trade group leaders in a July 29 Walker & Dunlop webinar “All Eyes On Washington: What will the next stimulus bill do for CRE?” moderated by Roundtable member and W&D Chairman and Chief Executive Officer Willy Walker. 

  • Mortgage Bankers Association CEO and President Bob Broeksmit and National Multifamily Housing Council President Doug Bibby also participated in this “Walker Webcast” to discuss the next $1 trillion+ stimulus bill under consderation on Capitol Hill and its impact on the multifamily, mortgage, and commercial real estate industries.  (Watch video on The Roundtable’s YouTube channel)
  • The three trade group leaders agreed that consensus on a new stimulus bill will stretch into August and predicted a new bill would be passed by Aug. 8 or Aug. 15. Bibby and Broeksmit predicted the legislative package cost would total $1.75 trillion, while DeBoer estimated $2 trillion.  (BisNow, July 29 and ConnectCRE, July 30)
  • DeBoer noted that the real question in determining whether additional funding for state governments, small businesses, and others will be approved is how previous funds allocated by Congress during the pandemic are being allocated.  DeBoer asked, “Are they going to solve COVID-related problems, or solve issues that were pre-existing?”
  • Broeksmit added, “An imperfect compromise is going to emerge, and that’s all right because we need to get the funding out quickly. We don’t have time to get it perfect.”
  • Walker also focused on the federal eviction moratorium, observing that it negatively affects the relationship between landlords and their tenants as they attempt to work through financial challenges of paying rent.
  • “When you have an eviction moratorium, there is a propensity for people to go dark on you,” Walker said. “The owner and tenants stop working with each other. You lose the ability to maintain your community.”
  • Bibby stated that an eviction moratorium may seem appealing but it creates a cycle of economic disinvestment and puts the livelihoods of tens of thousands of owners across the country at risk.
  • DeBoer emphasized that a robust federal rental assistance program to help the unemployed as well as struggling small business is necessary to preserve the “rental obligation chain” that underpins the economy.  He also said The Roundtable supports additional funding for the Paycheck Protection Program (PPP), which has distributed approximately $520 billion to an estimated 5 million businesses. 
  • DeBoer added that businesses should receive assistance from the government on “new and unusual” expenses related to safety and cleaning protocols.

“We have to think of this period as building a bridge to a time when the economy works again, when businesses are open and when people are employed and can stand on their own two feet again,” said DeBoer. “But we need the bridge to get there, and it needs to be strong enough and long enough.”  (REBusiness Online, July 31 and Walker Webcast video)

#  #  # 

Republicans Seek Intra-Party Consensus on Coronavirus Aid as Unemployment Benefits Expire and Democrats Wait to Begin Negotiations

Posted on by Trey Jackson

The White House and Senate Republicans have reached an “agreement in principle” on GOP priorities for another COVID-19 relief package but legislative text is still in the drafting phase, as negotiations in earnest with Democrats have yet to commence. (The Hill, NPR, and Law 360, July 23)

  • Sen. Rob Portman (R-OH) outlined GOP priorities during a July 22 floor speech on the next COVID-19 bill. (News release and transcript of Portman’s comments and YouTube video.) Republicans are reportedly in broad agreement on issues such as a liability shield for businesses from frivolous COVID-related lawsuits, a new targeted round of forgivable Paycheck Protection Program (PPP) loans for small business, and funds to help schools re-open, but “[w]e’re still developing the bill,” said Senate Finance Committee Chairman Chuck Grassley (R-IA). (B-Gov, July 23)
  • The GOP proposal is also expected to include additional unemployment benefits that expire this month, but less than the $600 per week boost Congress approved in March as part of the CARES Act. (Roundtable Weekly, March 27 and July 17). Republicans’ next plan is expected to fall within the $1 to $1.5 trillion dollar range.
  • The Democratic starting point for negotiations is the $3.4 trillion HEROES Act (H.R. 6800) passed by the House of Representatives in May (See one-pager; section-by-section; state and local relief summary and Roundtable Weekly, May 22).  Speaker Nancy Pelosi (D-CA) expressed her conference’s perspective that the GOP’s relief proposal “falls very short of the challenge that we face in order to defeat the virus and to open our schools and to open our economy.” (July 23 news conference video, The Hill)

Healthy Workplaces Tax Credit

Bipartisan support is growing for a “re-opening tax credit” in the next COVID-19 response package, which could offer businesses assistance in helping defray extra costs associated with workplace cleaning, disinfecting, personal protective equipment, and virus testing. (The Hill, July 16 and Roundtable Weekly, July 17)

  • Legislation includes the Clean Start: Back to Work Tax Credit Act (H.R. 7079) – introduced by Reps. Darin LaHood (R-IL) and Stephanie Murphy (D-FL). The bill proposes a credit maximum of $250,000 per business entity, up to $25,000 per location. (LaHood news release, May 29)
  • LaHood discussed his tax credit proposal and other pandemic relief measures yesterday in a video discussion with Roundtable President and CEO, Jeffrey D. DeBoer.  Watch the July 23 LaHood discussion on The Roundtable’s Youtube channel.
  • Additionally,  Sen. Rob Portman (R-OH) this week introduced the Healthy Workplaces Tax Credit Act, which proposes a refundable payroll tax credit with a phased amount based on the number of a business’s employees that would cover 50% of costs associated with PPE, cleaning, disinfecting, testing, and reconfiguring workspaces (Portman news release , July 20).  Rep. Tom Rice introduced companion legislation in the House.      
  • A broad business coalition, including The Real Estate Roundtable, urged Congress on July 16 to include a “healthy workplaces” tax credit in the next coronavirus relief bill.  (Coalition letter,  July 16 and  Roundtable Weekly,  July 17) 

Liability Protections and Minority Credit Legislation

Governors from 21 states urged Congress this week to provide “common sense” civil liability protections to health care workers, businesses, and schools in the next COVID-19 response package. (Governors’ Letter, July 21)

  • Republican Senators have indicated liability protections remain a leading priority for inclusion in the next relief package.  A draft outline of the Senate’s new COVID-19-related liability protections for businesses proposes a five-year shield from coronavirus lawsuits. (The Hill, Fox Business, CBS News, and Roundtable Weekly, July 17)
  • The Senate summary reflects principals supported by The Roundtable that were part of a multi-sector coalition letter sent to Hill leadership on May 27.  (Roundtable Weekly, May 29)
  • Separately, Senate Minority Leader Charles Schumer  (D-NY) and Senators Mark Warner (D-VA), Cory Booker (D-NJ), and Kamala Harris (D-CA) introduced legislation on July 21 to invest $17.9 billion in low-income and minority communities especially hard-hit by the COVID-19 crisis.  Representative Gregory Meeks (D-NY) introduced companion legislation in the House.
  • The Jobs and Neighborhood Investment Act would provide eligible community development financial institutions (CDFIs) and Minority Depository Institutions (MDIs) with capital, liquidity, and operational capacity to expand the flow of credit into underserved, minority, and historically disadvantaged communities.
  • The sponsors aim to include the measure in upcoming COVID-19 relief legislation to help small businesses remain solvent and expand operations, while providing affordable access to credit for lower income borrowers.

Congress faces a tight deadline to address a multitude of economic and health policy issues related to COVID-19 in an omnibus bill before breaking for its August recess.  (The Hill, July 20)

More Than 100 Members of Congress Urge Trump Administration to Aid CMBS Borrowers

Posted on by Trey Jackson

Buildings sky x475w

Commercial mortgage-backed security borrowers could face a historic wave of foreclosures starting this fall, impacting local communities and jobs across the country, without a long-term federal relief plan to combat liquidity deficiencies facing commercial real estate borrowers caused by the COVID-19 pandemic.  That is the bipartisan message sent on June 22 to the Federal Reserve and Trump Administration by more than 100 members of Congress, who are seeking support for real estate borrowers unable to keep up with payments on debt tied to CMBS.  (Wall Street Journal, June 23)

  • The bipartisan letter acknowledges the existence of the Fed’s lending facilities, yet warns about “the looming crisis in commercial real estate adversely impacted by the COVID-19 pandemic, including the $540 billion Commercial Mortgage-Backed Security (CMBS) market that, if left unchecked, may lead to a wave of foreclosures, exacerbating the current downturn in the U.S. economy and ultimately result in permanent job loss in multiple industries and communities across the country.”   (Congressional letter, June 22)
  • The congressional letter also requests the Fed to “devise a relief plan for these borrowers, who through no fault of their own, have experienced a significant drop in revenue on account of the COVID-19 pandemic and related governmental orders.”
  • Rep. Van Taylor (R-TX) is leading the effort to show policymakers the troubles faced by many hotels, shopping malls and office buildings that borrow money in the CMBS market – with some  owners expressing concerns their properties could go to foreclosure.  (Wall Street Journal, June 4)
  • A June 26 letter from four national hotel trade associations to Treasury and the Fed emphasizes the unique pressures they face when pursuing loans using the Fed’s Main Street Lending Program (MSLP), which utilizes strict criteria based on Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).  
  • The hoteliers detail multiple unnecessary obstacles in accessing desperately needed liquidity and how the industry’s asset-heavy business model shut them out from utilizing the MSLP because of the rigid EBITDA leverage test. “Most hotels are financed via mortgage debt, which means that their total outstanding debt is generally already above the maximum six-times EBITDA threshold established in the Main Street Lending Facility,” the letter notes.
  • The hotel coalition letter also details specific “actions that would allow this critical industry access to liquidity to keep workers employed and help survive the crisis.”
  • The Real Estate Roundtable and Nareit on April 22 wrote to Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell urging that additional measures be adopted to expand the scope of the MSLP to forestall further disruption and economic dislocations in the commercial real estate sector during the pandemic.  (MSLP comment letter, April 22)
  • Previous industry letters to the Fed on March 24 and April 14 addressed the need to broaden the range of a separate credit facility – the Term Asset Backed Securities Facility (TALF).  Those letters requested that TALF eligible collateral include both outstanding (legacy) CMBS, commercial mortgage loans and newly issued collateralized loan obligations.  On April 9, the Fed confirmed that the TALF would be expanded to include triple-A rated legacy non-agency CMBS and loans.

     

  • The Federal Reserve Bank of New York reported this week that the TALF had done $145,213,948 of “commercial mortgage” collateralized financing – legacy CMBS – out of a total of $252,155,890 of total volume, or 57.59%.

  • Overall, the CMBS market over the next two years could see 13,000 loans totaling $148 billion go into default, according to a recent analysis by CoStar Risk Analytics.  (CoStar News, April 30)
  • Additionally Fitch reports that $21 billion of CMBS loans are now in Special Servicing due to the coronavirus pandemic’s impact on tenants and borrowers.  This total is more than double the amount of CMBS loans that went into special servicing all of last year.  (GlobeSt, June 23 and The Real Deal, June 22 and Fitch, June 17)
  • Real Capital Analytics reports that the volume of deals for U.S. commercial properties including, offices and hotels, plummeted 79% in May compared with a year earlier. Deals to purchase hotels plunged 95% in May, the largest drop of any property type. Retail property transactions were down 83%.  (BGov, June 25)

The June 22 congressional letter led by Rep.Taylor requests that Treasury and the Fed urgently consider targeted economic support to bridge the temporary liquidity deficiencies facing all commercial real estate borrowers.  The letter concludes, “We believe an opportunity exists for responsible federal government investment in the commercial real estate market to provide a pathway to stabilize affected properties, the local jobs and businesses they enable, and the neighborhoods they serve.”

#  #  #

Fed Chairman Testifies Congressional Stimulus Measures Should Continue as Main Street Lending Program Launches; Regulators Support Financing to Non-Bank Lenders

Posted on by Trey Jackson

Federal Reserve Chairman Jerome Powell told House and Senate policymakers this week that economic support for workers and businesses adversely affected by COVID-19 should continue, adding that until COVID-19 is fully contained, “a full recovery is unlikely.” 

  • Powell testified remotely on June 16 before the Senate Banking Committee and on June 17 before the House Financial Services Committee to deliver his Semiannual Monetary Policy Report to Congress.
  • “It would be wise to look at ways to continue to support people who are out of work and also smaller businesses that may not have vast resources for a period of time…so that we can get through this critical phase,” Powell said. “That support would be well placed at this time.” (Wall Street Journal, June 17 and 18)
  • The Fed Chairman acknowledged some economic indicators have suggested “a modest rebound.” He also cautioned, “That said, the levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery.”  (BGov, June 17 and Marketwatch, June 18)
  • During his two days of congressional testimony, Powell defended the Fed’s aggressive purchases of assets and corporate bonds.  “I don’t see us as wanting to run through the bond market like an elephant, doing things and snuffing out price signals,” he said. “We just want to be there if things turn bad in the economy.”  (Bloomberg, June 16)
  • Powell delivered his remarks to Congress after stating last week that the central bank will continue buying large quantities of bonds and leave interest rates near zero through at least 2022.”  (USA Today, June 10)
  • The Fed Chairman also warned that the economic downturn could widen inequalities between rich and poor.  “Low-income households have experienced, by far, the sharpest drop in employment, while job losses of African-Americans, Hispanics and women have been greater than that of other groups,” Mr. Powell said. “If not contained and reversed, the downturn could further widen gaps in economic well-being that the long expansion had made some progress in closing.”  (New York Times, June 16)

Former Federal Reserve Chairs Ben Bernanke and Janet Yellen signed a June 16 letter to congressional leaders, endorsed by more than 150 economic scholars, stating, “Congress must pass another economic recovery package before most of the support in the CARES Act expires this summer.  Congress should address this risk, and the already occurring economic damage, by passing, as soon as possible, a multifaceted relief bill of a magnitude commensurate with the challenges our economy faces.” (Washington Center for Equitable Growth, June 16 statement)

Main Street Lending Program Launches

The Real Estate Roundtable and Nareit on April 22 wrote to Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell urging that additional measures be adopted to expand the scope of the Main Street Lending Programs (MSLP) to forestall further disruption and economic dislocations in the commercial real estate sector during the pandemic.  (MSLP letter, April 22)

  • On June 8, The Federal Reserve Board expanded its MSLP to allow more small and medium-sized businesses to be able to receive support. (Roundtable Weekly, June 12)
  • This week, the Federal Reserve’s MSLP opened for lender registration.  The Federal Reserve Bank of Boston announced on June 15 that lenders can find the necessary registration documents and are encouraged to begin making Main Street program loans immediately.  (News Release)
  • The program offers five-year loans with floating rates, with principal payments deferred for two years and interest payments deferred for one year. The loans range in size from $250,000 to $300 million to support a broad set of businesses.

The MSLP intends to purchase 95% of each eligible loan that is submitted to the program after meeting all requirements. The Program will also accept loans that were originated under the previously announced terms, if funded before June 10, 2020. 

Regulators Support Financing to Non-Bank Lenders

Federal banking regulators responded favorably this month to a request from a business coalition, including The Real Estate Roundtable, that requested clarifications about financial institutions working with borrowers impacted by COVID-19. (Regulators April 7 guidance—Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus.)

  • The coalition on May 15 wrote to the regulators requesting clarification that – in addition to traditional loan products – lending and financing arrangements, such as warehouse lines and repurchase agreements secured by multifamily and commercial real estate loans and commercial mortgage-related securities, are within the scope of the guidance.  (Coalition May 15 letter)
  • The coalition’s focus was the debt financing extended by commercial banking institutions to non-bank lenders (NBLs) who, in turn, provide mortgage loan funding to commercial and multifamily property owners of all types.  The coalition received two affirmative replies, from Acting Comptroller of the Currency (OCC) Brian P. Brooks on June 4 – and on June 18 from Federal Deposit Insurance Corporation (FDIC) Chairman Jelena McWilliams.

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) continues to work to address the current crisis, pursuing measures that will enhance liquidity and capital formation, and to help develop an effective insurance program that provides the economy with the coverage it needs to address future pandemics. 

#  #  #

Talks Continue on Next Phase of Coronavirus Stimulus as Federal Reserve Expands Main Street Lending Program

Posted on by Trey Jackson

The Federal Reserve in Washington, DC

Trump Administration officials are signaling support for another Coronavirus stimulus package that Congress is expected to consider next month.  (Wall Street Journal, June 11)

  • After the House of Representatives on May 22 passed a $3 trillion coronavirus relief bill, congressional Republicans have signaled they may be open to another COVID-19 legislative package, but on a measured basis. (Forbes, May 21 and Roundtable Weekly, May 22) 
  • Treasury Secretary Steven Mnuchin on June 10 testified before the Senate Small Business and Entrepreneurship Committee: “I definitely think we are going to need another bipartisan legislation to put more money into the economy.  I think whatever we do going forward needs to be much more targeted, particularly to the industries and small businesses that are having the most difficulty in reopening as a result of COVID-19.” (RollCall, June 10)
  • Mnuchin on June 11 responded to a question by Jim Cramer of CNBC’s “Squawk on the Street” about future coronavirus stimulus plans and rental payment pressures faced by commercial real estate.
  • Mnuchin said, “On the commercial side … it is more complicated.  You have companies, particularly in retail, that are having a lot of issues. They are going to have to deal with the rent.  The landlords then have to deal with mortgage payments.”
  • The Treasury Secretary continued, “…how do we help the industries that are especially impacted –- and I would say hotels, travel, entertainment, restaurants are right up there.  So we are going to need to be much more targeted in making sure that we get people back to work and help these industries.”
  • White House economic adviser Kevin Hassett on June 9 said the odds of passing additional coronavirus economic stimulus before Congress breaks for its August recess “are very, very high.”  Hasset added that the issue of business liability protections for employers is one of the “biggest problems” facing passage of another coronavirus package.  (Wall Street Journal, June 9 and Forbes, June 6).
  • Sen. John Cornyn (R-TX) emphasized the GOP’s position on May 18, stating on the Senate floor that “Senate Majority Leader McConnell (R-KY) and I … are working on a proposal that would put common sense reforms in place and protect those acting in good faith from being sued into oblivion.”  (Cornyn statement).  Potential employer immunity and anticipated litigation related to Covid-19 were the focus of a May 12 Senate Judiciary Committee hearing.  (Roundtable Weekly, May 15).
  • Sen. Cornyn this week stated the Republican liability proposal will be released next month. He added the plan would allow employers to choose which government coronavirus safety guidelines to follow while shielding them from lawsuits if their customers or workers contract the virus. (BGov, June 10)

A multi-sector coalition including real estate, tourism, technology, manufacturing, health care, and energy sector groups – led by the U.S. Chamber of Commerce – called upon Congress in a May 27 letter to enact temporary liability protections for businesses struggling to reopen and operate safely during the COVID-19 pandemic. 

Federal Reserve Actions

Federal Reserve Chairman Jerome Powell on June 10 stated the central bank will continue buying large quantities of bonds and leave interest rates near zero through at least 2022 as it anticipates the outbreak “will weigh heavily on economic activity” and “poses considerable risks to the economic outlook.”  (USA Today, June 10)

  • Powell added after the Fed’s two-day meeting this week, “This is the biggest economic shock, in the U.S. and the world, really, in living memory.  We went from the lowest level of unemployment in 50 years to the highest level in close to 90 years, and we did it in two months.”  (New York Times, June 10)
  • Powell stated, “To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.”  (FOMC statement and Economic Projections, June 10)
  • The Fed has purchased agency mortgage bonds during the pandemic at a record pace totaling $719 billion, more than $12 billion per day on average, according to the New York Fed. (BGov, June 11)
  • On June 8, The Federal Reserve Board on expanded its Main Street Lending Program to allow more small and medium-sized businesses to be able to receive support. The Board expects the Main Street program to be open for lender registration “soon” and to be actively buying loans shortly afterwards. (Fed news release)
  • The Main Street Lending Program was established with the approval of the Treasury Secretary and with $75 billion in equity provided by the Treasury Department from the coronavirus economic relief package, The CARES Act.

The changes include:

  • Lowering the minimum loan size for certain loans to $250,000 from $500,000;
  • Increasing the maximum loan size for all facilities;
  • Increasing the term of each loan option to five years, from four years;
  • Extending the repayment period for all loans by delaying principal payments for two years, rather than one; and
  • Raising the Reserve Bank’s participation to 95% for all loans.
  • This chart has additional details on the changes.
  • Once lenders have successfully registered for the program, they will be encouraged to make Main Street loans immediately. The Main Street Lending Program intends to purchase 95% of each eligible loan that is submitted to the program after meeting all requirements. The Main Street Lending Program will also accept loans that were originated under the previously announced terms, if funded before June 10, 2020.

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) and Research Committee discussed the Fed’s actions as part of the economic outlook and the state of real estate capital and credit markets during its remote meeting yesterday held in conjunction with The Roundtable’s Virtual Annual Meeting.

#  #  #