Tag: Capital and Credit

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)

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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.”

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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. 

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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.

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Industry Requests TALF Expansion to Include a Broader Range of Commercial Real Estate Assets, CMBS; Congressional Efforts Seek to Address Pandemic Business Interruption Insurance Policies

Posted on by Trey Jackson

U.S. Capitol Dome with flag

Six real estate industry organizations, including The Real Estate Roundtable, wrote to federal regulators on April 14 to communicate the urgent and growing need to include a wider range of investment grade commercial real estate debt instruments in the Fed’s Term Asset-Backed Securities Loan Facility (TALF) credit facility. Currently, TALF eligible collateral is limited to triple-A rated tranches of outstanding (legacy) commercial mortgage backed securities (CMBS), commercial mortgage loans and newly issued collateralized loan obligations.  (TALF letter, April 14)

  • The TALF, previously used during the 2008 financial crisis, was relaunched on March 23 in response to the Covid-19 crisis to “enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.”  (Fed news release, March 23)
  • Immediately after the TALF was relaunched, an industry coalition on March 24 urged the Federal Reserve, Treasury, and Federal Housing Finance Agency to expand the TALF to include non-agency CMBS – including legacy private-label conduit and single-asset single borrower (SASB) assets. The coalition, which includes The Roundtable, stated the inclusion of private-label assets would stabilize asset prices and shore up the balance sheets of market participants.  (Joint Industry letter, March 24)
  • On April 9, the Federal Reserve announced that it would broaden the range of TALF eligible collateral to include triple-A rated tranches of both outstanding (legacy) CMBS, commercial mortgage loans and newly issued collateralized loan obligations. However, the updated term sheet excludes single-asset single borrower (SASB) CMBS and commercial real estate collateralized loan obligations (CRE CLOs).
  • According to the April 14 letter, “Commercial and multifamily real estate assets that were perfectly healthy just weeks ago now face massive stress and a wave of payment and covenant defaults. As the economy shuts down and American workers face massive layoffs, it is now clear that many tenants will not be able to meet their debt obligations. This will soon cascade through the over $4 trillion commercial real estate debt market and exponentially increase the pressure on the financial system.”

To bolster the health of the CMBS market, the industry coalition recommends the following investment grade instruments be added as eligible TALF assets:

  • Legacy and new issuance, investment grade, non-agency CMBS;
  • Investment grade Agency Credit Risk Transfer (CRT) securities;
  • Legacy and new issuance Single-Asset, Single-Borrower (SASB) CMBS;
  • Commercial real estate (CRE) collateralized loan obligations (CLOs); and
  • U.S. commercial real estate (CRE) first mortgage loans (which have capital charges equivalent to investment grade/NAIC CM 1 and 2 and loans in good standing, or can obtain a rating agency letter confirming that the pledged loan is rated at least single-A).

The coalition letter explains that a broader, deeper, and more effective TALF would complement and minimize the direct lending that will be required of the Federal Reserve’s other credit facilities, which are supported by the $454 billion provided under the CARES Act.

The coalition also notes that expansion of the TALF’s scope and the Fed’s further support of the highly illiquid non-bank financial sector would forestall further disruption and economic dislocations in the commercial real estate sector.

Pandemic Risk Insurance Coverage

Two preliminary legislative proposals in Congress seek to address increasing requests for the property and casualty industry to extend business interruption (BI) insurance policies to cover pandemic risk related claims – and the general lack of pandemic risk commercial insurance availability.

  • A recent effort in the House led by Rep. Carolyn Maloney (D-NY) seeks to develop the Pandemic Risk Insurance Act of 2020 (PRIA), which would create the Pandemic Risk Reinsurance Program. PRIA would seek to create “a system of shared public and private compensation for business interruption losses resulting from future pandemics or public health emergencies.”  (Rep. Maloney Dear Colleague letter, April 10 Roundtable Weekly)
  • Rep. Maloney’s pandemic program would be prospective – not retrospective.  “Like the Terrorism Risk Insurance Act (TRIA), the federal government would serve as a backstop to maintain marketplace stability and to share the burden alongside private industry,” according to Maloney.
  • In the Senate, Sen. Steve Daines (R-MT) is working on a broader concept that is both retrospective and prospective.  Known as the  Workplace Recovery Act, the measure would provide direct retrospective reimbursement through a Federal Automated Security Trust program to every business for operating losses, limited to 90% of past revenues.
  • The Senate proposal would also establish a new government-funded business interruption insurance add-on for every privately administered commercial insurance plan to protect against future national pandemics.
  • The National Association of Insurance Commissioners issued a statement recently warning that such efforts “would create substantial solvency risks for the sector, significantly undermine the ability of insurers to pay other types of claims, and potentially exacerbate the negative financial and economic impacts the country is currently experiencing.” (NAIC statement, March 25)

As with terrorism risk insurance, The Roundtable is working with policymakers and stakeholders to help develop an effective risk insurance program that addresses the economic impact of the current pandemic crisis and provides the economy with the coverage it needs to deal with future pandemic risks. 

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Federal Reserve Launches $2.3 Trillion in New Credit Facilities, Expands TALF to Existing AAA CMBS and Commercial Mortgage Loans

Posted on by Trey Jackson

Federal Reserve Building DC

The Federal Reserve yesterday announced the establishment of $2.3 trillion in new credit lending facilities in an effort to restore liquidity and steady economic shocks from the Covid-19 pandemic. These actions include the expansion of its Term Asset Lending Facility (TALF) to include AAA-rated commercial mortgage-backed securities (CMBS) and commercial mortgages as eligible collateral.  (Fed news release and TALF term sheet, April 9)

  • The Fed’s Term Asset Lending Facility – previously used during the 2008 financial crisis and relaunched on March 23 – will now accommodate non-agency CMBS issued before March 23, 2020; any issuance after that date is ineligible.  All collateral must also be AAA-rated and located in the U.S or its territories. The TALF will support up to $100 billion in credit, which is backed by $10 billion in credit protection from the Treasury Department. (TALF term sheet)
  • Under the TALF, static collateralized loan obligations (CLOs) are also eligible collateral, yet CMBS securities related to single-asset single-borrower (SASB) and commercial real estate collateralized loan obligations (CRE CLOs) are not eligible at this time.
  • The terms and conditions for commercial mortgages to be included as eligible collateral in the TALF have yet to be announced. (TALF term sheet, April 9)
  • While the Fed’s recent actions are welcome, an industry coalition, including The Roundtable, continues to advocate for the inclusion of CRE collateralized loan obligations (CLOs) and Single Asset, Single Borrower (SASB) CMBS in the TALF. (Joint Industry letter, March 24)
  • The Federal Reserve also announced $600 billion for purchasing loans in two new “Main Street” facilities. The Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF), which will purchase 95% participations in new 4-year loans to businesses that have up to 10,000 employees or up $2.5 billion in 2019 annual revenue. Borrowers with more than 10,000 employees but less than $2.5 billion in 2019 revenue may potentially qualify.
  • The Fed’s new credit facilities also include $500 billion for short-term municipal bonds and additional funding for the central bank’s purchases of larger investment grade businesses and capital markets securities.
  • Fed Chair Jay Powell commented on yesterday’s actions during a webinar.  “Many of the programs we are undertaking to support the flow of credit rely on emergency lending powers that are available only in very unusual circumstances—such as those we find ourselves in today—and only with the consent of the Secretary of the Treasury.”  He added, “I would stress that these are lending powers, not spending powers.  We will continue to use these powers forcefully, proactively, and aggressively until we are confident that we are solidly on the road to recovery.”
  • During Q&A after his remarks, Chairman Powell acknowledged severe liquidity concerns faced by mortgage servicers as the pandemic has resulted in widespread forbearance on mortgage payments.  Powell referred to the mortgage market as “at the very center of our economy” and stated, “We’re watching carefully the situation with the mortgage servicers and I will just tell you that we certainly have our eyes on that as a key market.”  (S&P Global, April 9)
  • On April 4, a broad coalition financial industry and affordable housing advocates, including The Roundtable, urged government regulators to provide a source of liquidity to mortgage servicers in need of additional capacity to support homeowners and renters impacted by COVID-19. (Coalition mortgage servicers letter)
  • While this week’s actions could provide up to $2.3 trillion in loans to support the economy, the Treasury and the Fed have not yet committed the full $454 billion allocated for credit support to lending facilities under the recently-enacted Coronavirus Aid, Relief, and Economic Security Act (CARES).  Therefore, more loan programs or an expansion of these now existing loan programs could be forthcoming. (Roundtable Weekly, March 27).
  • This week’s massive Fed intervention also includes the creation a Paycheck Protection Program Lending Facility (PPPLF) to support the Small Business Administration’s Paycheck Protection Program (PPP) – established under the CARES Act.  This facility will extend credit to eligible financial institutions that originate PPP loans to small businesses, taking the loans as collateral at face value.  (See story below on The Roundtable’s 8-point reform plan for the PPP).
  • Yesterday’s actions by the Fed recognize that businesses vary widely in their financing needs – and input from lenders, borrowers, and other stakeholders until April 16 is welcome through a Federal Reserve feedback form.

The Fed’s response to the pandemic is the focus of an April 8 Chicago Economic Club discussion moderated by Roundtable Chair Debra Cafaro (Chairman and Chief Executive Officer, Ventas, Inc.) with Charles Evans, President and CEO of the Federal Reserve Bank of Chicago. (Watch interview on Youtube)

As part of the rapidly evolving developments related to the COVID-19 pandemic, The Real Estate Roundtable continues to be proactive on all policy fronts in Washington to provide insight and recommendations to lawmakers and regulators.  The Roundtable depends on the input and expertise of its dedicated members, including those serving – now remotely – on the organization’s Real Estate Capital Policy Advisory Committee (RECPAC).

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House Passes Legislation to Permit Banking Services for Legal Cannabis-Related Businesses

Posted on by Trey Jackson

Jeffrey DeBoer, Real Estate Roundtable President and CEO

Real Estate Roundtable President and CEO Jeffrey DeBoer

The House of Representatives on Sept. 11 passed the Secure and Fair Enforcement (SAFE) Banking Act [H.R. 1595 (116)] – a Roundtable-supported bill that would allow federally regulated banks to provide mortgage and financial services to state-licensed, cannabis-related businesses (“CRBs”) without the threat of federal penalties. (Wall Street Journal, Sept. 25)

  • The SAFE Banking Act would also provide protection from the threat of federal enforcement action for real estate owners, law firms and other businesses that provide services to state-approved CRBs.
  • The bill – authored by Reps. Ed Perlmutter (D-CO) and Denny Heck (D-WA) and cosponsored by Reps. Steve Stivers (R-OH) and Warren Davidson (R-OH) – passed by a vote of 321 to 103.
  • Today, 47 states, four U.S. territories, and the District of Columbia – representing 97.7 % of the U.S. population – have legalized some form of recreational or medical marijuana, including CBD oil.  (Rep. Perlmutter news release, Sept. 25)
  • Rep. Perlmutter stated, “Thousands of employees, businesses and communities across this country have been forced to deal in piles of cash because of the conflict between state and federal law. After six years of working on this bill, the SAFE Banking Act will go a long way in getting cash off our streets and providing certainty so financial institutions can work with cannabis businesses and employees.” 

  • The Real Estate Roundtable sent a letter urging swift enactment of SAFE Act in March to the leadership of the House Financial Services and Judiciary Committees.  Roundtable President and CEO Jeffrey DeBoer noted in the letter, “H.R. 1595 clarifies that banks could not take adverse action on a loan to a real estate owner solely because that owner leases property to a legitimate CRB.  The measure also protects sellers and lessors of real estate and other CRB ‘service providers’ by clarifying that proceeds from legitimate marijuana-related transactions do not derive from unlawful activity, and thus do not provide a predicate for federal criminal money laundering.” (Roundtable letter, March 25, 2019)
  • In the Senate, the Banking, Housing and Urban Affairs Committee in July held a hearing on the banking-related challenges faced by CRBs.  The hearing featured testimony by Sens. Cory Gardner (R-CO) and Jeff Merkley (D-OR), co-sponsors of the SAFE Banking Act (S. 1200). 

  • Sen. Gardner stated on Wednesday, “The conflicting federal and state marijuana laws make it difficult for legitimate businesses to use basic financial services, and this bipartisan legislation gets Washington out of the way and gives them the access they need to do business and pay taxes. Today’s historic action in the people’s House adds to the momentum the SAFE Banking Act gained following the Banking Committee’s hearing in July. The Senate should move forward with the SAFE Banking Act and deliver it to the President for his signature.” (Gardner news release, Sept. 25)
  • In an interview with Politico, Senate Banking Chairman Mike Crapo (R-ID) said, “”This is an issue in which I have seen strong support not only across the country from various banking institutions, even the small community banks in states that don’t have the issue, but also among colleagues on both sides of the aisle,” he said. “I think there will be good support for it.”  (Politico, Sept. 27)
  • Sen. Crapo also said he may consider new additions to a Senate cannabis banking bill that could include anti-money laundering measures. 

Amendments were added to the House SAFE Banking Act to make it more appealing to Senate leadership, yet prospects for the bill’s passage in the Senate remain uncertain.  (MarketWatch and Politico, Sept 26)

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