Hearing Discusses Commercial Real Estate and if Rising Defaults Pose Systemic Risk
|July 9, 2009
The Real Estate Roundtable provided testimony before a hearing of the Joint Economic Committee on July 9 explaining why the current credit system in American does not have the capacity to meet the legitimate demand for commercial real estate debt.
The hearing was intended to examine the growing financing problems faced in the commercial real estate market and potential solutions to the credit crisis in the sector.
In his testimony, titled "Commercial Real Estate: Do Rising Defaults Pose Systemic Threat?" Jeffrey DeBoer, president and CEO of The Real Estate Roundtable, an organization that represents the nation's top 130 privately owned and publicly held real estate ownership, development, lending and management firms said "As the demands for debt remain unmet, the stress to the financial services system overall, individual financial institutions, and those who have invested in real estate directly or indirectly will increase."
DeBoer recommend that the following policy actions should be enacted as soon as possible:
Extend the Term Asset-Backed Securities Loan Facility (TALF) beyond its current Dec. 31, 2009 sunset date, through the end of 2010.
Establish a federally-backed credit facility, possibly created from the PPIP structure or a privately funded guarantee program, for originating new commercial real estate loans.
Encourage foreign capital investment in U.S. real estate by amending or repealing the outdated Foreign Investment in Real Property Tax Act (FIRPTA).
Encourage banks and loan servicers to extend performing loans, based on cash flow analysis; and, temporarily amend real estate mortgage investment conduit (REMIC) regulations to facilitate early review and possible modification to the terms of commercial mortgage loans that have been securitized in CMBS.
Reject new anti-real estate investment taxes, such as the carried interest proposal; and, provide a five year carry back for the net operating losses of all businesses.
"During the last several years, banks and the commercial mortgage backed securities market provided about 83 percent of the growth in commercial real estate debt," DeBoer said. "Today both of these large sources of commercial real estate credit are virtually shut down. The result is that the $6.7 trillion commercial real estate sector, a very large contributor to overall economic growth, now faces a liquidity crisis of mammoth proportions -- where even performing loans, on strong assets in good markets, face extreme difficulty in refinancing their debt. We appreciate the steps taken so far by the Congress, the Federal Reserve and the Treasury Department to try to address the vast liquidity crisis that is crippling the economy, destroying jobs and causing a free fall in commercial property values. But much more needs to be done."
for additional information on the hearing.