Capital and Credit Availability

Congress must ensure that capital markets and financial institutions are able to address the current and future credit needs of the commercial real estate industry. Strong oversight is needed to ensure that the actions of various financial regulators do not have an unintended cumulative impact on lending to the industry.

Download NAIOP’s Position on Capital and Credit Availability  

The
Issue

  • The market of U.S. commercial and multifamily real estate investors, lenders and borrowers is valued at more than $6 trillion and is supported by $3.6 trillion of commercial real estate debt.
  • Over the next three years, more than $1 trillion of this debt will mature. It is vital that policymakers ensure continued capacity and flexibility for our capital markets to refinance this debt in the future in order to prevent damage to our economy.
  • Commercial banking organizations and commercial mortgage-backed securities (CMBS) are two of the top sources of financing for the commercial real estate industry.
  • Regulations arising from Dodd-Frank legislation passed in the aftermath of the 2008 financial crisis, and revised capital standards for banks promulgated by the Basel Committee on Bank Supervision (Basel III), would reduce the availability of capital for commercial real estate from banks and CMBS. Such restrictions include:
    • HVCRE designation – Basel III created a new term: High Volatility Commercial Real Estate (HVCRE) loans, referring to acquisition, development and construction loans (ADC loans) for commercial real estate projects.
    • Basel III requires banks to hold 50 percent higher capital reserves against ADC loans as compared to other business loans, creating an incentive for banks to reduce CRE lending.
    • CMBS Risk-Based Premiums – Dodd-Frank’s credit risk retention provisions requiring CMBS sponsors to keep 5 percent of the credit risk on their balance sheets went in to effect in December 2016. The rules had raised concerns in the industry, with estimates for new CMBS issuances in 2016 being reduced from $150 billion to $50 billion.
  • Congress should exercise prudent oversight over federal financial regulatory agencies to prevent excessive regulatory overreach, ensuring that the cumulative impact on CRE lending is considered. Supervisory regulatory bodies should also avoid adopting additional regulations designed to limit CRE lending until economic impact

Status

Information to come.

Position

Congress must ensure that capital markets and financial institutions are able to address the current and future credit needs of the commercial real estate industry. Strong oversight is needed to ensure that the actions of various financial regulators do not have an unintended cumulative impact on lending to the industry.

Talking
Points

  • Adequate credit and capital for commercial real estate is a critical component of strong economic growth for our country.
  • Policymakers should work to ensure that financial markets and lending institutions maintain future capacity to meet the needs of commercial real estate investors and entrepreneurs.
  • Regulations intended to ensure the safety and soundness of the financial system should not unfairly discriminate against commercial real estate lending. The commercial real estate sector was not a contributing factor to the financial crisis of 2008.
  • Congress must exercise its oversight role over banking regulators to ensure that credit is reasonably available for real estate development and for the refinancing of maturing commercial real estate debt.

Resources

Contact

Aquiles Suarez
Vice President for Government Affairs
703-904-7100, ext. 115