Credit and Capital Availability for Commercial Real Estate
Updated: January 20, 2011
The Issue · Position · Talking Points · Resources
The Issue
After the collapse of the financial markets in late 2008, credit markets for commercial real estate lending became frozen, and remained tightly constrained for the past two years. Banks tightened their lending standards and worked to reduce their exposure to potential losses from commercial real estate holdings. Many banks followed a policy of "extend and pretend", offering only short-term extensions of maturing mortgage debt that had matured to borrowers instead of longer-term refinancing. The secondary market of commercial mortgage-backed securities (CMBS), which had been the source for much of the lending for commercial real estate projects before the downturn in late 2008, virtually disappeared in 2009.
During this time, NAIOP and its real estate allies successfully advocated for specific federal actions to address the unavailability of credit in the commercial real estate sector, from both the secondary market and the primary lending institutions such as banks. These actions included expansion of the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF), which was originally created to address the problems of frozen secondary markets in auto, small business, and consumer loans, to include commercial real estate debt such as CMBS. TALF began to help revive the CMBS market in late 2009. During this time, the Department of the Treasury also issued guidance allowing greater flexibility for mortgages held in Real Estate Mortgage Investment Conduits (REMICs) to be restructured without suffering adverse tax consequences, enabling more workouts to occur. For bank-held commercial mortgage debt, the Federal Deposit Insurance Corporation (FDIC), the federal regulator for much of the banking system, issued guidance allowing banks more latitude in prudentially modifying and extending performing commercial real estate loans.
While these actions have had a positive impact, hundreds of billions of dollars in commercial real estate debt remain outstanding and will mature each year for several years. Policymakers must ensure that there is sufficient capacity in our capital markets to refinance this debt in order to avert further damage to the economy.
Position
Congress must continue to exercise strong oversight over banking regulators to ensure that credit is reasonably available to refinance performing commercial real estate loans. Federal banking regulators should also provide for efficient and expeditious disposition of commercial properties where appropriate, so that real estate markets can return more quickly to increased activity.
Talking Points
- Hundreds of billions of dollars in commercial real estate debt will mature every year for several years. Because of the remaining weakness in credit markets for commercial real estate, developers and owners of commercial properties fear that they will be unable to refinance performing loans due to tight credit markets.
- Policymakers should work to ensure that our credit markets are capable of providing the capital needed for these performing loans to be refinanced. In addition, Congress must ensure that financial institutions regulators not overly restrict lending institutions from advancing credit to worthy commercial real estate projects simply because they want to reduce the number of commercial real estate loans on their books.
- Federal banking regulators should provide for an orderly and expeditious disposition by banks of their remaining toxic assets, including commercial properties where prudent, so that real estate markets can return more quickly to increased activity.
Resources
Contact:
Aquiles F. Suarez
Vice President for Government Affairs
(703) 904-7100 ext. 115
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