Policy Issues
Capital and Credit

Roundtable Remains Focused on Maintaining Reliable Credit Capacity, Capital Formations; Minimizing Regulatory Overreach; and Effective Risk Management Tools Vital to Liquidity   
 
  
  

2018 Policy Issues Snapshot
More detailed information on various Capital and Credit policy issues can be found in recent issues of Roundtable Weekly — our weekly policy eNewsletter that can searched by key word or phrase.  The Roundtable's 2018 National Policy Agenda: A Building For the Future, also includes a section on Capital & Credit Policy.

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News on various credit and capital issues can be found in recent issues of Roundtable Weekly — our weekly policy eNewsletter that can searched by key word or phrase.

 Cumulative Impact of Regulation  

  • Volcker Rule

 Dodd Frank Reform Bill - HVCRE

  Reauthorizing the National Flood Insurance Program (NFIP); Expanding Private Markets  

Developing an Effective, Long-Term Terrorism Risk Insurance Program

 

✓ Recent Developments:

⇒ 06/01/2018      Capital and Credit
CAPITAL & CREDIT - VOLCKER RULE - June 1, 2018 - Roundtable Weekly 
The Fed and FCIC Vote to Simplify and Ease Volcker Rule 

⇒ 05/25/2018      
DODD-FRANK REFORM - HVCRE - May 25, 2018 - Roundtable Weekly 
President Trump Signs Dodd-Frank Reform Bill With HVCRE Revisions 

⇒ 05/25/2018      Capital and Credit;Volcker Rule
CAPITAL & CREDIT - VOLCKER RULE - May 25, 2018 - Roundtable Weekly 
Fed to Consider Changes to Volcker Rule 

⇒ 05/11/2018      Dodd-Frank
DODD-FRANK REFORM - May 11, 2018 - Roundtable Weekly 
House Will Vote on Dodd-Frank Reform and HVCRE Before Memorial Day 

⇒ 05/04/2018      Dodd-Frank
DODD-FRANK REFORM - May 4, 2018 - Roundtable Weekly 
House GOP Leaders Signal Renewed Dodd-Frank Reform Effort; Legislation Includes Roundtable-Supported HVCRE Changes    

⇒ 04/20/2018      Economy;Federal Reserve
CAPITAL & CREDIT - April 20, 2018 - Roundtable Weekly 
Fed’s Beige Book Reports Widespread Concern About Tariffs Despite Economic Growth; CRE Activity Improves 

⇒ 04/13/2018      Commercial Real Estate Markets;Economy
ECONOMIC GROWTH and CRE - April 13, 2018 - Roundtable Weekly 
New Reports Measure Impact of Tax Reform on Real Estate Investment and CRE's Impact on National, State Economies - April 13, 2018 - Roundtable Weekly 

✓ Trump Administration Focuses on Economic Growth; Improved Outlook for Regulatory Reforms  
The Trump economic team has an ambitious agenda on a number of key issues. They are focused on enacting measures to help grow the economy – including efforts to reduce regulations viewed as burdensome or hindering economic growth. Working with a Congress where both chambers are run by Republicans for the first time in a decade – they have an opportunity to provide the business community with regulatory relief on a number of key areas – including financial services issues. 

Despite trade war fears and increased market volatility, the Federal Reserve has revised this year’s economic growth up to 2.7 percent. The economic expansion, now in its ninth year, is poised to become the second-longest on record later in 2018.

The Trump administration is hoping the economy will accelerate further this year, aided by sizable tax cuts and increased government spending. 

 ✓ Cumulative Impact of Regulation     
Over the next three years, approximately $1 billion a day in commercial real estate debt is maturing – including some $411 billion in commercial bank debt and $265 billion of CMBS loans. So, maintaining adequate credit capacity is vital for CRE.

As financial institutions absorb a multitude of overlapping regulations, we continue to raise concerns with policymakers about the cumulative impact these rules are having on real estate credit capacity, liquidity and capital formation.

Our specific concerns are focused on various Dodd-Frank and Basel rules including:

- Dodd-Frank Risk-Retention Rules
- Dodd-Frank Volcker Rule
- Basel III High Volatility Commercial Real Estate (HVCRE)
- Basel III Liquidity Coverage Ratio rule (LCR)
- Basel III Net Stable Funding Ratio (NSFR)

The Roundtable encourages policies that provide relief from overly restrictive regulation and support measures that would encourage capital formation, balanced lending and investments in the U.S. economy—supporting job creation and economic growth.

 ✓ Volcker Rule Revisions Proposed by Fed
In March, the Senate passed the bipartisan Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155). This measure would help “right-size” regulations on regional banks and relax restrictions on parts of the banking industry – representing the most significant changes to Dodd-Frank since its enactment in 2010. The bill now moves to the House for consideration, but it is does not yet have a clear path forward.

The nearly 400-page proposal, known as Volcker 2.0, would allow banks to do limited trading for themselves and to hold interests in hedge funds and private equity funds to hedge risk on behalf of non-bank clients. If adopted, this proposed revision is expected to enhance liquidity to commercial mortgage backed securities (CMBS) markets.

Fed Chairman Jerome Powell said regulators aim “to replace overly complex and inefficient requirements with a more streamlined set of requirements.”

In a 2012 comment letter to Federal Reserve and other financial regulatory agencies, the Roundtable raised concerns about the unintended consequences of the Volcker Rule that could "negatively impact liquidity and capital formation in commercial real estate".

 ✓ President Signs Dodd-Frank Reform Bill - Key HVCRE Rule Revision Included
President Trump signed the bipartisan Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) into law on May 24. This measure would help “right-size” regulations on regional banks and relax restrictions on parts of the banking industry – representing the most significant changes to Dodd-Frank since its enactment in 2010.

Sec. 214 of the law includes the Clarifying Commercial Real Estate Loans language from the House-passed H.R. 2148 and S. 2405, clarifying the treatment of High Volatility Commercial Real Estate (HVCRE) and High Volatility Acquisition, Development or Construction (HVADC) loans.

The provision will help clarify and promote sustainable acquisition, development and construction and lending by addressing key deficiencies in the agencies’ current and proposed regulations governing the criteria for HVCRE or HVADC loans. It provides for the following modifications and clarifications:

• The 15% equity requirement would be revised to expressly include contributed land/property at the appreciated land value as determined by a FIRREA appraisal and bank review (versus the cost basis under the current rule).
• Clarifies that loans made to acquire existing property with rental income and/or do cosmetic upgrades and other improvements don't trigger the capital penalty.
• A new exemption would be added to the HVCRE rule covering acquisition/refinancing loans for performing income producing properties.
• Allows borrowers to use internally generated capital in the project and, once the development/construction risk period has passed, outside the project, rather than forcing them to refinance the loan (possibly away from the original lender).
• All ADC loans made prior to January 2015 would be grandfathered and would not have to satisfy current HVCRE exemption criteria.
• Banks would able to withdraw HVCRE status prior to the end of an ADC loan’s term.

We encourage regulators to issue the final regulations .

 ✓ Improving and Reauthorizing the National Flood Insurance Program (NFIP); Securing a Commercial Opt-Out Provision
The NFIP was scheduled to sunset on Sept. 30, 2017, but the program was temporarily extended until July 31, 2018, as part of an omnibus that funds the government though Sept. 30. By decoupling NFIP reauthorization from the broader spending bill, policymakers are attempting to force the Senate’s hand to finish work on a reauthorization bill. The House passed a reform bill in Nov. 2017.

As part of the reauthorization process, the Senate is still debating potential changes and improvements to the program. Their goal is to find a balance between improving the financial solvency of the program, reducing taxpayer exposure and addressing affordability concerns.

 Floods are the most common and most destructive natural disaster in the U.S., and there is limited private market capacity. NFIP coverage is available for homeowners, renters and small businesses.

Reauthorization of the NFIP is important for residential markets, overall natural catastrophe insurance market capacity and the broader economy. However, under the NFIP, commercial property flood insurance limits are low – $500,000 per building and $500,000 for its contents.

Lenders typically require this base NFIP coverage, and commercial owners must purchase Supplemental Excess Flood Insurance for coverage above the NFIP limits. The NFIP's low commercial limits make it problematic for most commercial owners. As a result, we have been seeking a voluntary exemption for mandatory NFIP coverage if property owners have flood coverage from commercial insurers.

By permitting certain private issue insurance policies to satisfy the NFIP’s “mandatory purchase requirement” for properties in flood plains financed by loans from federally guaranteed institutions, commercial property owners would have the ability to "opt-out" of mandatory NFIP commercial coverage if they have adequate private coverage outside the NFIP program to cover financed assets.

The Roundtable and its partner associations support a long-term reauthorization and improvements of the NFIP that would that expand private markets. Given the low coverage amounts provided to commercial properties, it is important to permit larger commercial loans to be exempted from the mandatory NFIP purchase requirements.

 

 ✓ Terrorism Risk Insurance Program Extended  
Terrorism continues to pose a clear and present danger to our nation and to the American economy. Originally enacted in 2002, in response to the failure of insurance markets to offer terrorism risk coverage to commercial policyholders, the Terrorism Risk Insurance Act (TRIA) was extended in 2005, 2007 and again in 2015 – following a 12-day lapse when Congress failed to complete their work on reauthorization at the end of 2014.

TRIA is essential for commercial real estate as lenders require “all risk” insurance coverage – including terrorism coverage – to cover the risk of loss to the collateral. At virtually no cost to the taxpayer, TRIA has allowed our economy to move forward even in the face of terrorist threats.

Yet, the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) is scheduled to sunset on Dec. 31, 2020. Working with the Treasury Department’s Federal Insurance Office (FIO), the TRIA Advisory Committee on Risk-Sharing Mechanisms (ACRSM), the insurance industry, and Congressional policymakers, The Roundtable is focused on developing an effective, long-term approach for a federal terrorism risk insurance program. Such a long-term program should enable policyholders to secure the terrorism risk coverage they need without facing periodic renewals by the federal government. require.

The Real Estate Roundtable supports efforts to promote economically responsible commercial real estate lending that reflects sound underwriting and risk management practices, and rational pricing of economic risk. We continue to urge policymakers to take action that encourages stable valuations, enhanced transparency and sensible underwriting, and support efforts to establish appropriate systemic safeguards—all key factors for a reliable credit system.stable valuations, enhanced transparency and sensible underwriting, and support efforts to establish appropriate systemic safeguards—all key factors for a reliable credit system. 

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The Real Estate Roundtable supports efforts to promote economically responsible commercial real estate lending that reflects sound underwriting and risk management practices, and rational pricing of economic risk. We continue to urge policymakers to take action that encourages stable valuations, enhanced transparency and sensible underwriting, and support efforts to establish appropriate systemic safeguards — all key factors for a reliable credit system.

(For more information, please email info@rer.org or call 202-639-8400.  For weekly updates on key policy issues affecting commercial real estate, see our eNewsletter  Roundtable Weekly

The Real Estate Capital Policy Advisory Committee (RECPAC) is co-chaired by Dennis Lopez (QuadReal Property Group) and Mark Myers (Wells Fargo) and vice-chaired by Diana Reid (PNC Real Estate).   RECPAC consists of principal members from a broad spectrum of real estate investment, ownership and financial services companies. For additional information on RECPAC issues, please contact Clifton (Chip) E. Rodgers, Jr., Senior Vice President, The Real Estate Roundtable, at (202) 639-8400 or via e-mail at crodgers@rer.org.

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