Credit Crisis

The Credit Crisis and Commercial Real Estate 

The Path to Liquidity:
A Five Point Plan
(Presentation in pdf format)

"The State of the Commercial Real Estate Credit Markets"
Statement by
Jeffrey D. DeBoer
President & CEO, The Real Estate Roundtable

(See Related Resources Below)

It is important for policymakers to enact measures that will restore credit capacity for commercial real estate, and we have been following a 5 point plan to address the situation:

1. Expand the Term Asset-Backed Securities Loan Facility (TALF) to include as eligible collateral newly originated secured and unsecured loans on commercial real estate properties that have a long-term credit rating in the highest investment-grade rating category (for example, AAA). Such a credit facility would help restore capacity and address the enormous credit shortfall facing commercial real estate.

Status: See Roundtable Weekly coverage for TALF expansion details and creation of the Public-Private Investment Facility (PPIF).
The Treasury announced that the Term Asset Lending Facility would be expanded beyond certain consumer loans to include commercial real estate mortgages.  This facility will provide attractive financing to investors purchasing AAA securities backed by newly originated (including refinancing) commercial real estate mortgages, which should encourage greater commercial loan orginations. See Feb. 10, 2009 news release on Treasury's plan for TALF

2. Encourage debt modifications.  Banks  should extend performing loans held by credit worthy borrowers that are maturing.  Importantly, amend the real estate mortgage investment conduit (REMIC) rules to facilitate reasonable modifications to the terms of commercial mortgage loans that have been securitized in CMBS.  Also, temporarily suspend the taxation of cancellation of indebtedness rules.

Status: The economic stimulus legislation signed into law on Feb. 17 includes a provision that defers the tax on any cancellation of debt income for five years, thereby providing an incentive to purchase or modify debt.  See Simpson Thacher summary on the temporary deferral of cancellation of indebtendess.  The Roundtable has also submitted extensive materials to the Treasury to advance our REMIC modification goals.

3. Encourage foreign capital investment in U.S. real estate — e.g., by revising the Foreign Investment in Real Property Tax Act (FIRPTA) and reversing a 2007 IRS ruling on FIRPTA that has had a dramatic chilling effect on such investment during the past two years.

Status: This issue will be a major focus in upcoming months.

4. Modify accounting rules — particularly "mark to market" and "consolidation" rules — that are artificially devaluating CMBS assets, hurting financial institutions and exacerbating the credit crisis.

Status: We continue to meet with Federal regulators on this issue. See Roundtable Weekly for updates on this issue.

5. Reject new anti-real estate investment taxes (i.e., capital gains, like kind exchanges and the proposed tax hike on partnership "carried interest"). 

Status: We expect these issues to attract attention later this year and we remain steadfast in our opposition.