Roundtable Weekly -- June 12, 2020
Treasury Secretary Mnuchin and Industry Leaders Address Coronavirus Policy Response, Racial Injustice, and Reopening Challenges
The Real Estate Roundtable’s first Virtual Annual Meeting this week attracted nearly 300 Roundtable members who remotely accessed discussions with Treasury Secretary Steven Mnuchin and industry leaders on COVID-19 policy responses, racial injustice and business reopening challenges. The Roundtable’s policy advisory committee meetings also held their first remote meetings to analyze policy issues in the tax, capital and credit, sustainability and homeland security areas with subject matter experts from Capitol Hill, federal agencies and the private sector.
- Roundtable Chair Debra Cafaro (Chairman and CEO, Ventas, Inc.) launched the business meeting yesterday, noting the June 9 statement on racial injustice she issued with Roundtable President and CEO Jeffrey DeBoer. (See related story below for more details)
- Cafaro noted The Roundtable’s intense focus on the economic repercussions of the coronavirus. She explained how the organization has successfully pivoted its focus to advocating policies that support economic recovery, including a pandemic risk insurance program modeled after TRIA; ongoing efforts to reform the Paycheck Protection Program; Federal Reserve credit lending facilities that accommodate CMBS; and federal efforts that could preserve the “rental obligation chain.”
- Cafaro also announced that four individuals will join The Roundtable’s Board of Directors and three current Directors will depart, effective July 1. The new Board Members are:
- Thomas J. Baltimore, Jr. – Chairman, President & CEO, Park Hotels & Resorts
- Ken McIntyre – Chief Executive Officer, Real Estate Executive Council
- Brandon Shorenstein – Chairman and Chief Executive Officer, Shorenstein Properties
- William Stein – Chief Executive Officer, Digital Realty Trust & Chair, Nareit
- The exiting Board Members, who Cafaro thanked for their accomplished service, are:
Policy Issues & Featured Speakers
The Roundtable’s June 11 Annual Business Meeting included the following speakers:
- Treasury Secretary Steven Mnuchin discussed the Administration’s work with Congress to address the economic fallout from the outbreak with The Roundtable’s Jeffrey DeBoer. Secretary Mnuchin emphasized how recent improvements to the Paycheck Protection Program (PPP) has helped small business borrowers deal with the economic impact of the global pandemic. He added that the Administration is also considering business liability protections and pandemic risk insurance.
- Citi’s Vice Chairman Raymond McGuire discussed “Real Estate’s Role in Addressing Racial Injustice” with Roundtable Immediate Past Chair William Rudin (Co-Chairman and CEO, Rudin Management Inc.). McGuire noted that fortunate opportunities for an excellent education is what made the difference in his life experience and that providing similar opportunities to African American youths is of vital importance.
- “Reopening the Economy, Returning to the Workplace, Reinforcing Health Protections” panel featured leading industry executives discussing reopening strategies, operational protocols, potential liability concerns and more. The discussion is available to stream at your convenience. Separately, Roundtable Board Member and Sustainability Policy Advisory Committee Chair Tony Malkin (Chairman and CEO, Empire State Realty Trust, Inc.) was interviewed on CNBC this week on safety protocols and other measures that can be utilized for reopening businesses. (CNBC interview, July 9)
- Governor Jared Polis (D-CO) focused on Colorado’s approach to managing the outbreak, as it has recently reopened most businesses while practicing social distancing. In his video interview, “States Set the Pace,” Gov. Polis discusses how state government can work with the real estate industry on practical safety measures to help businesses looking to reopen.
- Dr. Scott Gottlieb, former Food and Drug Administration Commissioner (2017-2019) and Roundtable Chair Debra Cafaro discussed medical aspects of the novel coronavirus and his health policy perspectives on the crisis. Dr. Gottlieb noted, “We still have a slowly expanding epidemic in the United States” that has a high case fatality rate. He added that the world could see multiple vaccines with some targeting specific populations based on age or other factors.
- Charlie Cook, Editor and Publisher of the Cook Political Group, outlined the dynamics of the upcoming election cycle during a health pandemic and economic downturn. Cook emphasized the importance of approximately 5 percent of independent voters who will make a choice in an election without third-party candidates.
Roundtable Policy Committees
The Roundtable’s Policy Advisory Committees and associated task forces also met remotely in conjunction with the Annual Meeting, offering a combination of live and recorded presentations for participants. A video featuring all Roundtable Committee Chairs providing updates on each committee’s policy efforts is available on The Roundtable’s youtube channel.
This week’s committee meetings analyzed policy issues in detail with high-level congressional and agency staff:
- Research and Real Estate Capital Policy Advisory Committee (RECPAC):
Rep. French Hill (R-AR), who serves on the House Financial Services Committee and the Congressional Oversight Commission on the CARES Act, provided insights on recent and future COVID-19 economic relief and stimulus during this joint committee meeting. Additionally, industry experts discussed the state of real estate capital and credit markets, including the Fed’s Term Asset-Backed Securities Loan Facility (TALF).
- Tax Policy Advisory Committee (TPAC):
House Ways & Means Chief Tax Counsel Andrew Grossman joined TPAC to share his perspective on committee priorities and the tax legislative outlook. A panel of leading real estate tax authorities also discussed legislative proposals focused on the current distress in U.S. real estate – particularly debt restructurings, impaired rent and cancellation of indebtedness (COD) income. Additional wide-ranging tax policy TPAC discussions are available on demand:
- A View from the Chairman-- TPAC Chairman Frank Creamer, Jr.
- A Discussion on the Recent Social Unrest, COVID-19, Tax Policy, and Legislative Priorities with a Member of the House Ways and Means Committee – Rep. Brad Schneider (D-IL)
- An Interview on Tax Law and Administration in the Pandemic – Michael J. Desmond, Chief Counsel, Internal Revenue Service
- Tax Policy in the U.S. Senate – Sarah Schaefer, Tax Counsel, Senate Finance Committee
- A View from the Chairman-- TPAC Chairman Frank Creamer, Jr.
- Sustainability Policy Advisory Committee (SPAC):
U.S. Environmental Protection Agency speakers provided an update on the ENERGY STAR certification program and its Portfolio Manager Benchmarking tool in the Covid-19 Era. EPA and the Centers for Disease Control and Prevention (CDC) speakers discussed “Reopening Guidance for Cleaning and Disinfecting Workplaces.” SPAC members also focused on “Healthy Building Strategies in a Global Pandemic” with the senior executives from the Center for Active Design and the International WELL Building Institute.
- Homeland Security Task Force meeting (HSTF) and Risk Management Working Group (RMWG):
The joint meeting attendees heard briefings by government officials on the threat of civil unrest, looting, homegrown violent extremists and organized attacks on commercial properties – and the security, management and health challenges related to building re-entry. The Task Force was also briefed on the need to enact a federal business continuity/pandemic risk program aimed at providing capacity for policyholders in need of insurance protection from the enormous costs associated with pandemics.
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Real Estate Roundtable Issues Industry Imperative to Act Against Racism and Injustice
It is a moral and economic imperative for The Real Estate Roundtable and CRE companies to take immediate and concrete actions that stand against racism and for inclusion, stated Roundtable Chair Debra Cafaro (Chairman and CEO, Ventas, Inc.) and Roundtable President and CEO Jeffrey DeBoer, in a statement issued on June 9. (DeBoer, above center, with Roundtable meeting attendees in 2019)
- The entire statement – “The Real Estate Roundtable Stands in Solidarity Against Racism and Injustice” – also notes, “Systemic racism and injustice is a pandemic that has plagued our nation for far too long. The real estate industry must help to eliminate at its core this scourge in our society and economy.”
- The statement preceded a discussion yesterday on “Real Estate’s Role in Addressing Racial Injustice” between Roundtable Immediate Past Chair William Rudin (Co-Chairman and CEO, Rudin Management Inc.), and Raymond McGuire (Vice Chairman, Citi and Chairman, Banking, Capital Markets and Advisory), during The Roundtable’s first Virtual Annual Meeting.
- McGuire said that fortunate opportunities for an excellent education is what made the difference in his life experience and that providing similar opportunities to African American youths is of vital importance. “I do see this as a defining moment. It’s a challenge we have to answer for history,” McGuire said.
- McGuire also discussed steps to combat systemic racism this week on CNBC’s Squawk Box. “We welcome the millions of dollars. We welcome the relatable messages, but we need to do more. Otherwise, it will have been another sad day in the neighborhood,” McGuire said.
- The Roundtable’s Board yesterday approved the establishment of a standing committee to further equal opportunities and address racial disparities in the industry, with the goal of taking specific actions to bring more career opportunities to African American and other historically marginalized youth.
- Ken McIntyre, Chief Executive Officer of the Real Estate Executive Council (REEC), will join The Roundtable’s Board of Directors, along with three other new members, effective July 1. REEC is a professional trade association composed of minority leaders in the commercial real estate industry – and is now officially one of 19 national real estate trade association partners that The Roundtable coordinates with on industry policy issues.
Cafaro and DeBoer’s statement concludes, “The moment for leadership is now. The Real Estate Roundtable commits to motivate meaningful and lasting change within our spheres of influence.”
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Roundtable Recommends Congressional Focus on Emergency Rental Assistance for Residential, Business Tenants Impacted by Covid-19
The Real Estate Roundtable on June 8 urged Congress to develop a policy solution that assists residential and business tenants, economically harmed by the pandemic, with meeting their due and owing rent obligations. The letter sent was submitted for the record of a June 10 virtual hearing on “The Rent is Still Due: America’s Renters, COVID-19, and an Unprecedented Eviction Crisis” by the House Financial Services Subcommittee on Housing, Community Development.
- The Roundtable emphasizes in the letter that a specific rent assistance program for both residential and business tenants is needed to:
- Keep workers housed and employed;
- Maintain property taxes for state and local budgets that pay for essential community services;
- Safeguard Americans’ retirement savings; and
- Avoid a cascade of mortgage foreclosures.
- The letter explains that tenants’ rental revenues are the foundational link in an “obligation chain” that supports local government property taxes to pay for essential community services, provides the revenue to pay the salaries and benefits of real estate industry workers, maintains the stability of the mortgage system, and supports Americans’ pension and retirement savings.
- Articles and studies cited in an attachment to the letter describe drastic declines in rent collections since April, especially from businesses in the retail and hospitality sectors. A cited article published in the Washington Post on June 3 – “The next big problem for the economy: Businesses can’t pay their rent” – reports:
- “The problem for the broader U.S. economy is that when businesses … stop paying rent, it sets off an alarming chain reaction. Landlords are now at risk of bankruptcy, too. Commercial real estate prices are falling. Jobs at property management companies and landscapers face cuts. Banks and private investors are unwilling to lend to most commercial real estate projects anymore, and cash-strapped city and local governments are realizing the property taxes they usually rely on from business properties are unlikely to be paid this summer and fall”
- Additionally, the letter cites CoStar Risk Analytics, which reports the commercial real estate market can expect to see borrowers default on more than 13,000 loans totaling $148 billion in value.
- The New York Times on June 5 also reported in “Tenants’ Troubles Put Stress on Commercial Real Estate” that landlords have begun to fall behind on the loans used to acquire or build properties, citing hotel and retail property data from Trepp.
- The Wall Street Journal this week reports that disputes between landlords and retail tenants over missed rent payments are now increasingly headed to court. (WSJ, June 9, “Landlords’ New Credo for Late-Paying Retail Tenants: I’ll See You in Court”)
- The depressed state of business rent collections is a foreboding sign of diminishing commercial real estate asset values, which translates to lower property tax revenues for state and local governments to pay for infrastructure and essential health care and first-responder services.
- The letter’s proposes that “Congress should strengthen the ‘obligation chain’ with a robust rental assistance program specifically designed to help business and residential tenants through the current crisis.” General assistance criteria for business and residential tenants to qualify for emergency rent support are suggested in The Roundtable’s June 8 letter.
- The House subcommittee also heard from a coalition of national housing associations that submitted a letter focusing on the need for a residential rent assistance program. “It is a top priority for the rental housing industry that Congress establish an emergency rental assistance program,” the groups wrote in their June 9 letter. “We expect a significant number of residents will continue to be negatively affected by the pandemic, inhibiting their ability to pay their rent, even with the assistance provided in the CARES Act.”
The need for policies to preserve the “rental obligation chain” and sustain economic recovery from the fallout of Covid-19 was a central topic during The Roundtable’s June 11-12 Virtual Annual Meeting.
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Talks Continue on Next Phase of Coronavirus Stimulus as Federal Reserve Expands Main Street Lending Program
Trump Administration officials are signaling support for another Coronavirus stimulus package that Congress is expected to consider next month. (Wall Street Journal, June 11)
- After the House of Representatives on May 22 passed a $3 trillion coronavirus relief bill, congressional Republicans have signaled they may be open to another COVID-19 legislative package, but on a measured basis. (Forbes, May 21 and Roundtable Weekly, May 22)
- Treasury Secretary Steven Mnuchin on June 10 testified before the Senate Small Business and Entrepreneurship Committee: “I definitely think we are going to need another bipartisan legislation to put more money into the economy. I think whatever we do going forward needs to be much more targeted, particularly to the industries and small businesses that are having the most difficulty in reopening as a result of COVID-19.” (RollCall, June 10)
- Mnuchin on June 11 responded to a question by Jim Cramer of CNBC’s “Squawk on the Street” about future coronavirus stimulus plans and rental payment pressures faced by commercial real estate.
- Mnuchin said, “On the commercial side … it is more complicated. You have companies, particularly in retail, that are having a lot of issues. They are going to have to deal with the rent. The landlords then have to deal with mortgage payments.”
- The Treasury Secretary continued, “…how do we help the industries that are especially impacted –- and I would say hotels, travel, entertainment, restaurants are right up there. So we are going to need to be much more targeted in making sure that we get people back to work and help these industries.”
- White House economic adviser Kevin Hassett on June 9 said the odds of passing additional coronavirus economic stimulus before Congress breaks for its August recess “are very, very high.” Hasset added that the issue of business liability protections for employers is one of the “biggest problems” facing passage of another coronavirus package. (Wall Street Journal, June 9 and Forbes, June 6).
- Sen. John Cornyn (R-TX) emphasized the GOP’s position on May 18, stating on the Senate floor that “Senate Majority Leader McConnell (R-KY) and I … are working on a proposal that would put common sense reforms in place and protect those acting in good faith from being sued into oblivion.” (Cornyn statement). Potential employer immunity and anticipated litigation related to Covid-19 were the focus of a May 12 Senate Judiciary Committee hearing. (Roundtable Weekly, May 15).
- Sen. Cornyn this week stated the Republican liability proposal will be released next month. He added the plan would allow employers to choose which government coronavirus safety guidelines to follow while shielding them from lawsuits if their customers or workers contract the virus. (BGov, June 10)
A multi-sector coalition including real estate, tourism, technology, manufacturing, health care, and energy sector groups – led by the U.S. Chamber of Commerce – called upon Congress in a May 27 letter to enact temporary liability protections for businesses struggling to reopen and operate safely during the COVID-19 pandemic.
Federal Reserve Actions
Federal Reserve Chairman Jerome Powell on June 10 stated the central bank will continue buying large quantities of bonds and leave interest rates near zero through at least 2022 as it anticipates the outbreak “will weigh heavily on economic activity” and “poses considerable risks to the economic outlook.” (USA Today, June 10)
- Powell added after the Fed’s two-day meeting this week, “This is the biggest economic shock, in the U.S. and the world, really, in living memory. We went from the lowest level of unemployment in 50 years to the highest level in close to 90 years, and we did it in two months.” (New York Times, June 10)
- Powell stated, “To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.” (FOMC statement and Economic Projections, June 10)
- The Fed has purchased agency mortgage bonds during the pandemic at a record pace totaling $719 billion, more than $12 billion per day on average, according to the New York Fed. (BGov, June 11)
- On June 8, The Federal Reserve Board on expanded its Main Street Lending Program to allow more small and medium-sized businesses to be able to receive support. The Board expects the Main Street program to be open for lender registration “soon” and to be actively buying loans shortly afterwards. (Fed news release)
- The Main Street Lending Program was established with the approval of the Treasury Secretary and with $75 billion in equity provided by the Treasury Department from the coronavirus economic relief package, The CARES Act.
The changes include:
- Lowering the minimum loan size for certain loans to $250,000 from $500,000;
- Increasing the maximum loan size for all facilities;
- Increasing the term of each loan option to five years, from four years;
- Extending the repayment period for all loans by delaying principal payments for two years, rather than one; and
- Raising the Reserve Bank's participation to 95% for all loans.
- This chart has additional details on the changes.
- Once lenders have successfully registered for the program, they will be encouraged to make Main Street loans immediately. The Main Street Lending Program intends to purchase 95% of each eligible loan that is submitted to the program after meeting all requirements. The Main Street Lending Program will also accept loans that were originated under the previously announced terms, if funded before June 10, 2020.
- Additionally, The New York Fed has released updated Frequently Asked Questions for the Term Asset-Backed Securities Loan Facility (TALF). See changes from the May 26 TALF FAQs here. Updated forms and guidance were also issued for the TALF program.
The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) and Research Committee discussed the Fed’s actions as part of the economic outlook and the state of real estate capital and credit markets during its remote meeting yesterday held in conjunction with The Roundtable’s Virtual Annual Meeting.
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