Roundtable Weekly - October 4, 2019

Terrorism Risk Insurance Program - TRIA

House Hearing on TRIA Reauthorization Announced for Oct. 16

House Financial Services Committee Chairwoman Maxine Waters (D-CA)

House Financial Services Committee Chairwoman Maxine Waters (D-CA), above,  yesterday announced an Oct. 16 subcommittee hearing that will focus on “Protecting America: The Reauthorization of the Terrorism Risk Insurance Program.”  (Committee news release, Oct. 3)

  • Additionally, Financial Services Committee Member Carolyn Maloney (D-NY) will host a roundtable discussion on the reauthorization of the Terrorism Risk Insurance Act (TRIA) on Oct. 8 in New York City.

  • With TRIA currently set to expire at the end of 2020, a long-term, clean reauthorization is a top priority for The Real Estate Roundtable.  Yesterday, TRIA was a key topic of discussion during meetings of The Roundtable’s Homeland Security Task Force and Real Estate Capital Policy Advisory Committee in New York City. 

  • TRIA was originally enacted in 2002 in response to the inability of insurance markets to predict, price and offer terrorism risk coverage to commercial policyholders.  The law 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.

  • The Roundtable and nearly 350 companies and organizations urged Congress last week to swiftly pass a long-term TRIA reauthorization. (Roundtable Weekly, Sept. 20)

  • The Sept. 17 coalition letter notes, “The American business community remembers all too well the twelve-day lapse in the program in early 2015 and the disruption that lapse played in a variety of markets.  We urge Congress to help provide much needed certainty by passing a long-term reauthorization of this important program without delay.”

  • Absent TRIA, there is not sufficient insurance and reinsurance capital available to provide comprehensive terrorism coverage to U.S. insurance buyers,” the coalition states.  (Reinsurance News, Sept. 17)

  • 2019 Marsh study shows the highest “take-up” rates for terrorism risk insurance are in the education, media, financial institutions, real estate, hospitality and gaming, and health care sectors – all above 70%.

During an October 1 podcast episode of “Through The Noise,” Roundtable President and CEO Jeffrey DeBoer noted, “Businesses and facilities of all types need to see the terrorism risk insurance program extended. This need applies to hospitals, all commercial real estate buildings, educational facilities, sports facilities, NASCAR and theme parks, and really any place where commercial facilities host large numbers of people.”

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GSE Reform

Trump Administration Allows Fannie, Freddie to Retain Earnings in Move Toward Privatization

Fanne Mae and Freddie Mac logos

The Trump Administration took a key step on Sept. 30 to release Fannie Mae and Freddie Mac from conservatorship by allowing them to retain a total of $45 billion in earnings annually. (Wall Street Journal, Sept. 30)

  • Fannie and Freddie received $191 billion in government support during the financial crisis, but since entering conservatorship Sept. 6, 2008, they have paid the Treasury $292 billion in dividends, according to research from Keefe, Bruyette & Woods. (Reuters, March 27)

  • Under their modified governing agreements, Fannie Mae will now be allowed to retain $25 billion and Freddie Mac $20 billion annually (Bloomberg, Sept. 30)

  • The Treasury Department and Federal Housing Finance Agency (FHFA) jointly announced the modifications to the Government-Sponsored Enterprises’ (GSEs) Preferred Stock Purchase Agreements (PSPAs) – designed in the wake of the financial crisis to ensure Fannie and Freddie maintain positive net worth, meet outstanding obligations and continue providing liquidity to the multi-trillion dollar mortgage market.  (Fannie Mae Capital Agreement and Freddie Mac Capital Agreement)

  • “These modifications are an important step toward implementing Treasury’s recommended reforms that will define a limited role for the Federal Government in the housing finance system and protect taxpayers against future bailouts,” said U.S. Treasury Secretary Steven T. Mnuchin. (Treasury news release, Sept. 30)

  • FHFA Director Mark Calabria – Fannie and Freddie’s chief regulator – stated, “FHFA commits to working with Treasury in the coming months to amend the share agreements and further advance broader housing finance reform. These reform goals include limiting the government’s role in housing finance, increasing marketplace competition, focusing on affordable housing, and sustainable homeownership. The status quo is not an option. Now is the time to act.”

  • The Washington Post reported on Oct. 2 that Fannie, Freddie, and the Federal Housing Administration guarantee 33 percent more debt than before the housing crisis,  more than at any other point in U.S. history.

  • In Congress, Senate Banking Committee Chairman Mike Crapo (R-ID) on Feb. 1 released an outline for reforming the nation's housing finance system, including the GSEs (Crapo Statement and Housing Reform Outline, Feb. 1).  At the end of March, Crapo’s committee held two days of hearings on reforming the multi-trillion dollar housing finance markets.  (Roundtable Weekly, March 29)

The Real Estate Roundtable and 27 industry organizations on March 1 submitted principles for reforming the GSEs.  The letter emphasized that compelling evidence must show the private market is capable of an expanded role before efforts are made to reduce the GSEs' current housing finance footprint. "Ultimately, we believe any reform, be it administrative or legislative, must seek to further two key objectives: 1) preserving what works in the current system, while 2) maintaining stability by avoiding unintended adverse consequences for borrowers, lenders, investors, or taxpayers."  (Roundtable Weekly, March 1)

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Infrastructure

The Roundtable and Trade Associations Urge Congress to Pass Transportation Reauthorization before Sept. 2020 Expiration

HIghway Infrastructure Houston

The Real Estate Roundtable and more than 150 national trade associations urged Congress this week to reauthorize the Highway Trust Fund – the nation’s primary source for road and mass transit funds – ahead of its September 30, 2020 expiration.  (Coalition letter, Sept. 30)

  • The coalition, led by the National Association of Manufacturers and the Associated General Contractors, wrote to Senate Majority Leader Mitch McConnell (R-KY) and Senate Minority Leader Chuck Schumer (D-NY) on Monday supporting a long-term, robustly-funded surface transportation reauthorization bill.  (NAM news release, Sept. 30)

  • The Infrastructure Working Group’s letter notes the unanimous passage in July of S. 2302, America's Transportation Infrastructure Act of 2019, by the Senate Environment and Public Works (EPW) Committee.  S. 2302 would authorize $287 billion over five years to repair and maintain the nation's surface transportation.  (Roundtable Weekly, Aug. 2)

  • EPW’s bipartisan approval of S. 2302 may provide momentum for the full Senate to consider a package that addresses recommendations in the coalition’s letter, including:

    • Significantly increasing direct federal investments in infrastructure;

    • Fixing chronic challenges and recurring shortages in key federal infrastructure accounts such as the Highway Trust Fund;

    • Complementing and strengthening financing tools, such as municipal bonds, that successfully deliver infrastructure investments at the federal, state and local levels;

    • 'Facilitating opportunities for private investment in U.S. infrastructure; and

    • Creating efficiencies in the federal permitting process, while continuing to provide environmental protections.
  • In related news, last week the Senate Appropriations Committee advanced a bill (31-0) to allocate federal dollars to fund the agencies responsible for transportation, housing assistance, and community development.  (Appropriations Committee news release, Sept. 19).  The spending bill – covering federal FY 2020, which started on Oct. 1 – supports the Gateway Program, a proposed $30 billion modernization of Amtrak’s Northeast Corridor connecting New Jersey and New York City.  Gateway would double rail capacity for the biggest train traffic bottleneck on the East Coast. (Senate Appropriations Markup, Sept. 26, and BGov, Sept. 24)

The Roundtable continues to provide infrastructure policy recommendations to Congress.  (Roundtable Weekly, May 3, 2019, and March 22, 2019).  Additionally, Roundtable President and CEO Jeffrey D. DeBoer discussed the role of public-private partnerships in modernizing the nation’s infrastructure on CNBC's Squawk Box in June 2017.

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CRE TRends & Policy Landscape

ULI Releases “Emerging Trends in Real Estate 2020”; Podcast Features Roundtable’s DeBoer on Industry Issues

The publication Emerging Trends in Real Estate 2020, released by the Urban Land Institute (ULI) and PwC, reports that U.S. real estate remains a favored asset class, as economic uncertainty and societal changes have resulted in successful industry adaptations to space design, development and business operations.   

  • "Throughout this period of extended economic growth, real estate development has been dominated by creative mixed-use projects that have revived many urban areas,” said ULI Global Chairman W. Edward Walter. “Going forward, those who continue to innovate with spaces that can be easily be repurposed as cities evolve will have a competitive edge.  Staying ahead of change means being flexible and adaptable.” (ULI news release, Sept. 19)

  • Trends highlighted in the report include: 

    • ESG – There is a growing commitment to the tenets of ESG (environmental, social and governance) principles among corporations in general and real estate in particular. Sustainability evaluation is becoming a checklist item for institutional investors domestically and worldwide. Strong interest by millennials in environmentally and socially conscious business practices is a major factor driving this trend.

    • Infrastructure – Real estate professionals waiting for a federal solution to America’s infrastructure needs are looking to states and localities that are committed to improved infrastructure as a foundation for economic growth.

    • Housing Affordability has reached a crucial point, even in markets that previously boasted of low-cost housing.  There is a rise in co-living arrangements, among older as well as younger generations.

    • Hipsturbia – The live-work-play districts that spurred 24-hour downtowns in the 1990s has spread to many suburban communities, which are seeking to become hip destinations, or “hipsturbs.”  The key to success: transit access, walkability, and abundant retail, restaurant and recreation options.

    • Technology – Property managers are turning to technology solutions for productivity enhancements and improved operational efficiency.  Demand is also increasing from occupants and capital sources for technological sophistication across all sectors.
  • The report also notes that the industrial/distribution sector continues to be ranked highest for investment and development prospects, reflecting the impact of e-commerce and rising demand for storage and delivery facilities.  Multifamily and single-family housing are also highly favored, as housing needs continue to change for millennials and baby boomers. 

  • Societal trends and public policy issues affecting commercial real estate are also featured in an Oct. 1 interview with Roundtable President and CEO Jeffrey DeBoer (left in photo above)  during an episode of the podcast, “Through The Noise.”  

  • In a wide-ranging, 50-minute interview, DeBoer explains The Roundtable’s role in industry efforts in Washington, including terrorism insurance, affordable housing needs, energy efficiency and opportunity zones. 

  • DeBoer states in the podcast, ““Whether rural or urban; multifamily or office … we're working together as an industry and talking about how development projects contribute to jobs and local communities.  Commercial real estate provides 70% of local budgets to pay teachers and build roads. Healthy, strong real estate is good for everyone and helps every part of our society.”

Public policies affecting CRE will be discussed during The Roundtable’s Fall Meeting on Oct. 30 in Washington, where guests will include U.S. Housing and Urban Development (HUD) Secretary Ben Carson.

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