Author: Trey Jackson

SEC Commissioner and Key Senators Support Further Analysis of Climate Disclosure Proposal

Posted on by Trey Jackson
The U.S. Securities and Exchange Commission (SEC) headquarters in Washington, DC

One of the commissioners from the Securities and Exchange Commission (SEC) and two U.S. Senators suggested this week that further analysis may be needed for a highly anticipated SEC rule on climate reporting, which includes a proposal for sweeping disclosures on Scope 3 GHG emissions. (Bloomberg Law, Nov. 7 | SEC headquarters in Washington, DC, above)

Stakeholder Comments

  • Given that the SEC has received more than 16,000 stakeholder comments on the proposal, Republican SEC Commissioner Mark Uyeda said, “Before the Commission adopts any final rule that significantly deviates from the proposal, it should seriously consider re-proposing the rule with revised rule text and an updated economic analysis.” (Ayuda’s comments, Nov. 7 and The Hill, April 6)
  • SEC Chair Chair Gary Gensler indicated in March that the agency’s climate-related reporting rule may be scaled back. (CNBC, March 7 and Roundtable Weekly, March 10)

Senators Support Additional Feedback

Sen. Bill Hagerty (R-TN), left Member, Senate Committee on Banking, Housing and Urban Affairs and Roundtable Board Member Geordy Johnson (CEO, The Johnson Group)
Sen. Bill Hagerty (R-TN), left, and Roundtable Board Member Geordy Johnson (CEO, The Johnson Group) at The Roundtable’s 2023 Annual Meeting in June.
  • Sens. Bill Hagerty (R-TN) and Joe Manchin (D-WV) also expressed support this week for obtaining additional feedback about the SEC’s proposed rule. Sen. Manchin chairs the Senate Energy and Natural Resources Committee and Sen. Hagerty serves on the Senate Banking Committee. (Hagerty-Manchin letter and PoliticoPro, Nov. 9)
  • The lawmakers wrote to SEC Chairman Gary Gensler about recent California state laws that require companies to disclose their emissions, which beat the SEC to the punch on releasing final climate reporting rules. (Roundtable Weekly, Sept. 22 and The Real Estate Roundtable’s summary of the California legislation.)
  • The Senators’ letter states, “The interconnectedness of the California requirements and the SEC’s proposal is undeniable: thousands of businesses would end up being subject to both the California requirements and the SEC’s rule, if finalized. However, key differences between the two raise significant compliance questions that the SEC should thoroughly review.”

Roundtable Comments on Scope 3

Philadelphia center city
  • Scope 3 refers to indirect emissions that are part of an organization’s value chain but not owned or controlled by the reporting company. The 2022 SEC proposal would require corporate issuers of securities to estimate and report Scope 3 emissions “if material” in 10-Ks and other filings. (SEC News Release, March 22, 2022)
  • Roundtable comments submitted in June 2022 emphasized that the SEC’s proposed directive, which would mandate that companies report on Scope 3 emissions “only if material,” is a “back-door mandate” that should be dropped. The comment letter added, “No registrant should be effectively required to report on indirect emissions beyond its organizational or operational boundaries.” (Roundtable Weekly, June 10, 2022),

The Roundtable’s Sustainability Policy Advisory Committee (SPAC) plans to respond to any further developments on the SEC’s proposed climate disclosure rule or other climate-related regulatory proposals affecting CRE.

#  #  #

Roundtable Urges SEC to Exempt Real Estate from Proposed Safeguarding Advisory Client Rule

Posted on by Trey Jackson
Securities and Exchange Commission building

The Real Estate Roundtable urged the Securities and Exchange Commission (SEC) this week to exempt real estate from a proposed Safeguarding Advisory Client Rule that could severely limit advisory clients’ ability to invest by fundamentally changing the ownership and transfer rights of real estate. The proposed rule currently includes a conditional exception for real estate assets, which would impose a new layer of unclear and unnecessary oversight—and inject significant confusion into well-established transaction protections, rules, and procedures governing real estate transactions. (Roundtable letter, Oct. 30 and SEC Proposed Rule)

The “Proposing Release”

  • The Oct. 30 letter from Real Estate Roundtable President and CEO Jeffrey DeBoer reiterated current legal protections that promote the safe-keeping of real estate assets held in advisory accounts or funds. DeBoer urged the SEC “… in the strongest possible terms to exclude real estate from the scope of any final [Safeguarding] rule,” citing the ample set of existing protections that prevent real estate assets from fraudulent transfer.
  • The letter also emphasized that the SEC has not coherently explained how the Proposed Safeguarding Rule would apply to real estate.
  • Current law (the “Custody Rule”) under the Investment Advisers Act of 1940 requires an investment adviser to maintain clients’ funds and securities with a qualified custodian. The new proposed SEC rule would expand this requirement to maintain all advisory client assets with a qualified custodian.
  • Since it is not possible to maintain real estate and certain other physical investments with a qualified custodian, the proposal includes a conditional exception that includes the following language:

“In the real estate context, a deed or similar indicia of ownership that could be used to transfer beneficial ownership of a property would not qualify for the exception, but the physical buildings or land would qualify.”

  • The Roundtable’s letter challenges this “Proposing Release” as confusing, impractical, and unworkable for holding and transferring real estate deeds. It also conflicts with current state and country chain of custody legal requirements that govern real estate transactions.
  • The letter also notes the SEC could chose to make the conditional exemption available to real property, because a physical asset cannot be maintained with a qualified custodian. Additionally, the requirement to maintain custody of deeds with a qualified custodian—compared to recording the interest with a governmental authority—serves no regulatory purpose.

Existing Layers of Safeguards

SEC logo and text
  • Other existing safeguards come into play. State laws currently require signature verifications, notarizations, and accompanying IDs that provide significant hurdles to an attempted fraudulent transfer.
  • Modern real estate transactions in the United States also require buyers and lenders to obtain title insurance, which involves a title insurance company to engage in substantial due diligence of the chain of ownership. Real estate lawyers representing the buyer and/or seller represent yet another intermediary, since they are often involved in these asset transactions to provide yet another source of gatekeeper protections.
  • The Roundtable letter states the SEC must explain how it would be possible to maintain title or deed with a qualified custodian since the “Proposed Rule would fundamentally change the ownership and transfer rights of real estate.” The letter states the SEC should avoid any final rule that would limit clients’ access to, or unduly burden, investment in the real estate asset class.
  • The Proposing Release also contains no evaluation of any risk of loss for real estate assets—it only asserts such risk as a theoretical matter.
  • The Roundtable and a diverse group of 25 trade associations previously wrote to SEC Chair Gary Gensler to oppose the Safeguarding Advisory Client Rule proposal and explain the negative impacts it would have on investors, market participants, and the financial markets. This week’s letter from The Roundtable focused exclusively on the proposal’s impact on real estate assets. (Roundtable Weekly, Sept. 15)

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) Custody Rule Working Group developed this week’s comments and met today with the SEC’s Division of Investment Management about the proposal. RECPAC is scheduled to meet Nov. 8 in New York City.

#  #  #

Roundtable Recommends Solutions to Ease Compliance with Labor Rules for IRA Tax Incentives

Posted on by Trey Jackson
Workers on sustainable energy project on rooftop of building

The Real Estate Roundtable submitted comments this week encouraging the Treasury Department to provide a compliance “safe harbor” to streamline labor-related requirements necessary to seek “bonus” tax incentives for clean energy building projects under the Inflation Reduction Act (IRA). (Roundtable comment letter, Oct. 30)

Prevailing Wage and Apprenticeship Compliance Burdens

  • The Roundtable letter notes that the IRA’s objective to support retrofits and slash carbon emissions in the built environment will be undermined if the costs of labor compliance far exceed the incentives offered by Congress.
  • The comments explain that wage and apprenticeship compliance burdens would dis-incentivize businesses and taxpayers’ to pursue the IRA’s clean energy bonuses, thereby rendering the bonus credits program illusory in many cases.
  • The letter also emphasizes that a regulatory solution to ease the IRA’s paperwork burdens would spur more clean energy projects in buildings—and encourages Treasury/IRS to conduct its own thorough cost-benefit accounting of Prevailing Wage/Registered Apprenticeship (PW/RA) Requirements before issuing a final rule.

 Contractor Compliance Certifications Sought

rooftop heat pumps with solar panels in the foreground.
  • The “safe harbor” recommendation by The Roundtable would allow building owners/developers to rely on written certifications provided by their General Contractors (GCs), or any other subcontractors (subs), would confirm and fulfill all PW/RA labor requirements.
  • This streamlined approach would reduce the compliance burden and retain the fervor that IRA tax incentives could generate under the IRA. Real estate owners and developers are not the direct employers of electricians, plumbers, HVAC technicians, solar technicians, EV charging installers, or any others that construct or retrofit buildings. GCs and subs directly employ manual laborers.
  • The Roundtable also recommends regulators develop “Recordkeeping Requirements” for PW/RA compliance that reflect the reality of how laborers, mechanics, and apprentices are employed on real estate projects, who is hired by whom, and how hours worked are tracked.

Other targeted tax reforms that will help scale real estate’s transformation toward zero emissions are recommended in The Roundtable letter. These include expanding Section 48 of the Code to building electrification technologies; allowing private owner transfers to unrelated third parties under Sections 45L and 179D; and repealing a Section 179D rule that reduces a property’s basis by the amount of the claimed deduction. (Roundtable comment letter, Oct. 30)

#  #  #

CRE Executives Report Ongoing Financing and Liquidity Issues Causing Price Discovery Difficulties

Posted on by Trey Jackson

Industry executives report commercial real estate asset classes continue to face a variety of challenges centered around higher financing costs, increased illiquidity, and uncertain post-pandemic user demand. Reduced transaction volume has also contributed to difficult price discovery, according to The Real Estate Roundtable’s Q4 2023 Sentiment Index. (RER news release, Nov. 3)

 Pressures on CRE Assets

  • Roundtable President and CEO Jeffrey DeBoer said, “Commercial real estate is at the front line of change in how people use the built environment in a post-pandemic society. Steep interest rate increases and diminished liquidity caused by regulatory pressures have led to much lower transaction volume and continued uncertainty in price discovery. The challenges facing different asset classes in the broad, complex CRE landscape is reflected in our Q4 Sentiment Index.”
  • The Roundtable’s Sentiment Index—a measure of senior executives’ confidence and expectations about the commercial real estate market environment—is scored on a scale of 1 to 100 by averaging the scores of Current and Future Sentiment Indices.­­­­ Any score over 50 is viewed as positive. ­­­­
  • The Q4 Index comes days after the Federal Reserve left its benchmark interest rate unchanged at a 22-year high of 5.4% and stated it remains open to future increases. “The good news is we’re making progress,” Chair Jerome Powell said.” (Associated Press, Fed press release and Fed news conference video, Nov. 1)

Q4 Sentiment Index Topline Findings:

  • The Q4 2023 Real Estate Roundtable Sentiment Index registered an overall score of 44, a decrease of two points from the previous quarter. The Current Index registered 32, a one-point decrease from Q3 2023, and the Future Index posted a score of 57 points, a decrease of two points from the previous quarter. These stable indices highlight the persistent challenges faced by participants in the real estate market.
  • Although there are variations among asset classes and even within specific property types, ongoing uncertainty within the broader commercial real estate industry persists due to concerns about liquidity, capital availability, interest rates, and remote work. Bright spots exist in smaller classes, such as data centers, outlet malls, and hotels, while multifamily and industrial continue to attract interest.  Within the office sector, class “A” properties with top-of-the-line amenities are the lone high performers.
  • An overwhelming 92% of survey participants indicate that asset values have decreased compared to the previous year. The valuation process has been challenging due to limited transactions, and the combination of current cap rates and fluctuating interest rates has further complicated pricing, ultimately leading to a view that asset values have decreased relative to one year ago.
  • Survey participants express ongoing concerns about the capital markets landscape, with 70% indicating that the availability of equity capital has worsened compared to a year ago, and 86% believing the availability of debt capital is also worse.
Jeffrey DeBoer, Real Estate Roundtable President and CEO(
  • DeBoer, above, added, “We welcome efforts at all levels of government to incentivize conversions of commercial use to residential use. Yet various CRE markets and asset classes need more time to adapt to the new preferences of clients; more flexibility to restructure their asset financing; and patience while adjusting to the evolving valuation landscape. In addition to conversion activities, The Roundtable continues to urge the federal government to return to the workplace and support measures to assist loan modifications and increase liquidity available to all asset classes and their owners. We also remain opposed to regulatory proposals that impede capital formation.”
  • Some sample responses from participants in the Sentiment Index’s Q4 Survey include:

“Your perspective depends on what assets you hold and the strength of your balance sheet.”

“The distribution of capital is highly dependent on specific sectors and asset quality.”

“There will be a ‘great revaluation’ cycle with more real estate assets priced lower. There haven’t been enough transactions to collect good data, and the transactions that are happening are in the most dire of circumstances, which is driving erratic and less reliable market information.”

Data for the Q4 survey was gathered in October by Chicago-based Ferguson Partners on behalf of The Roundtable. See the full Q4 report.

#  #  #

NEWS: CRE Executives Report Ongoing Financing and Liquidity Issues Causing Price Discovery Difficulties

Posted on by Trey Jackson

(WASHINGTON, D.C.) — Industry executives report commercial real estate asset classes continue to face a variety of challenges centered around higher financing costs, increased illiquidity, and uncertain post-pandemic user demand. Reduced transaction volume has also contributed to difficult price discovery, according to The Real Estate Roundtable’s Q4 2023 Sentiment Index.

Roundtable President and CEO Jeffrey DeBoer said, “Commercial real estate is at the front line of change in how people use the built environment in a post-pandemic society. Steep interest rate increases and diminished liquidity caused by regulatory pressures have led to much lower transaction volume and continued uncertainty in price discovery. The challenges facing different asset classes in the broad, complex CRE landscape is reflected in our Q4 Sentiment Index.”

The Roundtable’s Sentiment Index—a measure of senior executives’ confidence and expectations about the commercial real estate market environment—is scored on a scale of 1 to 100 by averaging the scores of Current and Future Sentiment Indices. Any score over 50 is viewed as positive.

The Q4 Sentiment Index topline findings include:

• The Q4 2023 Real Estate Roundtable Sentiment Index registered an overall score of 44, a decrease of two points from the previous quarter. The Current Index registered 32, a one-point decrease from Q3 2023, and the Future Index posted a score of 57 points, a decrease of two points from the previous quarter. These stable indices highlight the persistent challenges faced by participants in the real estate market.

• Although there are variations among asset classes and even within specific property types, ongoing uncertainty within the broader commercial real estate industry persists due to concerns about liquidity, capital availability, interest rates, and remote work. Bright spots exist in smaller classes, such as data centers, outlet malls, and hotels, while multifamily and industrial continue to attract interest. Within the office sector, class “A” properties with top of-the-line amenities are the lone high performers.

• An overwhelming 92% of survey participants indicate that asset values have decreased compared to the previous year. The valuation process has been challenging due to limited transactions, and the combination of current cap rates and fluctuating interest rates has further complicated pricing, ultimately leading to a view that asset values have decreased relative to one year ago.

• Survey participants express ongoing concerns about the capital markets landscape, with 70% indicating that the availability of equity capital has worsened compared to a year ago, and 86% believing the availability of debt capital is also worse.

DeBoer added, “We welcome efforts at all levels of government to incentivize conversions of commercial use to residential use. Yet various CRE markets and asset classes need more time to adapt to the new preferences of clients; more flexibility to restructure their asset financing; and patience while adjusting to the evolving valuation landscape. In addition to conversion activities, The Roundtable continues to urge the federal government to return to the workplace and support measures to assist loan modifications and increase liquidity available to all asset classes and their owners. We also remain opposed to regulatory proposals that impede capital formation.”

Some sample responses from participants in the Sentiment Index’s Q4 Survey include:

“Your perspective depends on what assets you hold and the strength of your balance sheet.”

“The distribution of capital is highly dependent on specific sectors and asset quality.”

“There will be a ‘great revaluation’ cycle with more real estate assets priced lower. There haven’t been enough transactions to collect good data, and the transactions that are happening are in the most dire of circumstances, which is driving erratic and less reliable market information.”

Responses by survey participants reflect recent, persistent challenges facing certain sectors and assets. In comparison to last quarter, sentiments on current conditions are down by 1 point, perceptions of future conditions are down by 2 points, and overall conditions are down by 2 points.

Regarding sentiment on the state of current asset values, 92% of respondents believe they are lower than one year ago, 3% feel they are higher, and 5% believe asset values have remained the same compared to a year ago. This contrasts with the Sentiment Survey one year ago, when only 59% of participants expected asset values would be lower in this Q4 2023, indicating a steep decline in current perceptions of asset values.

Survey participants also commented on the availability of equity capital, with 70% noting it is worse compared to one year ago, 3% stating it has improved, and 27% that the availability of equity remains the same. For the availability of debt capital, 86% of participants believe it is worse compared to one year ago, 2% feel it has improved, and 12% believe the availability of debt remains the same.

Data for the Q4 survey was gathered in October by Chicago-based Ferguson Partners on behalf of The Roundtable. See the full Q4 report.

The Real Estate Roundtable brings together leaders of the nation’s top publicly-held and privately owned real estate ownership, development, lending and management firms with the leaders of major national real estate trade associations to jointly address key national policy issues relating to real estate and the overall economy.

# # #

Roundtable Chair John Fish Honored at Annual Lamplighter Awards

Posted on by Trey Jackson

Roundtable Chair John Fish (Chairman and CEO, Suffolk), right, was honored this week with the Lamplighter Award from the American Friends of Lubavitch (Chabad), along with Senate Majority Leader Chuck Schumer (D-NY) and Kurt Newman, President and CEO of Children’s National Medical Center. (Photo: Mr. Fish with Rabbi Levi Shemtov, left. | Watch Mr. Fish’s powerful comments)  

Lamplighters

  • The American Friends of Lubavitch (Chabad) is a part of the largest network of Jewish educational, cultural and humanitarian institutions in the world, with branches in all 50 states and over 100 countries on six continents.
  • The annual Lamplighter Awards honor exceptional communal, political, corporate and academic leaders. Several hundred people attended the Oct. 24 event reception and dinner, including 8-12 U.S. Senators; House Democratic Leader Hakeem Jeffries (D-NY) and several House members; 20 Ambassadors from foreign nations; and seven family members of hostages now held in Gaza. 

Roundtable Leaders’ Comments

  • Mr. Fish commented, “It pains me to discuss the reality that many of us have discussed here this evening. There is, unfortunately, a rise in anti-Semitism and hate in the world today. A reality that played out tragically several weeks ago.” The Roundtable issued an Oct. 13 statement condemning the violence and urging humanitarian aid.
  • Roundtable President and CEO Jeffrey DeBoer, above, gave introductory remarks as the co-chair of the event, stating that each one of the three honorees exemplified a unique combination of leadership and optimism. DeBoer added that Mr. Fish is a selfless person who provides The Roundtable with steady guidance, positive advice, and consistent support in his role as Chairman of the organization.

DeBoer asked the Lamplighter audience “… for a moment of silence to internally pledge that each of us will do our part, every minute, hour and day to reject evil, to help those in need, and to embrace the goodness of ethnic and religious diversity worldwide.” (Read DeBoer’s remarks and watch Mr. Fish’s comments)

#  #  #

Biden Administration Announces Support for Financing Commercial to Residential Property Conversions

Posted on by Trey Jackson

The Biden administration today revealed a suite of federal resources—including low-interest loans—to assist commercial to residential conversions that increase housing supply, revitalize urban downtowns, and cut climate pollution. (White House fact sheet; Bloomberg, Oct. 27).

Holistic Federal Strategy

  • Roundtable President and CEO, Jeffrey D. DeBoer said, “The pandemic’s indelible impact on where Americans live and work continues to reverberate through the real estate industry, which is at the center of this societal transition. The Roundtable supports innovative policy that reimagines the adaptive reuse of CRE, rejuvenates affordable housing and urban downtowns, and addresses the climate crisis. The guidance released by the White House today checks all these boxes—and bolsters our agenda to improve the health of our cities, local tax bases, and small businesses.”   
  • Among the actions announced today, conversion projects located near mass transit hubs would be eligible for low-interest financing under U.S. Department of Transportation programs. “TIFIA” and “RRIF” loans are pegged to US Treasuries at 5.03 percent interest (today’s rates).
  • Transit-oriented projects supported by TIFIA and RRIF financing do not require affordable housing units—although they can be “stacked” with projects supported by low-income housing tax credits and local laws may have independent inclusionary zoning mandates. (FAQs on project eligibility)
  • The White House announcement also directs the General Services Administration (GSA) to identify “surplus” federal properties that private developers may help to convert to housing.
  • A fact sheet summarizing the administration’s actions indicates that training workshops will be held this fall for real estate owners, developers, and lenders on how to use federal programs included in the White House’s new “Commercial to Residential Conversions” guidebook, which describes how 20 programs across six federal agencies can be used to support adaptive re-use projects.
  • The Administration’s guidebook also explains how mortgage insurance and grants from the Department of Housing and Urban Development (HUD) can leverage state, local, and private sector capital as layers in the capital stack to support adaptive reuse.

Adaptive Reuse a “Win-Win”

  • Real estate market conditions with high office vacancies “present[ ] an area of opportunity to increase housing supply while revitalizing Main Streets,” said National Economic Council Director Lael Brainerd. “It’s a win-win.” (POLITICOPro, Oct. 27) (WH Council of Economic Advisors blog post)
  • White House efforts to assist property conversions lands as national office vacancy stands at nearly 18 percent—with some major metro areas experiencing vacancies higher than one-fifth of their entire inventory—according to a report from  analytics firm Yardi Matrix released on Thursday. (Commercial Observer, Oct. 26)
  • Architectural firm Gensler released a report on Monday that estimates 25% of under-performing U.S. office properties are suitable candidates for conversion projects.

The initiative builds on the Biden Administration’s announcement last July to boost the nation’s housing supply. (Roundtable Weekly, July 28).  The Roundtable will continue to serve as a conduit between our members and the Biden Administration to help design impactful policies that can assist with office to residential conversions.

#   #   #  

US-DOE Lauds CRE’s Efficiency Gains and Carbon Reductions

Posted on by Trey Jackson

Roundtable members are among the commercial real estate partners recognized in the U.S. Department of Energy’s (DOE) Better Buildings Initiative 2023 progress report released on Monday. This voluntary public-private partnership with more than 900 participating organizations has collectively saved $18.5 billion through energy efficiency improvements, and cut carbon dioxide emissions by nearly 190 million metric tons, since its launch in 2011. (DOE’s Better Buildings Initiative Report and PoliticoPro, Oct. 23)

DOE’s CRE Partners

  • This week’s Progress Report from DOE shows that more than 165 partners from various industry sectors who participate in its separate Better Climate Challenge have committed to reducing greenhouse gas (GHG) emissions (scope 1 and 2) by at least 50% over 10 years without the use of offsets. The report’s outstanding GHG Emissions Reduction Goal Achievers include companies led by RER members.
  • The Real Estate Roundtable and several of its partner real estate organizations—including the National Multifamily Housing Council (NMHC), American Hotel & Lodging Association (AHLA), Building Owners & Managers Association International (BOMA), Pension Real Estate Association (PREA), and Urban Land Institute (ULI)—are noted in the report as Industry Organization Partners.
  • U.S. Secretary of Energy Jennifer M. Granholm said, “To meet President Biden’s ambitious climate goals, the public and private sector need practical pathways to reduce emissions while cutting costs—and that’s exactly what they get from DOE’s Better Building Initiative.” (DOE news release and the report’s Commercial Real Estate Sector Spotlight)

Tools and Best Practices

  • DOE’s partners represent almost every sector of the American economy: nearly 30 of the country’s Fortune 100 companies, nearly 20 of the top 50 U.S. employers, 14% of the U.S. manufacturing energy footprint, and 13% of total commercial building space, as well as more than 90 state and local governments.
  • The DOE report also provides case studies for collaborations across sectors to access insights, strategies, and through the agency’s “Decarbonization Resource Hub.”

DOE’s Better Buildings Initiative website provides extensive resources on the agency’s wide-ranging effort to partner with leaders in the public and private sectors to make the nation’s commercial buildings, industrial plants, and homes more energy-efficient by accelerating investment and sharing successful best practices.

#  #  #

Federal Regulators Announce Extension of Comment Period and Quantitative Impact Study on Basel III Proposal

Posted on by Trey Jackson

U.S. banking regulators issued two announcements on Oct. 20 related to their sweeping set of proposed rules to increase capital requirements for the nation’s largest banks, which could significantly affect liquidity available for commercial real estate transactions, impact asset values, and influence economic growth. The proposal, known as the “Basel III Endgame,” is the last major regulatory response designed to address failures from the global financial crisis of 2007-2008. (Bloomberg and Reuters, Oct. 20 | Roundtable Weekly, July 28)

Stakeholder Comments

  • The Federal Reserve, Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) announced an extension of the comment period on the Basel capital proposal from Nov. 30, 2023 to Jan. 16, 2024. Additionally, the agencies announced a quantitative impact study to clarify the estimated effects of the proposal, with data collection due the same date as the comments – Jan. 16. (Fed news releases, Oct 20)
  • While the quantitative impact study is a positive development, the timing of the study fails to provide industry participants with the opportunity to assess its results or comment on the collected data before the Jan. 16 deadline. Regulators often grant the public ample time (120 days) to analyze and comment on such an impact study after it is released.
  • The Basel proposal will be among the topics discussed at The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) Nov. 8 meeting in New York. RECPAC welcomes membership input as it works on a comment letter on the announcements and proposal. (Contact Roundtable Senior Vice President Chip Rodgers)
  • In July, the regulators jointly approved the 1,100-page proposed rulemaking, which would substantially revise the regulatory capital framework for banking organizations with total assets of $100 billion or more
  • Real Estate Roundtable President and CEO Jeffrey DeBoer stated in a March 2023 comment letter to Fed Vice Chair Michael Barr and other key regulators, “At this critical time, it is important that the agencies do not engage in pro-cyclical policies such as requiring financial institutions to increase capital and liquidity levels to reflect current mark to market models. These policies would have the unintended consequence of further diminishing liquidity and creating additional downward pressure on asset values.

Congressional Opposition

  • Last week, House Financial Services Committee Chairman Patrick McHenry (R-NC), above, and Financial Institutions and Monetary Policy Subcommittee Chairman Andy Barr (R-KY) requested the Government Accountability Office (GAO) to examine the role U.S. federal banking agencies played in developing the recent Basel proposal.  (McHenry-Barr Letter, Oct 20)
  • The House Republicans’ letter claimed the scope and process of the banking regulators’ plan is flawed, and noted how the proposal was opposed by some members on the Federal Reserve and FDIC Boards. Their letter concluded, “Given those fatal problems with your Basel III Endgame proposal, we urge that it be withdrawn.”

Goldman Sachs’ 10,000 Small Businesses Voices recently announced the launch of a multifaceted national media campaign that will urge the Federal Reserve to abandon the proposed Basel III Endgame regulation. The campaign will feature new survey data showing 87% of small business owners say it is important for their elected officials to weigh in with The Fed about the impact of new bank capital requirements.

#  #  #

Potential CRE Losses Cited as Major Economic Concern in Fed’s Financial Stability Report

Posted on by Trey Jackson

Elevated commercial real estate valuations are increasingly viewed as a near-term risk that could stress the U.S. financial system, according to the Federal Reserve’s October 2023 Financial Stability Report. The central bank’s semiannual report also cited inflationary pressures, interest rate increases, and global economic volatility as vulnerabilities—even though survey data was collected before the recent escalation of geopolitical tensions in the Middle East. (Fed’s Financial Stability Report, Oct. 2023)

CRE Risk Emphasized

  • Seventy-two percent of all participants in the Fed’s survey cited the potential for large losses on commercial real estate and residential real estate—along with persistent inflation and monetary tightening­—as major risks.
  • The CRE asset valuation problem noted in the Fed Report is influenced by an ongoing lack of price discovery, which creates significant refinancing challenges. GlobeSt reported Oct 24 on the report, noting that “With transactions down and many sellers holding off, waiting for improved pricing while a lot of buyers look for bargains in distress, it’s hard to tell how much properties should be worth.”

WorkPlace Return Pressure

  • The Fed report warns, “If the economy were to slow unexpectedly … investor risk appetite and asset prices might decline, and valuations in the office building sector appear particularly vulnerable given the ongoing uncertainty surrounding post-pandemic norms regarding return to work. A correction in office property valuations accompanied by even a mild recession could result in significant losses for a range of financial institutions with sizable exposures, including some regional and community banks and insurance companies.”

Additional risks that continued to feature prominently in the Fed survey were associated with the reemergence of banking-sector stress, market liquidity strains, and volatility.

#  #  #