Category: Capital and Credit

RER Urges Bridge Financing Status Quo in EB-5 Program

Posted on by abigail_grenadier

The Real Estate Roundtable (RER) submitted comments on Aug. 19 to the U.S. Citizenship and Immigration Services (USCIS) recommending changes to proposed regulations implementing the EB-5 Reform and Integrity Act of 2022 (RIA). RER urged revisions to three provisions in USCIS’s proposal that could limit EB-5’s effectiveness as a source of capital for job-creating real estate and economic development projects.  (Letter, Aug. 19)

The Proposal

  • Published July 2, Ensuring the Integrity of the EB-5 Program (Docket No. USCIS-2026-0100) is USCIS’s first proposed rule implementing the 2022 law. (Federal Register) 

  • The proposed rule would change the program’s treatment of bridge financing, expand “source of funds” reviews to non-EB-5 capital, and establish a new $1.4 million investment tier for projects in “high employment areas.” (Letter, Aug. 19)

RER Recommendations

RER urged USCIS to:

  • Maintain the longstanding treatment of bridge financing. Bridge financing addresses the timing mismatch between when a project requires immediate capital and when longer-term capital becomes available. RER urged USCIS not to cap, eliminate or time-limit the amount of repaid bridge financing that can support qualifying EB-5 job creation. (Letter, Aug. 19)
  • Apply “source of funds” requirements only to EB-5 capital. The RIA does not support applying these requirements to every component of a project’s financing. It would be impractical for an EB-5 investor to document the ultimate source of funds supporting institutional bank loans, pension fund investments and other capital the investor neither owns nor controls. (Letter, Aug. 19)
  • Congress delegated responsibilities to other agencies— not USCIS—to monitor avenues of illicit overseas finance regarding non-EB-5 capital.
  • Reject the proposed $1.4 million investment tier for “high employment areas.” RER warned that the new category would place urban and suburban projects at a competitive disadvantage and could impede affordable and low-income housing development, working against the goals Congress set in the 21st Century ROAD to Housing Act enacted in July. (Letter, Aug. 19)

Why It Matters

  • Real estate and infrastructure projects typically depend on multiple, interrelated sources of capital with different risk profiles, financing terms, and deployment timelines.
  • Denying job-creation credit solely because temporary bridge financing preceded an EB-5 investment would elevate form over substance.
  • EB-5 policy should focus on whether the capital supports a qualifying project that creates U.S. jobs, not the sequence in which each component of the project’s capital stack was deployed.

What’s Next

USCIS will review public comments before issuing a final rule. RER will continue advocating for an EB-5 framework that maintains program integrity while supporting capital formation, housing production, economic development and U.S. job creation.

House Passes Main Street Capital Access Act with Bipartisan Support

Posted on by abigail_grenadier

The House passed the Main Street Capital Access Act (H.R. 6955) on Tuesday by a bipartisan vote of 270-155-1, with 56 Democrats joining 213 Republicans and one independent in support. The Real Estate Roundtable (RER) endorsed the legislation earlier this year as an important step toward right-sizing bank regulation and expanding access to capital. (HFSC Press Release, July 21)

State of Play

  • Sponsored by House Financial Services Committee Chairman French Hill (R-AR) and Financial Institutions Subcommittee Chairman Andy Barr (R-KY), the package is designed to encourage new bank formation, tailor regulation for community and regional banks, and remove barriers to local lending. (Bill text | Section-by-Section | One-Pager)
  • “Expanding access to capital means entrepreneurs can invest, businesses can grow, and families can build wealth,” Hill said following the vote, adding that he looks forward to the Senate considering the legislation. (Legis1, July 22)
  • Community and regional banks are important sources of financing for housing and commercial real estate, particularly in smaller and underserved markets.
  • RER has consistently advocated for appropriately tailored financial regulation that maintains bank safety and soundness while supporting liquidity, capital formation, housing production, and economic growth. (Roundtable Weekly, Jan. 16)

RER Advocacy

  • RER submitted a letter of support for the Main Street Capital Access Act in January, emphasizing the critical role community and regional banks play in financing commercial and residential real estate. (Roundtable Weekly, Jan. 16)
  • “The Main Street Capital Access Act will help revitalize communities across the nation by encouraging local bank formation and enhancing credit capacity,” said RER President and CEO Jeffrey D. DeBoer. “By easing outdated regulatory burdens for community banks, it will help unlock more capital for housing and small businesses.”

21st Century ROAD to Housing Act Implementation

  • RER is forming a member working group to engage with Treasury, HUD, and other federal agencies as they develop implementing regulations for the recently enacted 21st Century ROAD to Housing Act, with a particular focus on Section 1001 and its implications for single-family rental and build-to-rent investment.
  • Members interested in participating in the working group should contact RER’s SVP, Clifton E. (Chip) Rodgers, Jr. (crodgers@rer.org).

The legislation now moves to the Senate for consideration. RER will continue working with policymakers to advance measures that strengthen credit capacity and expand access to capital for housing, commercial real estate, and communities across the country.

Roundtable Urges FTC, DOJ to Preserve HSR Real Estate Transaction Exemptions

Posted on by abigail_grenadier

The Real Estate Roundtable (RER) submitted comments this week urging the Federal Trade Commission (FTC) and Department of Justice (DOJ) to preserve longstanding real estate exemptions under the Hart-Scott-Rodino Act (HSR), warning that eliminating them would impose substantial costs and delays on lawful real estate transactions without delivering any clear antitrust benefit. (Letter, May 26)

Why It Matters

  • The comments respond to an FTC and DOJ request for public input on potential changes to the Premerger Notification and Report Form, including whether the agencies should revisit exemptions for certain real estate transactions. (Letter, May 26)
  • The real estate exemptions were adopted in 1996 because these transactions were considered unlikely to violate antitrust laws.
  • The exemptions cover several categories of real property acquisitions, including office, residential, retail, hotel, warehouse, agricultural, recreational, and other rental real estate assets.
  • At the time, the FTC said the exemptions would “remove an unnecessary burden from business” and allow the FTC and DOJ to better focus resources on transactions more likely to cause competitive harm.
  • The letter emphasized that the same policy and economic rationale remain sound today, given that real estate markets are local, highly fragmented, and shaped by property type, geography, zoning rules, neighborhood characteristics, and other market-specific factors.

Market Impact

  • Eliminating the exemptions would create new regulatory burdens for transactions that have long been considered unlikely to raise antitrust concerns. (Letter, May 26)
  • HSR filing fees can reach up to $2.46 million, in addition to legal, financial, and operational costs associated with preparing filings.
  • Potential new filing requirements could slow transactions, disrupt market liquidity, and create additional uncertainty across real estate markets at a time when capital formation remains critical to investment and development.
  • The agencies have not provided evidence that circumstances have changed materially since the exemptions were adopted, or that exempted real estate transactions have had a negative effect on competition.
  • RER board member Ross Perot Jr. (Chairman, The Perot Companies and Hillwood), discussed the real estate market and how developers are keeping up with demand this week on CNBC’s The Exchange. He emphasized the need for pro-growth tax and regulatory policies to support investment, job creation, AI infrastructure, and responsible development in communities across the country. (CNBC, May 29)

Housing Supply

  • The letter warned that removing the exemptions would not be a targeted way to address concerns about single-family housing acquisitions by large institutional investors. (Letter, May 26)
  • The vast majority of transactions covered by the exemptions do not involve single-family housing, and many single-family housing transactions would not meet the $133.9 million HSR filing threshold even if the exemptions were removed.
  • Large institutional investors collectively own less than 1% of single-family homes nationally and make less than 3% of annual home purchases in the U.S. (Roundtable Weekly, Jan. 9)
  • The costs and delays of HSR reporting would fall disproportionately on smaller buyers such as homebuilders and residential developers acquiring land for new housing projects, potentially increasing development costs and slowing efforts to address the nation’s housing shortage.

Preserving the exemptions would help avoid unnecessary regulatory burdens, support market liquidity, and protect the capital needed to expand housing supply and strengthen the broader economy.

Federal Regulators Signal Significant Changes for Proposed Bank Capital Hikes

Posted on by Trey Jackson
The Federal Reserve in Washington, DC

Proposed regulations that would dramatically hike capital requirements for the nation’s largest banks may undergo significant changes, which could include a 50 percent reduction in the current mandated increase, according to sources cited by The Wall Street Journal on May 19.

Proposed Capital Requirements

  • Top officials from the Fed are working with regulators from the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) on “negotiating substantive and technical revisions” to the current proposal, known as the “Basel III Endgame.” (WSJ, May 19)
  • The Real Estate Roundtable strongly opposes the current proposal, which would hike capital requirements by approximately 19 percent for banks with at least $100 billion in assets. (Roundtable Weekly, March 29)
  • Barclay estimates the proposal, if approved without changes, would require eight U.S. global systemically important banks to hold approximately $150 billion more in capital. (WSJ, May 23)

Roundtable Response

Real Estate Roundtable President and CEO Jeffrey DeBoer testifies before House Oversight Subcommittee on April 30, 2024
  • Roundtable President and CEO Jeffrey DeBoer testified this month before a House subcommittee on the health of CRE markets and offered Roundtable policy recommendations, which included rejection of the Basel III Endgame—along with other pro-cyclical regulatory measures that would restrict credit and capital formation. (Roundtable Weekly, May 3 | DeBoer’s oral statement and written testimony)
  • Additionally, a Jan. 12 Roundtable letter and Jan. 16 industry coalition letter urged federal banking regulators to withdraw the proposed rule, emphasizing its potential negative impact on available credit capacity for commercial real estate transactions, market liquidity, and economic growth. (Roundtable Weekly, Jan. 19)

Policymakers Signal Adjustments

Federal Reserve Vice Chair for Supervision Michael Barr
  • The proposal has been met by internal disagreement and concerns among the seven-member Fed Board. (Roundtable Weekly, March 29)
  • Michael Barr, the Fed’s Vice Chair for Supervision, said in a May 20 speech that the central bank is exploring “targeted adjustments” to bank liquidity rules, including Basel III.  In March, Fed Chairman Jerome Powell testified before congressional committees that he expects regulators to “make broad and material changes” to the Basel III proposal. (PoliticoPro, May 20 and Roundtable Weekly, March 8)

The Roundtable’s all-member Annual Meeting on June 20-21 in Washington, DC will address Basel III Endgame and other capital and credit issues impacting CRE.

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Fed Cautions About Office Sector as Vacancies Climb and Loan Modifications Surge

Posted on by Trey Jackson
La Salle Street, Chicago, Illinois, USA

Recent reports show U.S. office vacancies climbed to nearly 20% during Q1 2024 after loan modifications more than doubled last year compared to 2023. Meanwhile, Federal Reserve Board Vice Chair for Supervision Michael Barr cautioned this week that federal regulators are “looking carefully at banks with heavy concentrations in office commercial real estate where there are significant, expected price declines.” (Moody’s Analytics, April 2 | CRED iQ, March 28 | (C-SPAN video, April 3)

Office Sector

  • Preliminary data from Moody’s Analytics reinforces the long-term, negative ramifications of hybrid work models. The Q1 2024 office vacancy rate set a new record at 19.8%, up from 19.6% in the prior quarter, and beating two historic peaks of 19.3% in 1986 and 1991. (Bloomberg, April 2 | Quartz, April 3 | CRE Daily, April 4)
  • “The office stress isn’t quite done yet,” said Thomas LaSalvia, Moody’s head of commercial real estate economics and an author of the report. He added, “This is part of a longer-term evolution where we are seeing obsolete buildings in obsolete neighborhoods.” (Bloomberg, April 2)
  • Brookfield’s Feb. 14 report, “The Misunderstood U.S. Office Market,” emphasizes that high vacancy rates are due to an excess of dated, functionally obsolete office buildings and an undersupply of offices that satisfy tenants’ changing needs.
  • A Roundtable-led coalition of 16 national real estate organizations urged the expansion of a 20 percent tax credit for qualified property conversion expenditures in an Oct. 12, 2022 letter to policymakers. The recommended enhancements included expanding the category of properties eligible for the credit to various types of commercial buildings such as shopping centers and hotels. (Roundtable Weekly, Nov. 11, 2022)

Fed Oversight & CRE Sectors

Federal Reserve Board Vice Chair for Supervision Michael Barr
  • The Fed’s top market supervisor told the National Community Reinvestment Coalition on April 3 that CRE refinancing deals will “take some time to work through” as the Fed closely monitors office sector conditions. (C-Span | BGov, April 3 | Roundtable Weekly, March 8)
  • Barr said, “This is the kind of thing where it is likely a slow-moving train as the financial sector and commercial real estate market move forward. Over the next two to three years, we are going to see how properties deal with refinancing in a higher interest rate environment. Occupancy rates have lowered because of work-from-home, so for some categories of office CRE they are more exposed to risk.”
Kathleen McCarthy
  • Kathleen McCarthy, global co-head of Blackstone Real Estate and chair-elect of The Real Estate Roundtable, commented to CNBC’s “Closing Bell Overtime” on April 3 that the office sector is different from other CRE investment areas that have performed well. “We do feel like there’s a bottoming happening. There’s no V-shaped recovery … but we do see the cost of capital coming down, we’re seeing more liquidity in markets, and perhaps more importantly for the long term, we’re seeing a sharp decline in new supply,” she said.
  • Barron’s recognized McCarthy this week as one of the 100 Most Influential Woman in Finance. She commented on her upcoming role as Roundtable Chair: “To bring together my interest in policy and have a position to help our whole industry in Washington is really exciting.” (Barron’s, April 4)

Commercial and multifamily market conditions will be discussed during RER’s April 15-16 Spring Meeting in Washington DC (Roundtable-level members only) with guests including White House Council of Economic Advisers Chairman Jared Bernstein,  House Democratic Leader Hakeem Jeffries (D-NY), and House Financial Services Member French Hill (R-AK). 

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Fed Signals Significant Changes Ahead for Basel III Endgame Proposal

Posted on by Trey Jackson

Federal Reserve Board Vice Chair for Supervision Michael Barr said in a recent speech that he is working with other regulators on “broad and material changes” to a sweeping banking proposal known as the “Basel III Endgame.” The proposal, opposed by The Roundtable, would hike capital requirements for banks with at least $100 billion in assets by approximately 19 percent. (Bloomberg, March 22, 2024 and Congressional Research Service, Nov. 30, 2023)

Fed Statements

  • Barr said during his March 22 University of Michigan remarks, “I am working very closely with (Fed) Chair (Jerome) Powell and other members of our Federal Reserve board to try to reach a broad consensus” on revisions to the proposal.
  • The Fed, Office of the Comptroller of the Currency (OCC), and Federal Deposit Insurance Corporation (FDIC) approved the 1,100-page proposed rulemaking last July by an unusually close 4-2 vote.  See Interagency Overview of the Notice of Proposed Rulemaking for Amendments to the Regulatory Capital Rule, July 27. (Roundtable Weekly, July 28, 2023)
  • Powell voted for the original rulemaking proposal but noted a significant tone of caution. Statements by Fed Governors Michelle W. Bowman and Christopher J. Waller bolstered their opposition to the proposal.

Basel III and CRE

The Federal Reserve Building in Washington DC
  • The Real Estate Roundtable urged federal regulators to withdraw the proposed rulemaking in a Jan. 12 letter that raised industry concerns about its negative impact. The comments outlined how the proposal would decrease real estate credit availability, increase commercial and multifamily properties’ borrowing costs, and negatively impact the U.S. economy.
  • Real Estate Roundtable President and CEO Jeffrey DeBoer also stated in a March 2023 comment letter to 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.”
  • The Mortgage Bankers Association (MBA) reported last month that 20 percent ($929 billion) of the $4.7 trillion of outstanding commercial mortgages held by lenders and investors will mature in 2024. That represents a 28 percent increase from the $729 billion that matured in 2023, according to MBA’s Commercial Real Estate Survey of Loan Maturity Volumes.

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will respond to any further changes to the Basel III proposal or other federal policies impacting capital and credit issues.

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Fed Chairman Testifies on Regional Bank Loan Concentrations in CRE, Basel III Proposal Changes

Posted on by Trey Jackson
Fed Chair Jerome Powell addressed CRE concerns in an exchange with Sen. Catherine Cortez Masto (D-NV)

Federal Reserve Chair Jerome Powell testified before congressional committees this week about the risks posed by commercial real estate loans to regional banks—and that he expects “broad and material changes” to a regulatory proposal to hike bank capital requirements known as “Basel III.” (The Hill, March 7 and Reuters, March 6)

CRE Concerns & Banking

  • The Senate and House hearings focused on the Fed’s March 1 Monetary Policy Report to Congress. The publication stated, “Credit quality at banks remained strong, although the quality of CRE loans backed by office, retail, and multifamily buildings continued its decline, a result of the lower demand for downtown real estate prompted by the shift toward telework.” The report also noted, “Low levels of transactions in the office sector likely indicated that prices had not yet fully reflected the sector’s weaker fundamentals.”
  • During a March 7 Senate Banking Committee hearing, Fed Chair Powell responded to questions from Sen. Catherine Cortez Masto (D-NV) that he expects some smaller banks with high commercial real estate office concentrations will fail, but that risks posed by these loans are “manageable.” (Watch a video clip of the exchange, above)
  • Similar concerns were raised by policymakers with Powell during a March 6 House Financial Services Committee hearing. The Fed chair addressed why he expects manageable bank losses and added, “We’ve had a secular change in the economy, which has left office demand significantly lower, at least temporarily, and perhaps for a long time. The same is true in some downtown retail (properties) associated with office workers. So it’s a shock to the system.”

Basel III Changes

Senate Banking Committee
  • The committees also heard Powell state that the “Basel III” regulatory proposal, which would significantly increase capital requirements for banks with at least $100 billion in assets, is likely to be overhauled after an enormous private sector response. He commented to the Senate panel, “We do hear the concerns and I do expect that there will be broad and material changes to the proposal.” He told House lawmakers that a rewrite of the proposal is a “very plausible option.” (Fortune and GlobeSt, March 7 | Bloomberg and PolitcoPro, March 6)
  • The Real Estate Roundtable raised industry concerns about the negative impact of the Basel III proposal in a Jan. 12 letter to the Fed and other agencies. The comments outlined how the proposal would decrease real estate credit availability, increase borrowing costs for commercial and multifamily real estate properties, and negatively impact the U.S. economy—and urged federal regulators to withdraw their proposed rulemaking.
  • The New York Times DealBook reported this week that Basel III could crimp lending as some banks struggle with office portfolios and a looming “maturity wall” of $1.5 trillion in CRE loans come due over the next two years. (New York Times, Feb. 7)

Industry Views

  • On March 6, Roundtable Board Member Scott Rechler (Chairman and Chief Executive Officer, RXR) told CNBC’s Squawkbox that high interest rates, price discovery, and the amount of maturing CRE loans have resulted in a “slow-moving train wreck” for regional banks.
  • Rechler, a member of the New York Fed’s Board of Directors, said, “There’s a balance. The longer rates stay higher, there’s more distress. For the industry, there’s enough imbalance right now that some level of rates moderating will help ease this transition.  Capital structures are upside down. They’re going to need to be re-equitized, there’s going to be write-offs. So if you can bring down (interest rates), it can create some transaction activity.” (Squawkbox, March 6)
  • Squawkbox also featured Roundtable Member Marty Burger (Infinity Global Real Estate Partners CEO and former Silverstein Properties CEO) on Feb. 28 to discuss office-to-residential conversion opportunities in the current CRE environment. (CNBC, Feb. 28)

Today, RER’s Immediate Past Chair Debra Cafaro (Chairman and Chief Executive Officer, Ventas, Inc.) discussed the CRE market with a focus on the senior housing sector on Bloomberg Markets. “For the commercial real estate sector writ large, those tightening financial conditions are having an impact, particularly in sectors like office, where you have the demand fall off. There will be an impact on the smaller lenders. It is something the system will have to absorb over time with $1 trillion of real estate loans coming due in 2024. It is having an effect. The best elixir for that might be lower rates,” Cafaro said.

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Treasury Testifies on New Rules for Investment Advisors to Combat Illicit Finance

Posted on by Trey Jackson
Treasury Department's FinCEN logo

The director of the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) appeared before the House Financial Services Committee this week to address recent regulatory proposals for investment advisors to combat illicit finance activity and money laundering in U.S. residential real estate. Director Andrea Gacki testified, “We are also considering next steps with regard to addressing the illicit finance risks associated with the U.S. commercial real estate sector.” (Committee hearing and Gacki’s statement, Feb. 14)

FinCEN’s Business Regulatory Proposals

  • The hearing on Wednesday followed a new FinCEN proposal that would require investment advisors to report suspected money laundering to the U.S. government. (Wall Street Journal, Feb. 13)
  • A fact sheet on the proposal explains that although FinCEN is not proposing an obligation for investment advisers to collect beneficial ownership information at this time, it anticipates it will do so in the future. (FinCEN Proposal and Fact Sheet, Feb. 13 | Treasury’s 2024 Investment Adviser Risk Assessment)
  • Last week, FinCEN proposed a rule that would require certain real estate professionals involved in the closing or settlement of residential transfers to report information to FinCEN about the beneficial owners of legal entities and trusts involving all-cash transactions. The rule would not require the reporting of sales to individuals.  (Roundtable Weekly, Feb. 9 | Reuters and AP, Feb. 7)
  • Another set of regulations that took effect on Jan. 1, 2024 is expected to collect personal information from owners of at least 32 million U.S. businesses into a beneficial ownership registry managed by the government.  A beneficial owner is described as individual who owns at least 25 percent of a company or enough to exert significant control over it. (Final Rule | Fact Sheet | RER background on beneficial ownership)
  • FinCEN Director Gacki told the House Committee that more than 430,000 businesses have submitted reports to the registry so far. (PoliticoPro, Feb. 14)

Concerns About Beneficial Ownership Registry

  • In his opening statement, Committee Chairman Patrick McHenry (R-NC), above, was critical of Treasury’s ongoing proposals and its beneficial ownership regulations affecting small businesses. McHenry added, “Until FinCEN can show Congress it can do its current job and appropriately use its existing authorities, I’m skeptical of providing greater authorities and resources.” (FinCEN’s background information and FAQs on beneficial ownership reporting)
  • McHenry added, “The administration has transformed what was a simple and direct program into Frankenstein’s monster of complexity. We now have a new, overly complex and less secure access regime.”

On Oct. 13, 2023, The Roundtable and a coalition of eight national real estate groups urged Treasury Secretary Yellen to delay the implementation of the burdensome reporting requirements. (Coalition letter | Roundtable Weekly, Oct. 20 and Sept. 30)

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Federal Reserve Supervisors Focused on Banks’ CRE Lending Risk

Posted on by Trey Jackson
Michael Barr

Federal banking regulators are closely monitoring risk factors in commercial real estate bank lending throughout the United States, according to comments today from Federal Reserve Board Vice Chair for Supervision Michael Barr. This week, the Fed also released scenarios for its annual stress test for large banks that includes a 40 percent decline in commercial real estate prices—one of several hypothetical risks designed to assess the resilience of the banking system in the event of a severe recession. (Barr speech, Feb. 16 and Fed stress test, Feb. 15)

Managing CRE Risks

  • Barr stated today, “Let me turn to supervision of a specific risk: commercial real estate. The reduced demand for office space and higher interest rates have put pressure on some CRE valuations, particularly in the office sector.”
  • Barr noted that Fed supervisors are “closely focused on banks’ CRE lending in several ways.” He explained that regulators analyze how banks measure and report their risk, what steps they have taken to mitigate the risk of losses on CRE loans, and whether they have sufficient capital to buffer against potential CRE loan losses. (Barr speech, Feb. 16)
  • He also stated that today’s heightened financial risk environment has led the Fed to downgrade firms’ supervisory ratings at a higher rate in the past year and increase its issuance of enforcement actions. Barr said, “We continue to evaluate whether we should temporarily require additional capital or liquidity beyond regulatory requirements where the firm has trouble in managing its risks.” (PoliticoPro, Feb. 16)
  • Bloomberg reported that regulators determined that 22 regional banks late last year had CRE loan portfolios that merit greater scrutiny. (Connect CRE, Feb. 15)

Wave of CRE Refinance Meets Price Discovery

Roundtable Board Member Scott Rechler (Chair and CEO, RXR)
  • Bloomberg also reported this week that commercial property deals in the U.S. are starting to pick up at deep discounts, forcing lenders to brace for increased pressure on maturing loans. (Bloomberg, Feb. 14)
  • Roundtable Board Member Scott Rechler (Chairman and Chief Executive Officer, RXR) told Bloomberg that as more transactions add price discovery to the market, investors will have to recapitalize loans to reflect lower values.
  • Rechler said, “In 2024, we’re at that fifth stage of grief. People are now in acceptance.” He also commented on falling property values: “You can’t ignore that anymore. Depending on the severity of it, we’ll see who has actually marked appropriately and who hasn’t.”
  • RXR’s CEO told CNBC last week that “if you’re a borrower who’s willing to invest money, banks are willing to reduce their loan balances to reflect the current environment.” (CNBC, Feb. 6 and Roundtable Weekly, Feb. 9)
  • The Wall Street Journal reported this week that investors are starting to show interest in properties where building owners are unable to extend their loans. The article cites Trepp data that shows more than $2.2 trillion in commercial mortgages are scheduled to mature between now and the end of 2027. (WSJ, Feb. 12)

The Mortgage Bankers Association (MBA) reported this week that 20 percent ($929 billion) of the $4.7 trillion of outstanding commercial mortgages held by lenders and investors will mature in 2024. That represents a 28 percent increase from the $729 billion that matured in 2023, according to MBA’s Commercial Real Estate Survey of Loan Maturity Volumes.

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Key House Democrats Urge SEC to Exempt Real Estate from Proposed Safeguarding Advisory Client Rule

Posted on by Trey Jackson
SEC logo and text

A group of seven key Democrats from the House Appropriations Committee on Jan. 22 urged Securities and Exchange Commission (SEC) Chair Gary Gensler to exempt real estate assets from a proposed “Custody” rule. The proposal would fundamentally change the ownership and transfer rights of real estate, and impose severe investment limitations on advisory clients. The congressional letter supports The Roundtable’s strong opposition to the rule. (Congressional letter)

Proposed “Qualified Custodian” Layer 

  • The SEC’s Safeguarding Advisory Client proposal would inject significant confusion into well-established transaction protections, rules, and procedures governing real estate transactions by imposing a new layer of unclear and unnecessary oversight. (SEC Rule proposal)
  • 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. It is not possible to maintain other physical investments such as real estate with a qualified custodian.
  • The letter, led by Rep. Joseph Morelle (D-NY), noted the SEC has acknowledged that real estate assets may not be easily subject to theft or loss and therefore may not need safeguarding protections. Additionally, the letter states, “The ownership of a real estate asset is tracked by mortgages and deeds recorded by municipalities, further decreasing the likelihood of theft.”
  • The House Democrats also emphasized that the SEC’s proposal would materially inhibit investors’ access to real estate investment strategies through an advisor. The additional layer of unnecessary oversight would also compound pressures on residential and commercial real estate markets, which are currently constrained by a lack of affordable housing, high interest rates, and increased office vacancies.

Real Estate Exemption

  • The Appropriations Committee members’ letter requested “the Commission exclude real estate from the scope of any final rule.” They also stated that the Commission should not place additional pressure on residential and commercial real estate markets.
  • An Oct. 30, 2023 letter from Real Estate Roundtable President and CEO Jeffrey DeBoer to the SEC reiterated the 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.  (Roundtable Weekly, Nov. 3, 2023)
  • The Roundtable and a diverse group of 25 trade associations previously wrote to SEC Chair Gary Gensler on Sept. 12, 2023 to oppose the Custody Rule proposal and explain the negative impacts it would have on investors, market participants, and the financial markets. 

Fed and OCC Voice Concerns

The Federal Reserve building in Washington, DC
  • Federal Reserve Chair Jerome Powell and acting Comptroller of the Currency Michael Hsu recently expressed concerns over the SEC’s proposed expansion of existing custody regulations. (PoliticoPro, Feb. 2)
  • Powell and Hsu responded to a Nov. 1 inquiry from Rep. Andy Barr (R-KY), who chairs the House Financial Services Committee Subcommittee on Financial Institutions and Monetary Policy. The Fed and OCC leaders stated that extending the SEC custody proposal to assets beyond “funds and securities” would require a significant change in custody practices at depository institutions.
  • Both regulators said their agencies are engaged with the SEC about the proposal. (Letters from Powell and Hsu via PoliticoPro)

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) Custody Rule Working Group met with the SEC’s Division of Investment Management last November about the proposal and developed The Roundtable’s comments. Details about RECPAC’s next meeting this spring in New York City are forthcoming.

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