Policy Issues

Concerns Regarding the Main Street Lending Program: Main Street New Loan Facility (MSNLF and Main Street Expanded Loan Facility (MSELF)

April 21, 2020

On April 22, The Real Estate Roundtable and Nareit wrote Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell urge that additional measures be adopted to expand the scope of the Main Street Lending Programs to forestall further disruption and economic dislocations in the commercial real estate sector.

These recommendations include:

1. Underwriting/Leverage Limitations/Loan Size. As a general matter, we recommend that the banks underwriting these Main Street loans be granted greater discretion in assessing credit worthiness across industries and with respect to

individual borrower circumstances.

2. Distributions. REITs and certain other pass-through entities are required by law to annually distribute their taxable income to shareholders. We suggest that the Programs allow for limited exceptions to the CARES Act distribution prohibitions for borrowers, like REITs, which are required by law to make distributions to maintain their legal status. Similarly, any extension of the restriction to distributions by S corporations or partnerships would undermine the critical purposes served by the lending facilities.

3. Loan Terms. The Programs loan terms, as proposed, will be too short to accommodate CRE borrowers in many cases. We suggest that the Programs permit lenders and borrowers to agree to terms of at least six years, and permit borrower and its lenders to agree to amortization schedules consistent with existing their circumstances and existing borrowings.

4. Applicable Interest Rate Index. The great majority of CRE borrowers currently use LIBOR. We suggest that the Programs implement a similar policy, consistent with current market practice, i.e., permit borrowers to initially use LIBOR with “fallback” provisions for transitioning to SOFR consistent

with either of the ARRC’s approved options.

5. Program Timing. Given the complexity of CRE capital structures and loans, the ability to complete transactions that benefit these properties may take longer than September 30, 2020. We suggest that the Program’s facility termination date be extended to December 31, 2020