Roundtable Weekly
Policymakers Debate Timing of Next COVID-19 Response; Fed Report Warns Pandemic May Force Significant CRE Asset Repricing
May 23, 2020

The Fed - 2020 Financial Stablity Report

After the House of Representatives last Friday passed a $3 trillion coronavirus relief bill, Republican policymakers have signaled they may be open to another COVID-19 bill, but on a measured basis. (Forbes, May 21) 

  • Senate Republican Leader Mitch McConnell yesterday said, “I think there is a high likelihood we will do another rescue package.  But we need to be able to measure the impact of what we’ve already done, what we did right, what we did wrong ... We’re not quite ready to intelligently lay down the next step, but it’s not too far off.”   (Fox News, May 21) 

  • Treasury Secretary Mnuchin said yesterday during a forum hosted by The Hill that "We're going to carefully review the next few weeks.  I think there is a strong likelihood we will need another bill, but we just have $3 trillion we're pumping into the economy." (Advancing America's Economy forum, May 21) 

  • Sen. Lindsey Graham (R-SC), chairman of the Senate Judiciary Committee and close ally of President Trump, told CNN, "I want to do infrastructure.  I told Trump, this is the time. We got it teed up. This is the time to go big. ... It really is a once-in-a-lifetime opportunity to give a facelift to the country.” (CNN, May 20)

The debate in Washington on what will constitute the next large legislative response to the coronavirus pandemic continued as the Federal Reserve released its bi-annual Financial Stability Report, which analyzes vulnerabilities in the economy and identifies significant risks to the U.S. banking system.  (Bloomberg, May 15)

CRE a Focus of Fed’s Financial Stability Report

The Fed report offered a stark warning that asset prices remain vulnerable to significant price declines if the COVID-19 pandemic persists – especially in the commercial real estate sector. (GlobeSt, May 18) 

  • The report states, “The vulnerability stemming from elevated CRE valuation pressures, coupled with a dim outlook for the sector as indicated by recent declines in equity REIT prices, suggests that CRE may undergo a substantial repricing in response to disruptions generated by the COVID-19 pandemic.”  (The Fed’s 2020 Financial Stability Report)

  • The Fed report also notes that non-agency commercial mortgage-backed securities (CMBS) market, which had previously been funding about one-fifth of CRE mortgage debt, stopped new securitizations toward the end of March. “CRE loans that would normally be securitized have been accumulating on bank balance sheets. In addition, data from the April 2020 Senior Loan Officer Opinion Survey on Bank Lending Practices indicated that a major fraction of banks reported weaker demand for CRE loans and tighter lending standards, on net, in the first quarter of 2020,” the report adds.

  • Fed Chairman Jay Powell told a virtual Senate Banking Committee hearing on Tuesday that the Main Street Lending credit facility – a loan program designed to lend to small and medium businesses – should be ready to launch by the end of May.

  • In an April 22 letter sent to Treasury Secretary Steven Mnuchin and Fed Chairman Jay Powell, The Real Estate Roundtable and Nareit urged that the scope of the Federal Reserve’s “Main Street” Lending Programs should be expanded to forestall further disruption and economic dislocations in commercial real estate.

  • Chairman Powell also testified that the Term Asset-Backed Securities Loan Facility (TALF) is one of four Federal Reserve credit facilities that will become operational soon.  Powell testified, "We expect all of them to be stood up and ready to go by the end of this month," Powell said of the remaining programs. "People are working literally around the clock and have been for weeks."  (Markets Insider, May 18) 

Previous industry letters to the Fed on March 24 and April 14 addressed the need to broaden the range of TALF, requested that eligible collateral include both outstanding (legacy) CMBS, commercial mortgage loans and newly issued collateralized loan obligations.  On April 9, the Fed confirmed that the TALF would be expanded to include triple-A rated legacy non-agency CMBS and loans.

Roundtable Video Interview 

Economic and other policy issues facing the CRE industry in today’s pandemic environment were discussed recently in a video discussion with Roundtable Chairman Emeritus (2009-2012) Dan Neidich (Chief Executive Officer, Dune Real Estate Partners LP) and Real Estate Roundtable President Jeffrey DeBoer. The video, done as part of several remote Roundtable interviews about pandemic-related policy issues, was hosted by the alumni club of Stanford University – Stanford Professionals in Real Estate (SPIRE).   

  • Neidich and DeBoer address the importance of restoring the “Rent Obligation Chain” and the need for policy makers to help maintain business and residential rental income streams so local governments receive property tax revenues they need to provide essential community services.

  • Steady rent revenues drive building values that support American pensions and retirement savings. Rents to property owners also pay the compensation, health, and other benefits for the millions of workers – at all skills levels – that make U.S. building infrastructure safe, healthy, and functioning.

  • The SPIRE interview also covers a range of other policy matters at the forefront of discussions in our nation’s capital – such as business liability and proposals to help manage risks associated with reopening places of work, education and recreation.

Policymakers’ response to the contagion crisis, whether legislative or regulatory – and how the industry is participating in the process – will be a focus of The Roundtable’s June 11-12 Remote Annual Business and Committee Meetings.

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