Policymakers Face Government Funding Deadline as Talks Renew on Pandemic Relief
Roundtableโ€™s Q4 Sentiment Index Shows CRE Execs Optimistic Despite Serious Market Challenges; Walker Webcast Focuses on the Future of Urban Real Estate
Regulators Urge Banks to Cease Use of LIBOR for New Contracts by End of 2021 as Benchmark Rate is Scheduled to Sunset on Legacy Contracts in June 2023
Roundtable Weekly
December 4, 2020
Policymakers Face Government Funding Deadline as Talks Renew on Pandemic Relief

U.S. Capitol Dome with flag

House Speaker Nancy Pelosi (D-CA) today said that Senate Majority Leader Mitch McConnell (R-KY) agreed to aim for combining a pandemic relief package with government funding legislation in an “omnibus” bill that would prevent a partial shutdown later this month. (Politico, Dec. 4)

  • Pelosi referred to the goal for attaching a coronavirus relief measure to the must-pass spending bill, stating, “That would be a hope, because that is the vehicle leaving the station. We would want a big, strong vote.”

  • McConnell commented on his discussion with Pelosi, stating, "… we had a good conversation. I think we're both interested in getting an outcome, both on the omnibus and on a coronavirus package." (NPR, Dec. 4)

  • Negotiations over a COVID-19 stimulus package have been at an impasse for months – House Democrats passed a $2.2 trillion relief bill, Senate Republicans favored a $500 billion measure and the Trump administration offered a ceiling of $1.8 trillion. (Roundtable Weekly, Nov. 6)

  • Congressional leaders renewed discussion this week about pandemic relief after a bipartisan group of Senate and House members proposed a compromise $908 billion package that attracted the support of Pelosi and Senate Minority Leader Chuck Schumer (D-NY). (BGov, Dec. 3)   

  • The bipartisan stimulus proposal includes $25 billion for “rental assistance,” state and local aid, augmented unemployment insurance benefits, a revival of the Paycheck Protection Program (PPP) and other small business relief, as well as money for vaccine development, supply, and testing and tracing programs. (“What's in the $908 Billion Bipartisan Stimulus Proposal?” by The Committee for a Responsible Federal Budget, Dec. 2) 
  • Pelosi also said, “There is momentum — there is momentum with the action that the senators and House members in a bipartisan way have taken.” (Politico, Dec. 4)

  • President-elect Biden issued a statement today supporting pandemic-related funding. "Any package passed in the lame duck session is not enough," Biden said. "It’s just the start." (The Hill, Dec. 4)

  • Government funding is currently scheduled to expire on Dec. 11. That deadline for combining fiscal 2021 appropriations and a coronavirus relief deal could lead to a one-week stopgap bill, giving lawmakers until Dec. 18 to pass a massive “omnibus” bill before Congress breaks for recess. (CQ, Dec. 4)    

Pelosi today said, "Don't worry about a date. It will be in sufficient time for us to get it done. The sooner the better but not at the expense of the initiatives that we need to address in the bills.” She added, “We'll take the time we need and we must get it done. We cannot leave without it." (CQ and The Hill , Dec. 4)

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Roundtableโ€™s Q4 Sentiment Index Shows CRE Execs Optimistic Despite Serious Market Challenges; Walker Webcast Focuses on the Future of Urban Real Estate

Commercial real estate executives expressed a modest increase in optimism about market conditions despite serious COVID-related challenges, according to The Real Estate Roundtable’s Q4 Economic Sentiment Index released this week. (Roundtable news release, Dec. 2)

  • A majority of respondents to the survey also noted that general conditions one year from now will be either “somewhat better” or “much better” than today. 
  • “Nearly every sector of the commercial real estate industry is facing serious economic challenges due to the overall impact of the pandemic. High unemployment, closed businesses, travel reductions and more have ripped into otherwise healthy real estate portfolios, creating challenges for all building owners in meeting their payroll, utility, tax and debt service obligations. Overall industry low leverage, general market balance, and functioning capital markets are positive influences that – when coupled with growing good news regarding vaccines – results in an increased optimism on part of industry leaders," said Real Estate Roundtable President and CEO Jeffrey DeBoer. 
  • DeBoer also said,  “That optimism is dependent however on urgently-needed additional COVID relief from Washington and on the rapid testing and availability of effective vaccines. Federal lawmakers and regulators must support further assistance to bridge people and businesses into a post-COVID economy. Help is needed quickly for local governmental budgets, as well as for people and businesses negatively economically impacted by the pandemic. And some protection from unnecessary lawsuits must be provided to businesses to spur a more robust transition back to workplaces. ” 

The Roundtable’s Q4 Sentiment Index topline findings include:

  • The Sentiment Index registered a score of 44, an increase of two points from the third quarter of 2020. Respondents continued to express optimism about future conditions, and many noted increasingly positive trends in their own portfolios. Participants from the hospitality and retail sectors were understandably less optimistic, but felt market dynamics were strong enough that successful recoveries were possible.
  • Respondents referenced stronger markets for industrial and multifamily properties, while retail and hospitality properties were perceived as challenging in this environment. Dynamics in the office sector remain uncertain for most participants as work from home policies have created an uncertain future operating environment.
  • Lower leverage and continued forbearance have combined to allow owners to retain their positions, despite distress within their portfolios. As a result, owners are resistant to realizing discounted asset prices while buyers are seeking discounts as steep as 30% within the hospitality industry.
  • Most respondents cited accessible capital markets for high quality assets, and an increase in debt as well as equity availability. Many also noted the real estate market in general has lower levels of leverage than seen in the last downturn.

Future of Urban Real Estate

Walker Webcast with Mark Parrell and Owen Thomas image

On this week's Walker Webcast, Roundtable Member Willy Walker (Chairman & CEO, Walker & Dunlop) discussed the pandemic's impact on urban centers with Roundtable Board Member Owen Thomas (CEO, Boston Properties) and Roundtable Member Mark J. Parrell (President & CEO, Equity Residential Investments). 

  • Thomas commented, “It's all about the virus. CEOs increasingly are understanding the problems with all remote work. Cultures are getting stretched and it is difficult to do more creative and strategic work, to procure new customers when everyone is working remotely. Companies want to get their employees back to work but companies are also very concerned about liability. What's going to change all that around is health security.”
  • He added, “We have to get people back to the offices, back to the big cities for the overall economy to recover.”
  • Parrell noted, “When we think about our urban centers, there are places like New York that have been around 400 years and they've been resilient over time. (During) the last two decades in New York, up to the pandemic, the quality of life improved so much. These cities are capable of recovery, but good leadership is required. It will be very important that these cities be led by both public and private minded individuals who, like the Partnership for New York for example, are trying to put the city back together and on its feet. Once the cities re-energize, renters will return.”
  • Parrell added, “I do think there’s going to be a migration back into city centers, based initially on price and on activation as the vaccine gets broadly distributed.”

The pandemic’s ongoing impact on CRE and the policy response will be a focus of discussion during The Roundtable’s virtual State of the Industry Business Meeting and policy committee advisory committee meetings on January 27-28, 2021.

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Regulators Urge Banks to Cease Use of LIBOR for New Contracts by End of 2021 as Benchmark Rate is Scheduled to Sunset on Legacy Contracts in June 2023

Libor transition to SOFR image

US and UK regulators are urging banks using the London Interbank Offered Rate (LIBOR) as a benchmark interest rate to stop writing new LIBOR contracts by the end of 2021, while most legacy contracts will be able to mature before use of the rate sunsets in June 2023. (Federal Reserve and Wall Street Journal, Nov. 30)

  • The UK-based ICE Benchmark Administration (IBA) announced it will consult in early December on its intention to cease US$ LIBOR. IBA intends to eliminate, subject to confirmation, one week and two month US$ LIBOR settings at the end of 2021. (Financial Conduct Authority, Dec. 4)
  • LIBOR is used as a reference rate in an estimated $200 trillion of financial contracts, including $1.3 trillion of commercial real estate loans.  UK financial authorities are phasing out LIBOR in response to manipulation concerns.
  • The Federal Reserve Board, Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation on Nov. 30 released a joint statement supporting the proposal and explaining that the June 30, 2023 proposed LIBOR cessation date would allow time for "legacy contracts"—USD LIBOR transactions executed before January 1, 2022—to mature.
  • The joint statement also notes, “Failure to prepare for disruptions to USD LIBOR, including operating with insufficiently robust fallback language, could undermine financial stability and banks’ safety and soundness.”
  • Federal Reserve Vice Chair for Supervision Randal K. Quarles on Nov. 30 said, "Today's plan ensures that the transition away from LIBOR will be orderly and fair for everyone—market participants, businesses, and consumers.”
  • "These announcements represent critical steps in the effort to facilitate an orderly wind-down of USD LIBOR," said John Williams, President of the Federal Reserve Bank of New York and Co-Chair of the Financial Stability Board's Official Sector Steering Group. "They propose a clear picture of the future, to help support transition planning over the next year and beyond."
  • The Fed has urged banks to prepare for a transition away from LIBOR to the Secured Overnight Financing Rate, which will use rates that investors offer for bank securities such as loans and assets backed by bonds, instead of relying on bank quotes.

The US Treasury Department on October 9, 2019 released proposed regulations to clarify the tax consequences of replacing LIBOR in existing financial contracts, including real estate loans. The proposed rules largely align with Roundtable recommendations submitted in June 2019. (Roundtable Weekly, June 7, 2019)

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