Congress Aims for Continuing Resolution by Nov. 18 Funding Deadline
Congress needs to pass a continuing resolution (CR) by next Saturday, Nov. 18 to avoid a partial government shutdown if appropriations bills are not enacted for the fiscal year that began Oct. 1. (CQ and The Hill, Nov. 9)
CR vs Shutdown
New House Speaker Mike Johnson (R-LA) may introduce a funding bill early next week, giving only days for Congress to agree on a CR or risk a partial government shutdown. House Republican leaders have signaled they still may pursue a “laddered” approach—with several spending bills to last until December and the remainder in January. By contrast, The Senate is considering a short-term CR to fund the government until mid-December. (Punchbowl News, Nov. 9)
Another major consideration is a White House $106 billion supplemental request that includes aid for Ukraine and Israel. Republicans have voiced opposition to the package unless President Biden includes policy changes on border security.
Today, Biden commented today that he was "open to discussions about the border" on the tarmac before boarding Air Force One.
The administration has also requested another $56 billion for domestic policies that include childcare, broadband subsidies, and disaster relief. (Roll Call, Nov. 7)
Real Estate Roundtable Chairman Emeritus Bill Rudin, above, (Co-Chairman and CEO, Rudin Management Co.) this week discussed challenges facing CRE on CNBC’s Squawk on the Street, including a massive wave of loans that need to be refinanced over the next few years and the need for property conversions.
Rudin emphasized that each CRE sector, and region, is different, noting that multifamily properties and high-quality commercial buildings may be doing well while certain office assets face significant challenges. The Roundtable’s Q4 Sentiment Index released last week reflects these conditions, which include higher financing costs, increased illiquidity, and uncertain post-pandemic user demand. (Roundtable Weekly, Nov. 3 and GlobeSt, Nov. 7)
Roundtable President and CEO Jeffrey DeBoer said, “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.” (Roundtable news release, Nov. 3)
# # #
Climate Risk Reporting
SEC Commissioner and Key Senators Support Further Analysis of Climate Disclosure Proposal
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)
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
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
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.
# # #
Capital and Credit
Policymakers Address Basel III Endgame’s Capital Requirements Proposal
This week, policymakers addressed proposed regulations to increase capital requirements for the nation's largest banks, known as the “Basel III Endgame,” which could have a significant impact on available credit capacity for commercial real estate transactions, as well as undermine liquidity and economic growth.
The House Financial Services Subcommittee on Financial Institutions and Monetary Policy, chaired by Rep. Andy Barr (R-KY), held a Nov. 7 hearing focused on an array of federal financial regulations, including the Basel III proposal.
Chairman Barr stated that U.S. financial regulators have increasingly ceded portions of their authority to international and domestic intergovernmental organizations, which has decreased transparency in development of U.S. regulatory frameworks and reduced regulators’ accountability. (Barr’s opening remarks, Nov. 7 and Committee memo, Nov. 2)
House Financial Services Committee Chairman Patrick McHenry (R-NC) and Subcommittee Chairman Barr recently requested the Government Accountability Office (GAO) to examine the role U.S. federal banking agencies played in developing the recent international Basel proposal. (McHenry-Barr Letter, Oct 20)
The Senate Banking Committee announced that top U.S. financial regulators will testify on Nov. 14 about their sweeping plan to increase bank capital requirements.
Views from the Regulators
Federal banking regulators announced last month 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. (Roundtable Weekly, Oct. 27)
This week, Fed Governor Michelle Bowman criticized the scope of the Basel proposal in two speeches. On Nov. 7 and today, Governor Bowman stated, “While the capital proposal reflects elements of the agreed upon Basel standards, it is not a mere implementation of the Basel standards. In this proposal, the calibration—with a large increase in capital requirements for U.S. firms—far exceeds the Basel standards mandate. There has been growing support for improving the proposal's quantitative, analytical foundations, including the need for and impact of capital increases of this scale.”
The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) met in New York City yesterday to discuss the Basel proposal, other federal policies impacting capital and credit issues, and market conditions. RECPAC has established a working group on Basel III to develop comments, due by Nov. 30, on the Basel III Endgame proposal.