The Real Estate Roundtable this week held a virtual “town hall” to discuss the election and its impact on national policy issues. Participating in the discussion were Sen. Michael Bennet (D-CO), Roundtable Chair Debra Cafaro (Chairman and CEO, Ventas, Inc.), Chair-Elect John Fish (Chairman and CEO, Suffolk), Roundtable President and CEO Jeffrey DeBoer and policy staff. The Nov. 9 discussion addressed a wide range of policy issues with nearly 200 Roundtable members in attendance. (Watch the discussion on The Roundtable’s YouTube Channel)

• Cafaro said, “Our priorities are the COVID relief package that will come out of Congress, whether in the lame-duck session or later – a renters’ fund … (support) for state and local government relief … for the Paycheck Protection Program … funding for continued vaccine and testing and distribution … and liability protection of some type.”
  
  
• Fish stated, “What is important for this COVID bill … if we don’t support the cities and towns and states, getting them back on their feet, the issues of lay-offs, restoring services and the impact on education … it is going to continue to spiral. If that happens, that is really detrimental.” He added those measures should be “coupled with PPP support because we need to put people back to work. They need payroll protection, the need jobs and that sense of security.” (Nov. 9 Roundtable Town Hall video)
  
  
• Roundtable policy staff reviewed the lame-duck legislative outlook; tax and energy policy; and initiatives to create a Federal “business continuity” insurance program to mitigate future pandemic risk.
  
  
• DeBoer also participated in a Nov. 12 NYU Shack Institute of Real Estate remote discussion on “Real Estate’s Priorities: Engaging with the New Administration” with Dr. Sam Chandan, PhD, Silverstein Chair of the Institute. (See Shack’s entire agenda)
  
  
• “The narrow majorities in the House and Senate next Congress will place a premium on bipartisanship, and create hurdles for extreme legislation.  We expect a very active Congress. Large legislative agreements will be possible, but odds favor more targeted, constructive legislative initiatives. We look forward to offering our positive perspective on stabilizing the economy and moving forward,” DeBoer said. (Video with Sam Chandan)

Lame-Duck Agenda

President-elect Joe Biden and Democratic leaders met this week about prospects for a bipartisan pandemic relief package during the post-election Congress, despite deadlocked negotiations over the cost and policy details of COVID-19 aid – and unlikely chances for compromise ahead of Georgia’s Senate elections on Jan. 5.

Both chambers of Congress return for their “lame-duck” session with a limited amount of working days before the new 117^th Congress begins in January. The current Congress will need to pass a funding bill to keep the government open past Dec. 11 or face a shutdown – and negotiate a coronavirus stimulus package before several safety net programs expire in late December. It is possible the two measures could be combined in an “omnibus” bill. (BGov and Calculated Risk, Nov. 12)

• Senate Majority Leader Mitch McConnell (R-KY) said this week that Congress should pass a limited stimulus bill before the end of the year, reiterating Senate Republicans’ opposition to a larger-scale package Democrats favor, signaling the current stalemate could extend into next year. (The Hill, Nov. 12 and Roundtable Weekly, Nov. 6)

• Biden’s meeting with House Speaker Nancy Pelosi (D-CA) and Senate Minority Leader Charles Schumer (D-NY) yesterday addressed several outstanding issues facing Congress and the new administration.

• According to a joint readout from Biden's transition team and the congressional Democrats, "They discussed the urgent need for the Congress to come together in the lame duck session on a bipartisan basis to pass a bill that provides resources to fight the COVID-19 pandemic, relief for working families and small businesses, support for state and local governments trying to keep frontline workers on the payroll, expanded unemployment insurance, and affordable health care for millions of families." (The Hill, Nov. 12)

• Policymakers are reconvening amidst troubling signs affecting the economy, including a significant rise in COVID-19 cases, hospitalizations and deaths throughout the country as state and local governments consider reinstating lockdowns and school shutdowns. (Axios, Nov. 13)

• Additionally, The Washington Post reported this week that regulators are increasingly concerned about US banks’ loan exposure to commercial real estate. The Nov. 11 article reports that if banks are forced to absorb losses on their $2 trillion in commercial real estate loans, the entire economy will suffer, according to Federal Reserve officials, economists and credit analysts.

• “The Federal Deposit Insurance Corp. (FDIC) regards 356 banks as ‘concentrated’ in commercial real estate, based upon criteria such as the ratio of their CRE loans to their capital base and the pace of loan growth over the past three years,” according to the article.
  

Eric Rosengren, the president of the Federal Reserve Bank of Boston, said in a September speech, “I am especially worried about a second shoe dropping that will particularly affect small and medium-sized banks, which provide a large share of commercial real estate loans and small-business loans. A curtailment of credit resulting from such problems has caused serious head winds to recoveries in the past and may be a serious problem going forward.” (Washington Post, Nov. 11)

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A coalition of national real estate organizations, including The Real Estate Roundtable, this week urged federal banking agencies to provide additional guidance that would reaffirm financial institutions may use reasonable judgment when assessing credit risk during the unique circumstances of the pandemic – such as allowing borrowers and lenders additional time to see properties and loans through the pandemic.

• The guidance would preserve financial institutions’ ability to continue work with borrowers and grant additional incremental accommodations that would total more than six months after December 31, without being classified as a troubled debt restructuring (TDR). (Coalition letter and MBA Newslink, Nov. 10)
  

• Early in the crisis, the Federal Reserve joined the Office of the Comptroller of the Currency (OCC) and other banking regulators in a March 22 Interagency Statement that encouraged banks to avoid automatically categorizing COVID-19 related loan modifications up to 6 months as a TDR. (Roundtable Weekly, March 27)

• The March joint statement also encouraged borrowers experiencing cash flow problems due to the pandemic to reach out to any FDIC-insured lenders about modifying their loans, without adverse consequences to the bank or the borrower that traditionally come with the TDR label.  

• The statement included, “Short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs.  This includes short-term — for example, six months — modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.”

• On March 24, The Roundtable called on all owners and operators of business and residential rental real estate to voluntarily, proactively work in a positive and constructive manner with their COVID-19 impacted tenants respecting current rent obligations. (Roundtable news release, March 24)

Confluence of Events

• A revised interagency statement released April 7 clarified the interaction between the March 22, 2020, interagency statement and section 4013 of the CARES Act, Temporary Relief from Troubled Debt Restructurings (section 4013). 

• Many of the modifications granted under the revised Interagency Statement and section 4013 of the CARES Act are reaching the end of their six-month terms – at that same time that CARES Act protections are set to expire on December 31, 2020.
  

• This confluence of these events creates significant, urgent challenges for any financial institution seeking to extend existing modifications of Covid-19 related loans past their six-month term.

• The Nov. 10 coalition letter states, “…we urge the Agencies to provide guidance that a loan modification with a term greater than six months (e.g., up to 18 months combined) will not automatically result in a TDR under the Interagency Statements.”

• “Because this issue is urgent, we request that the Agencies issue such a clarification and reaffirmation as soon as possible,” the letter concludes.

• OCC Acting Comptroller Brian Brooks on Nov. 10 testified before a Senate Banking, Housing and Urban Affairs Committee Hearing on Financial Regulator Oversight. 

• Brooks stated, “While banks remain sound, we see potential for troubled assets ahead in commercial and residential real estate, in small business and consumer lending, and in the travel and hospitality sectors in particular. Banks, particularly those with concentrations in those assets, must take a sober view of their risks and work with customers to the maximum extent possible consistent with safety and soundness.”
  

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) continues its work with Washington policymakers to constructively support The Roundtable’s efforts to address the economic consequences of the COVID-19 crisis.

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The growing number of state and local mandates to reduce GHG emissions and increase renewable energy supplies are driving the need for uniform and voluntary federal-level practices to measure and price carbon, The Roundtable advised in comments submitted on Tuesday.

• Commercial real estate stakeholders are paying increased attention to their “energy supply chain” and need to know “where the electricity they purchase derives from,” The Roundtable wrote in a Nov. 10 letter to the Federal Energy Regulatory Commission (FERC).
  

• This is because dozens of state and city laws are setting energy measurement, reduction, and emissions targets on buildings, and imposing renewable energy “portfolio standards” that require greater power supplies from solar, wind, and other carbon-free sources.
  

• These state and local mandates have “effectively forced the issue – throughout the United States – that carbon emissions are an economic liability, and carbon reductions are an economic asset,” the letter explains.  Environmental demands from investors, tenants, employee talent, and other audiences also impel real estate owners to voluntarily purchase “clean” power and “offset” carbon emissions.
  

• While FERC itself lacks authority from Congress to set a price on carbon, within the Commission’s sphere of regulating bulk electricity sales in “wholesale markets” it can play a “vital role to help facilitate a harmonious nationwide system of standards relating to carbon measurement and pricing,” the comment letter provides.
  

SPAC Involvement

• The Roundtable’s Sustainability Policy Advisory Committee (SPAC) – chaired by Tony Malkin (Chairman, President and CEO, Empire State Realty Trust), above left,  and vice-chaired by Dan Egan (Senior Vice President, Vornado Realty Trust), right, – directed the course of the comments, which also provides:
  

• FERC should encourage jurisdictions to rely on federal data provided by power plants and managed by the Environmental Protection Agency (EPA) – known as “eGRID” – as the unifying information source to measure how combustion of various fuels used across the country contribute to GHG emissions;

• Federal measurement standards can support “the types of long-term price signals that our energy future demands,” and minimize a confusing a “hodgepodge” in emerging state and regional markets that already treat carbon as a commodity (such as through the purchase of renewable energy certificates (RECs));

• Any government revenue raised by state-level carbon pricing regimes should be returned to commercial, residential, and other consumers to help defray their energy costs. Sums from any such “carbon dividend” should also be channeled to create jobs by modernizing energy infrastructure and electrifying the grid.

“The SPAC has been hard at work for years on real estate related topics around energy production, distribution, consumption, and pricing that now are front and center,” Malkin said.  “Our members can be comfortable that they have excellent representation and access to information, that RER is on its front foot here, and that representation on SPAC by our members is critical to their ability to get the best information and have the opportunity to help inform The Roundtable’s actions."

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