Roundtable Chair John Fish (Chairman and CEO, Suffolk), right, was honored this week with the Lamplighter Award from the American Friends of Lubavitch (Chabad), along with Senate Majority Leader Chuck Schumer (D-NY) and Kurt Newman, President and CEO of Children’s National Medical Center. (Photo: Mr. Fish with Rabbi Levi Shemtov, left. | Watch Mr. Fish’s powerful comments)  

Lamplighters

• The American Friends of Lubavitch (Chabad) is a part of the largest network of Jewish educational, cultural and humanitarian institutions in the world, with branches in all 50 states and over 100 countries on six continents.

• The annual Lamplighter Awards honor exceptional communal, political, corporate and academic leaders. Several hundred people attended the Oct. 24 event reception and dinner, including 8-12 U.S. Senators; House Democratic Leader Hakeem Jeffries (D-NY) and several House members; 20 Ambassadors from foreign nations; and seven family members of hostages now held in Gaza. 

Roundtable Leaders’ Comments

• Mr. Fish commented, “It pains me to discuss the reality that many of us have discussed here this evening. There is, unfortunately, a rise in anti-Semitism and hate in the world today. A reality that played out tragically several weeks ago.” The Roundtable issued an Oct. 13 statement condemning the violence and urging humanitarian aid.

• Roundtable President and CEO Jeffrey DeBoer, above, gave introductory remarks as the co-chair of the event, stating that each one of the three honorees exemplified a unique combination of leadership and optimism. DeBoer added that Mr. Fish is a selfless person who provides The Roundtable with steady guidance, positive advice, and consistent support in his role as Chairman of the organization.

DeBoer asked the Lamplighter audience “… for a moment of silence to internally pledge that each of us will do our part, every minute, hour and day to reject evil, to help those in need, and to embrace the goodness of ethnic and religious diversity worldwide.” (Read DeBoer’s remarks and watch Mr. Fish’s comments)

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The Biden administration today revealed a suite of federal resources—including low-interest loans—to assist commercial to residential conversions that increase housing supply, revitalize urban downtowns, and cut climate pollution. (White House fact sheet; Bloomberg, Oct. 27).

Holistic Federal Strategy

• Roundtable President and CEO, Jeffrey D. DeBoer said, “The pandemic’s indelible impact on where Americans live and work continues to reverberate through the real estate industry, which is at the center of this societal transition. The Roundtable supports innovative policy that reimagines the adaptive reuse of CRE, rejuvenates affordable housing and urban downtowns, and addresses the climate crisis. The guidance released by the White House today checks all these boxes—and bolsters our agenda to improve the health of our cities, local tax bases, and small businesses.”   

• Among the actions announced today, conversion projects located near mass transit hubs would be eligible for low-interest financing under U.S. Department of Transportation programs. “TIFIA” and “RRIF” loans are pegged to US Treasuries at 5.03 percent interest (today’s rates).

• Transit-oriented projects supported by TIFIA and RRIF financing do not require affordable housing units—although they can be “stacked” with projects supported by low-income housing tax credits and local laws may have independent inclusionary zoning mandates. (FAQs on project eligibility)

• The White House announcement also directs the General Services Administration (GSA) to identify “surplus” federal properties that private developers may help to convert to housing.

• A fact sheet summarizing the administration’s actions indicates that training workshops will be held this fall for real estate owners, developers, and lenders on how to use federal programs included in the White House’s new “Commercial to Residential Conversions” guidebook, which describes how 20 programs across six federal agencies can be used to support adaptive re-use projects.

• The Administration’s guidebook also explains how mortgage insurance and grants from the Department of Housing and Urban Development (HUD) can leverage state, local, and private sector capital as layers in the capital stack to support adaptive reuse.

Adaptive Reuse a “Win-Win”

• Real estate market conditions with high office vacancies “present[ ] an area of opportunity to increase housing supply while revitalizing Main Streets,” said National Economic Council Director Lael Brainerd. “It’s a win-win.” (POLITICOPro, Oct. 27) (WH Council of Economic Advisors blog post)

• White House efforts to assist property conversions lands as national office vacancy stands at nearly 18 percent—with some major metro areas experiencing vacancies higher than one-fifth of their entire inventory—according to a report from  analytics firm Yardi Matrix released on Thursday. (Commercial Observer, Oct. 26)

• Architectural firm Gensler released a report on Monday that estimates 25% of under-performing U.S. office properties are suitable candidates for conversion projects.

The initiative builds on the Biden Administration’s announcement last July to boost the nation’s housing supply. (Roundtable Weekly, July 28).  The Roundtable will continue to serve as a conduit between our members and the Biden Administration to help design impactful policies that can assist with office to residential conversions.

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Roundtable members are among the commercial real estate partners recognized in the U.S. Department of Energy’s (DOE) Better Buildings Initiative 2023 progress report released on Monday. This voluntary public-private partnership with more than 900 participating organizations has collectively saved $18.5 billion through energy efficiency improvements, and cut carbon dioxide emissions by nearly 190 million metric tons, since its launch in 2011. (DOE’s Better Buildings Initiative Report and PoliticoPro, Oct. 23)

DOE’s CRE Partners

• This week’s Progress Report from DOE shows that more than 165 partners from various industry sectors who participate in its separate Better Climate Challenge have committed to reducing greenhouse gas (GHG) emissions (scope 1 and 2) by at least 50% over 10 years without the use of offsets. The report’s outstanding GHG Emissions Reduction Goal Achievers include companies led by RER members.

• The Real Estate Roundtable and several of its partner real estate organizations—including the National Multifamily Housing Council (NMHC), American Hotel & Lodging Association (AHLA), Building Owners & Managers Association International (BOMA), Pension Real Estate Association (PREA), and Urban Land Institute (ULI)—are noted in the report as Industry Organization Partners.

• U.S. Secretary of Energy Jennifer M. Granholm said, “To meet President Biden’s ambitious climate goals, the public and private sector need practical pathways to reduce emissions while cutting costs—and that’s exactly what they get from DOE’s Better Building Initiative.” (DOE news release and the report’s Commercial Real Estate Sector Spotlight)

Tools and Best Practices

• DOE’s partners represent almost every sector of the American economy: nearly 30 of the country’s Fortune 100 companies, nearly 20 of the top 50 U.S. employers, 14% of the U.S. manufacturing energy footprint, and 13% of total commercial building space, as well as more than 90 state and local governments.

• The DOE report also provides case studies for collaborations across sectors to access insights, strategies, and through the agency’s “Decarbonization Resource Hub.”

DOE’s Better Buildings Initiative website provides extensive resources on the agency’s wide-ranging effort to partner with leaders in the public and private sectors to make the nation’s commercial buildings, industrial plants, and homes more energy-efficient by accelerating investment and sharing successful best practices.

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U.S. banking regulators issued two announcements on Oct. 20 related to their sweeping set of proposed rules to increase capital requirements for the nation's largest banks, which could significantly affect liquidity available for commercial real estate transactions, impact asset values, and influence economic growth. The proposal, known as the “Basel III Endgame,” is the last major regulatory response designed to address failures from the global financial crisis of 2007-2008. (Bloomberg and Reuters, Oct. 20 | Roundtable Weekly, July 28)

Stakeholder Comments

• The Federal Reserve, Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) announced 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.

• The Basel proposal will be among the topics discussed at The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) Nov. 8 meeting in New York. RECPAC welcomes membership input as it works on a comment letter on the announcements and proposal. (Contact Roundtable Senior Vice President Chip Rodgers)

• In July, the regulators jointly approved the 1,100-page proposed rulemaking, which would substantially revise the regulatory capital framework for banking organizations with total assets of $100 billion or more

• Real Estate Roundtable President and CEO Jeffrey DeBoer stated in a March 2023 comment letter to Fed Vice Chair Michael Barr and other key regulators, "At this critical time, it is important that the agencies do not engage in pro-cyclical policies such as requiring financial institutions to increase capital and liquidity levels to reflect current mark to market models. These policies would have the unintended consequence of further diminishing liquidity and creating additional downward pressure on asset values.

Congressional Opposition

• Last week, House Financial Services Committee Chairman Patrick McHenry (R-NC), above, and Financial Institutions and Monetary Policy Subcommittee Chairman Andy Barr (R-KY) requested the Government Accountability Office (GAO) to examine the role U.S. federal banking agencies played in developing the recent Basel proposal.  (McHenry-Barr Letter, Oct 20)

• Previously, McHenry and more than two dozen Republicans on the committee urged banking regulators to withdraw their proposal in a Sept. 13 letter sent in conjunction with the committee hearing, “Implementing Basel III: What’s the Fed’s Endgame?”

• The House Republicans’ letter claimed the scope and process of the banking regulators’ plan is flawed, and noted how the proposal was opposed by some members on the Federal Reserve and FDIC Boards. Their letter concluded, “Given those fatal problems with your Basel III Endgame proposal, we urge that it be withdrawn.”

Goldman Sachs’ 10,000 Small Businesses Voices recently announced the launch of a multifaceted national media campaign that will urge the Federal Reserve to abandon the proposed Basel III Endgame regulation. The campaign will feature new survey data showing 87% of small business owners say it is important for their elected officials to weigh in with The Fed about the impact of new bank capital requirements.

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Elevated commercial real estate valuations are increasingly viewed as a near-term risk that could stress the U.S. financial system, according to the Federal Reserve’s October 2023 Financial Stability Report. The central bank’s semiannual report also cited inflationary pressures, interest rate increases, and global economic volatility as vulnerabilities—even though survey data was collected before the recent escalation of geopolitical tensions in the Middle East. (Fed’s Financial Stability Report, Oct. 2023)

CRE Risk Emphasized

• Seventy-two percent of all participants in the Fed’s survey cited the potential for large losses on commercial real estate and residential real estate—along with persistent inflation and monetary tightening­—as major risks.

• The CRE asset valuation problem noted in the Fed Report is influenced by an ongoing lack of price discovery, which creates significant refinancing challenges. GlobeSt reported Oct 24 on the report, noting that “With transactions down and many sellers holding off, waiting for improved pricing while a lot of buyers look for bargains in distress, it’s hard to tell how much properties should be worth.”

WorkPlace Return Pressure

• The Fed report warns, “If the economy were to slow unexpectedly … investor risk appetite and asset prices might decline, and valuations in the office building sector appear particularly vulnerable given the ongoing uncertainty surrounding post-pandemic norms regarding return to work. A correction in office property valuations accompanied by even a mild recession could result in significant losses for a range of financial institutions with sizable exposures, including some regional and community banks and insurance companies.”

• As workplace return concerns linger, The Wall Street Journal reported on Oct. 21 about how cities are developing proposals to recast office districts into neighborhoods where people live, work and raise families. (WSJ, “America’s Downtowns Are Empty. Fixing Them Will Be Expensive”)

Additional risks that continued to feature prominently in the Fed survey were associated with the reemergence of banking-sector stress, market liquidity strains, and volatility.

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