Federal Regulators Signal Significant Changes for Proposed Bank Capital Hikes

The Federal Reserve in Washington, DC

Proposed regulations that would dramatically hike capital requirements for the nation’s largest banks may undergo significant changes, which could include a 50 percent reduction in the current mandated increase, according to sources cited by The Wall Street Journal on May 19.

Proposed Capital Requirements

  • Top officials from the Fed are working with regulators from the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) on “negotiating substantive and technical revisions” to the current proposal, known as the “Basel III Endgame.” (WSJ, May 19)
  • The Real Estate Roundtable strongly opposes the current proposal, which would hike capital requirements by approximately 19 percent for banks with at least $100 billion in assets. (Roundtable Weekly, March 29)
  • Barclay estimates the proposal, if approved without changes, would require eight U.S. global systemically important banks to hold approximately $150 billion more in capital. (WSJ, May 23)

Roundtable Response

Real Estate Roundtable President and CEO Jeffrey DeBoer testifies before House Oversight Subcommittee on April 30, 2024
  • Roundtable President and CEO Jeffrey DeBoer testified this month before a House subcommittee on the health of CRE markets and offered Roundtable policy recommendations, which included rejection of the Basel III Endgame—along with other pro-cyclical regulatory measures that would restrict credit and capital formation. (Roundtable Weekly, May 3 | DeBoer’s oral statement and written testimony)
  • Additionally, a Jan. 12 Roundtable letter and Jan. 16 industry coalition letter urged federal banking regulators to withdraw the proposed rule, emphasizing its potential negative impact on available credit capacity for commercial real estate transactions, market liquidity, and economic growth. (Roundtable Weekly, Jan. 19)

Policymakers Signal Adjustments

Federal Reserve Vice Chair for Supervision Michael Barr
  • The proposal has been met by internal disagreement and concerns among the seven-member Fed Board. (Roundtable Weekly, March 29)
  • Michael Barr, the Fed’s Vice Chair for Supervision, said in a May 20 speech that the central bank is exploring “targeted adjustments” to bank liquidity rules, including Basel III.  In March, Fed Chairman Jerome Powell testified before congressional committees that he expects regulators to “make broad and material changes” to the Basel III proposal. (PoliticoPro, May 20 and Roundtable Weekly, March 8)

The Roundtable’s all-member Annual Meeting on June 20-21 in Washington, DC will address Basel III Endgame and other capital and credit issues impacting CRE.

#  #  #

Roundtable and More Than 100 Business Organizations Support Legislation to Repeal the Corporate Transparency Act

U.S. Capitol - viewing upward from left

The Real Estate Roundtable and more than 100 business organizations recently expressed strong support for bicameral legislation that would repeal the Corporate Transparency Act (CTA) and its onerous beneficial ownership burdens, which took effect on Jan. 1. The Roundtable has consistently opposed the CTA’s beneficial ownership rules. (Coalition letter, April 29)

CTA Overreach

  • The Repealing Big Brother Overreach Act, introduced on April 30 by Sen. Tommy Tuberville (R-AL) and Rep. Warren Davidson (R-OH), would provide relief for small business owners from the CTA’s burdensome reporting requirements and excessive penalties. (Rep. Davidson news release, April 30)
  • The coalition’s letter noted how the CTA was designed to help law enforcement prevent money laundering by requiring shell companies to report “beneficial owners information” (BOI) to the Department of the Treasury.
  • The law defines a shell company as any legal entity with 20 or fewer employees or $5 million or less in revenues—nearly every small business in the United States.
  • The broad concept of beneficial owner includes owners, senior management, members of the board, and any employee or outside consultant exerting significant control over the businesses’ operations.


  • Under the CTA, covered entities must report and regularly update BOI to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) or face significant fines and jail time.
  • Last month, the District Court for the Northern District of Alabama ruled the CTA as unconstitutional. However, the resulting injunction applies only to the plaintiffs in the case—members of the National Small Business Association. (Roundtable Weekly, March 8)
  • A subsequent notice from FinCEN made clear that all other covered entities are still required to file their BOI reports by the end of the year. (FinCEN’s current requirements)
  • Initial filings under the CTA began more than two months ago in accordance with the new law, yet fewer than two percent of covered entities have submitted their required information to FinCEN. One reason for this low compliance rate is that most business owners are ignorant of the new law
  • The Roundtable also joined more than 120 other national business organizations in a March 22 letter that urged Senate Banking Committee leaders to support a one-year filing delay for the new CTA beneficial ownership regulation requirements. (Coalition letter, March 19)

The Roundtable’s Real Estate Capital Advisory Committee (RECPAC) will continue to monitor developments related to beneficial ownership requirements and legal outcomes.

#  #  #

Roundtable Testifies on Health of CRE Markets and Recommended Policies

House Oversight Committe hearing included testimony from Roundtable President and CEO Jeffrey DeBoer
Click to watch a compilation of select testimony by Roundtable President and CEO Jeffrey DeBoer

Roundtable President and CEO Jeffrey DeBoer testified this week before a House subcommittee on the “Health of the Commercial Real Estate Markets and Removing Regulatory Hurdles to Ensure Continued Strength.” (Videos of DeBoer’s testimony | Entire hearing | Select clips from the subcommittee’s wrap-up)

CRE Issues

  • The April 30 hearing before the House Oversight and Accountability Subcommittee on Health Care and Financial Services included The Roundtable’s views on market liquidity, the state of the office sector, remote work, affordable housing, and property conversions. (DeBoer’s oral statement and written testimony)
  • DeBoer emphasized that all stakeholders in the regulatory and private sectors should work together to ensure real estate continues to be a leading driver of the economy—and a primary way cities grow, business needs are met, and housing challenges are solved. (Transcript of entire hearing)
  • DeBoer also clarified, “The commercial real estate industry is not seeking a bailout of any sort.” (MarketWatch, April 30)
  • Subcommittee members heard testimony on how liquidity in CRE markets, particularly office, is an overriding industry concern. As nearly half the value of the $4.7 trillion property debt market is scheduled to mature by 2027, base interest rates have risen nearly 500 basis points in 24 months while lenders are considering reductions in their CRE portfolios. (RER’s written testimony and Mortgage Bankers Association testimony)
Real Estate Roundtable President and CEO Jeffrey DeBoer testifies before House Oversight Subcommittee on April 30, 2024
  • DeBoer urged policymakers and regulators to acknowledge that not all CRE is the same. “In the office market, there are notable differences. Some individual owners are facing considerable pressure, potentially leading to increases in mortgage defaults, foreclosures and large losses of equity. Many top-tier modern office buildings with strong ownership and workspace amenities are currently weathering the storm. There needs to be a better distinction and not a monolithic treatment of commercial real estate.”

Policy Solutions

  • The Roundtable’s policy recommendations submitted to the subcommittee address a wide swath of concerns for owners, lenders, and local communities, including:
  • Ensure federal employees return to the workplace. DeBoer testified, “The federal government should lead by example by highlighting the value of in-office work” as it is critical for the health of cities, local economies, tax bases, and small businesses. (GlobeSt, May 2)

    He also commended efforts by House Oversight Committee Chairman James Comer (R-KY) to bring federal workers back as the lead sponsor of the Stopping Home Office Work’s Unproductive Problems (SHOW UP) Act (H.R. 139). “This bill passed the House over a year ago and should be enacted into law,” Deboer said. (Roundtable Weekly, Oct. 20 and Feb. 3, 2023)
House Oversight Subcommittee wide shot
  • Encourage banks and loan servicers to extend maturing loans and restructure maturing loans with new equity—effectively making “cash-in refinances”—by converting non-performing and criticized loans to new performing loans.
  • Encourage foreign capital investment in U.S. real estate by amending or repealing the outdated Foreign Investment in Real Property Tax Act (FIRPTA).
  • Reject pro-cyclical measures such as the Basel III Endgame and other regulatory measures that will restrict credit and capital formation.
  • Stimulate the production of affordable housing. The Roundtable and a broad real estate coalition submitted a set of specific policy recommendations this week to Congress detailing a host of pending legislative and regulatory actions that would help provide housing to more Americans.

  • DeBoer informed the subcommittee that these solutions include converting obsolete buildings into housing, increasing the Low Income Housing Tax Credit volume caps, incentivizing local zoning and permitting reforms, increasing efficiency in the Section 8 housing voucher program, and more. (see Affordable Housing story below)
Left to right: Real Estate Roundtable President and CEO Jeffrey DeBoer with House Oversight Subcommittee Ranking Member Katie Porter (D-CA) and Subcommittee Chairwoman Lisa McClain (R-MI)
House Oversight Subcommittee Chairwoman Lisa McClain (R-MI), right, and Ranking Member Katie Porter (D-CA), center, with Jeffrey DeBoer
  • He added, “Rent control and eviction moratoriums are on first blush appealing concepts, but they’ve proven time and again, that they’re counterproductive to addressing the housing shortfall.”
  • Congress should also enact a time-limited tax incentive to convert older, underutilized commercial buildings to housing that would help revitalize America’s cities, accelerate the economic recovery of office buildings, and create new supplies of housing in close proximity to jobs.

Property Conversions

  • Separately, The Roundtable provided a list of specific agency actions to accelerate property conversion projects in a recent letter to Jared Bernstein, Chair of the White House Council of Economic Advisers. (Roundtable Weekly, April 19)
Doug Turner, Sr. Fellow, Housing,
Center for American Progress
  • Turner stated in his written testimony and oral comments, “I want to compliment The Real Estate Roundtable for a second. They sent a letter to the Council of Economic Advisers in April and offered some very specific suggestions on how to improve the conversion process. Many of these are sensible. And they could help direct what is an evolving policy. We haven’t seen an attempt to convert this much real estate in a short period of time.” (Video clip of Turner’s full comment, or click on photo above)

The Roundtable’s all-member Annual Meeting on June 20-21 in Washington, DC will include speakers and policy advisor committee meetings focused on many of the topics discussed during this week’s House hearing. 

#  #  #

Fed Report Cites Office Loans as Potential Economic Vulnerability

The Federal Reserve Board’s semiannual Financial Stability Report, April 2024

Potential losses from certain office real estate loans are an economic vulnerability within the U.S. financial system—yet considered less of a threat than last year, according to the Federal Reserve Board’s semiannual Financial Stability Report. The Fed report noted that if inflation persists and higher interest rates linger during the ongoing, post-pandemic adjustment to remote work, a wave of maturing loans could pose CRE refinancing risks for regional U.S. banks. (Fed report | Bloomberg and Reuters, April 19)

Office Sector Risk

  • The financial stability report focused on four areas of risk, including asset valuations. CRE stress was the third most cited risk, moving down from second in last October’s survey. (KPMG, April 22, 2024 and Roundtable Weekly, Oct. 27, 2023)
  • This month’s Fed report also acknowledged unique strains on CRE, especially in the office sector, “where vulnerabilities have mounted in the post-pandemic period.”
  • The report added that continued economic pressures could reduce investor risk appetite and lead to a “more pronounced correction in commercial property prices.” This, in turn, could “reduce the willingness of financial intermediaries to supply credit to the economy” and further weigh on overall economic activity.
  • Despite ongoing concerns about CRE, the Fed survey also found that the issuance of non-agency securities started to recover in the first three months of 2024.
  • A separate report from DoubleLine shows signs of improvement for the commercial mortgage-backed securities market and other capital markets and notes that borrowers in some sectors, including office, are finding access to credit. (Bloomberg, April 24)

The Roundtable’s all-member June 20-21 Annual Meeting will include a Joint Research Committee and Real Estate Capital Policy Advisory Committee Meeting to drill down into specific CRE capital and credit market trends and issues.

#  #  #

Fed Cautions About Office Sector as Vacancies Climb and Loan Modifications Surge

La Salle Street, Chicago, Illinois, USA

Recent reports show U.S. office vacancies climbed to nearly 20% during Q1 2024 after loan modifications more than doubled last year compared to 2023. Meanwhile, Federal Reserve Board Vice Chair for Supervision Michael Barr cautioned this week that federal regulators are “looking carefully at banks with heavy concentrations in office commercial real estate where there are significant, expected price declines.” (Moody’s Analytics, April 2 | CRED iQ, March 28 | (C-SPAN video, April 3)

Office Sector

  • Preliminary data from Moody’s Analytics reinforces the long-term, negative ramifications of hybrid work models. The Q1 2024 office vacancy rate set a new record at 19.8%, up from 19.6% in the prior quarter, and beating two historic peaks of 19.3% in 1986 and 1991. (Bloomberg, April 2 | Quartz, April 3 | CRE Daily, April 4)
  • “The office stress isn’t quite done yet,” said Thomas LaSalvia, Moody’s head of commercial real estate economics and an author of the report. He added, “This is part of a longer-term evolution where we are seeing obsolete buildings in obsolete neighborhoods.” (Bloomberg, April 2)
  • Brookfield’s Feb. 14 report, “The Misunderstood U.S. Office Market,” emphasizes that high vacancy rates are due to an excess of dated, functionally obsolete office buildings and an undersupply of offices that satisfy tenants’ changing needs.
  • A Roundtable-led coalition of 16 national real estate organizations urged the expansion of a 20 percent tax credit for qualified property conversion expenditures in an Oct. 12, 2022 letter to policymakers. The recommended enhancements included expanding the category of properties eligible for the credit to various types of commercial buildings such as shopping centers and hotels. (Roundtable Weekly, Nov. 11, 2022)

Fed Oversight & CRE Sectors

Federal Reserve Board Vice Chair for Supervision Michael Barr
  • The Fed’s top market supervisor told the National Community Reinvestment Coalition on April 3 that CRE refinancing deals will “take some time to work through” as the Fed closely monitors office sector conditions. (C-Span | BGov, April 3 | Roundtable Weekly, March 8)
  • Barr said, “This is the kind of thing where it is likely a slow-moving train as the financial sector and commercial real estate market move forward. Over the next two to three years, we are going to see how properties deal with refinancing in a higher interest rate environment. Occupancy rates have lowered because of work-from-home, so for some categories of office CRE they are more exposed to risk.”
Kathleen McCarthy
  • Kathleen McCarthy, global co-head of Blackstone Real Estate and chair-elect of The Real Estate Roundtable, commented to CNBC’sClosing Bell Overtime” on April 3 that the office sector is different from other CRE investment areas that have performed well. “We do feel like there’s a bottoming happening. There’s no V-shaped recovery … but we do see the cost of capital coming down, we’re seeing more liquidity in markets, and perhaps more importantly for the long term, we’re seeing a sharp decline in new supply,” she said.
  • Barron’s recognized McCarthy this week as one of the 100 Most Influential Woman in Finance. She commented on her upcoming role as Roundtable Chair: “To bring together my interest in policy and have a position to help our whole industry in Washington is really exciting.” (Barron’s, April 4)

Commercial and multifamily market conditions will be discussed during RER’s April 15-16 Spring Meeting in Washington DC (Roundtable-level members only) with guests including White House Council of Economic Advisers Chairman Jared Bernstein,  House Democratic Leader Hakeem Jeffries (D-NY), and House Financial Services Member French Hill (R-AK). 

#  #  #

Fed Signals Significant Changes Ahead for Basel III Endgame Proposal

Federal Reserve Board Vice Chair for Supervision Michael Barr said in a recent speech that he is working with other regulators on “broad and material changes” to a sweeping banking proposal known as the “Basel III Endgame.” The proposal, opposed by The Roundtable, would hike capital requirements for banks with at least $100 billion in assets by approximately 19 percent. (Bloomberg, March 22, 2024 and Congressional Research Service, Nov. 30, 2023)

Fed Statements

  • Barr said during his March 22 University of Michigan remarks, “I am working very closely with (Fed) Chair (Jerome) Powell and other members of our Federal Reserve board to try to reach a broad consensus” on revisions to the proposal.
  • The Fed, Office of the Comptroller of the Currency (OCC), and Federal Deposit Insurance Corporation (FDIC) approved the 1,100-page proposed rulemaking last July by an unusually close 4-2 vote.  See Interagency Overview of the Notice of Proposed Rulemaking for Amendments to the Regulatory Capital Rule, July 27. (Roundtable Weekly, July 28, 2023)
  • Powell voted for the original rulemaking proposal but noted a significant tone of caution. Statements by Fed Governors Michelle W. Bowman and Christopher J. Waller bolstered their opposition to the proposal.

Basel III and CRE

The Federal Reserve Building in Washington DC
  • The Real Estate Roundtable urged federal regulators to withdraw the proposed rulemaking in a Jan. 12 letter that raised industry concerns about its negative impact. The comments outlined how the proposal would decrease real estate credit availability, increase commercial and multifamily properties’ borrowing costs, and negatively impact the U.S. economy.
  • Real Estate Roundtable President and CEO Jeffrey DeBoer also stated in a March 2023 comment letter to 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.”
  • The Mortgage Bankers Association (MBA) reported last month that 20 percent ($929 billion) of the $4.7 trillion of outstanding commercial mortgages held by lenders and investors will mature in 2024. That represents a 28 percent increase from the $729 billion that matured in 2023, according to MBA’s Commercial Real Estate Survey of Loan Maturity Volumes.

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will respond to any further changes to the Basel III proposal or other federal policies impacting capital and credit issues.

#   #   #

Business Coalition Urges Congress to Delay Implementation of Beneficial Ownership Rules

The Real Estate Roundtable joined more than 120 other national business organizations in a letter this week that urged Senate Banking Committee leaders to support a one-year filing delay for new beneficial ownership regulation requirements, which took effect Jan. 1 under the Corporate Transparency Act (CTA). (Coalition letter, March 19)

CTA Delay Bills

  • The CTA impacts more than 32 million existing entities and an additional 5 million newly created entities every year. These companies and other legal entities face increased paperwork, privacy risks, and potentially devastating fines and prison terms. (New York Times, March 4)
  • Companion legislation in the House (H.R. 5119), introduced by Reps. Zach Nunn (R-IA) and Joyce Beatty (D-OH), passed by a vote of 420-1 on December 12, 2023.
  • Initial filings under the CTA began more than two months ago in accordance with the new law, yet fewer than 2 percent of covered entities have submitted their required information to FinCEN. One reason for this low compliance rate is that most business owners are ignorant of the new law. A one-year delay would provide the business community and FinCEN additional time to educate millions of small business owners about the new reporting requirements and its onerous penalties.

Legal Challenge

The U.S. District Court for the Northern District of Alabama
  • This week’s coalition letter also explains that a one-year delay would accommodate the time it will take for a March 1 District court decision, which ruled the CTA regulations as unconstitutional, to work its way through Appellate and Supreme Courts. (Roundtable Weekly, March 8)
  • The ruling earlier this month from the District Court for the Northern District of Alabama was narrow, applying only to National Small Business Association (NSBA) member plaintiffs named in the case. As a result, non-NSBA firms should continue to comply with the CTA pending further developments. (FinCEN’s current requirements
  • The March 19 letter to the Senate Banking Committee states, “It is obvious more time is needed. Congress did not enact the CTA in order to turn millions of law-abiding small business owners into felons.”
  • The Roundtable has consistently opposed the beneficial ownership rules. We continue to work with policymakers to identify a balanced position that would inhibit illicit money laundering activity but does not place unnecessary costs and legal burdens on the real estate industry. (Coalition letter, Nov. 2023)

The Roundtable’s Real Estate Capital Advisory Committee (RECPAC) will continue to monitor legislative and legal developments as they impact beneficial ownership requirements.

#  #  #

Treasury Collection of Beneficial Ownership Information is Ruled Unconstitutional by Federal District Court Judge

The U.S. District Court for the Northern District of Alabama

Beneficial ownership regulations that took effect Jan. 1 under the Corporate Transparency Act (CTA) were ruled unconstitutional on March 1 by a federal District Court judge, who sided with claims by the National Small Business Association against the U.S. Treasury Department. The Roundtable has strongly supported NSBA’s legal challenge. (NSBA v. Janet Yellen ruling and NSBA’s website on the CTA | Industry coalition support of NSBA law suit, Dec. 7, 2022)

Impact of Ruling

  • Alabama Judge Liles Burke’s ruling applies only to the NSBA and its members, although the court’s decision likely paves the way for further challenges to the CTA.
  • FinCEN issued a statement on March 4 that it will “comply with the court’s order for as long as it remains in effect” and will not enforce the CTA against the named plaintiffs in the case. What goes unsaid is that FinCEN intends to continue enforcement of the CTA against non-parties while the case works its way through the federal court system. As a result, firms should continue to comply with the CTA absent further developments. (See FinCEN’s current requirements
  • NSBA President and CEO Todd McCracken on March 5 stated, “FinCEN should immediately reverse course and suspend enforcement of the CTA for all until these issues are finally resolved.” Appeals of the NASB ruling could take months or years. (BGov, March 5) 

CTA’s Onerous Requirements

Treasury Department's FinCEN logo
  • The CTA amended the Bank Secrecy Act to require corporations, limited liability companies, and similar entities to report certain information about “beneficial owners” who own at least 25% of an entity or indirectly exercise “substantial control” over it. (Roundtable Weekly, Sept. 15, 2023)
  • The CTA authorized the Treasury’s Financial Crimes Enforcement Network (FinCEN) to collect and disclose beneficial ownership information to authorized government authorities and financial institutions. The statute also mandated the submission of regular reports by the end of 2024 that includea litany of sensitive personal identifiers of the owners, senior employees, and/or advisors of covered entities. (FinCEN’s current requirements)   
  • The law directly impacts more than 32 million existing entities and an additional 5 million newly created entities every year. These companies and other legal entities face increased paperwork, privacy risks, and potentially devastating fines and prison terms. (New York Times, March 4)
  • The CTA rules subject many real estate businesses to a heavier compliance burden at a time when the industry faces economic challenges from decreasing office usage and diminishing credit capacity. 

Roundtable Opposition

  • The Roundtable has consistently opposed the beneficial ownership rules. In Nov. 2023, The Roundtable and a broad coalition of approximately 70 business groups urged Congress to pass a one-year delay in implementing the burdensome reporting requirements. (Coalition letter and PoliticoPro, Nov. 16)
  • In Feb. 2022, The Roundtable joined nine other national real estate industry organizations in detailed comments to FinCEN about the negative impact of the proposed beneficial ownership regulations on real estate transactions.  

The Roundtable’s Real Estate Capital Advisory Committee (RECPAC) will continue to monitor developments related to beneficial ownership requirements and legal outcomes.

#  #  #

Fed Chairman Testifies on Regional Bank Loan Concentrations in CRE, Basel III Proposal Changes

Fed Chair Jerome Powell addressed CRE concerns in an exchange with Sen. Catherine Cortez Masto (D-NV)

Federal Reserve Chair Jerome Powell testified before congressional committees this week about the risks posed by commercial real estate loans to regional banks—and that he expects “broad and material changes” to a regulatory proposal to hike bank capital requirements known as “Basel III.” (The Hill, March 7 and Reuters, March 6)

CRE Concerns & Banking

  • The Senate and House hearings focused on the Fed’s March 1 Monetary Policy Report to Congress. The publication stated, “Credit quality at banks remained strong, although the quality of CRE loans backed by office, retail, and multifamily buildings continued its decline, a result of the lower demand for downtown real estate prompted by the shift toward telework.” The report also noted, “Low levels of transactions in the office sector likely indicated that prices had not yet fully reflected the sector’s weaker fundamentals.”
  • During a March 7 Senate Banking Committee hearing, Fed Chair Powell responded to questions from Sen. Catherine Cortez Masto (D-NV) that he expects some smaller banks with high commercial real estate office concentrations will fail, but that risks posed by these loans are “manageable.” (Watch a video clip of the exchange, above)
  • Similar concerns were raised by policymakers with Powell during a March 6 House Financial Services Committee hearing. The Fed chair addressed why he expects manageable bank losses and added, “We’ve had a secular change in the economy, which has left office demand significantly lower, at least temporarily, and perhaps for a long time. The same is true in some downtown retail (properties) associated with office workers. So it’s a shock to the system.”

Basel III Changes

Senate Banking Committee
  • The committees also heard Powell state that the “Basel III” regulatory proposal, which would significantly increase capital requirements for banks with at least $100 billion in assets, is likely to be overhauled after an enormous private sector response. He commented to the Senate panel, “We do hear the concerns and I do expect that there will be broad and material changes to the proposal.” He told House lawmakers that a rewrite of the proposal is a “very plausible option.” (Fortune and GlobeSt, March 7 | Bloomberg and PolitcoPro, March 6)
  • The Real Estate Roundtable raised industry concerns about the negative impact of the Basel III proposal in a Jan. 12 letter to the Fed and other agencies. The comments outlined how the proposal would decrease real estate credit availability, increase borrowing costs for commercial and multifamily real estate properties, and negatively impact the U.S. economy—and urged federal regulators to withdraw their proposed rulemaking.
  • The New York Times DealBook reported this week that Basel III could crimp lending as some banks struggle with office portfolios and a looming “maturity wall” of $1.5 trillion in CRE loans come due over the next two years. (New York Times, Feb. 7)

Industry Views

  • On March 6, Roundtable Board Member Scott Rechler (Chairman and Chief Executive Officer, RXR) told CNBC’s Squawkbox that high interest rates, price discovery, and the amount of maturing CRE loans have resulted in a “slow-moving train wreck” for regional banks.
  • Rechler, a member of the New York Fed’s Board of Directors, said, “There’s a balance. The longer rates stay higher, there’s more distress. For the industry, there’s enough imbalance right now that some level of rates moderating will help ease this transition.  Capital structures are upside down. They’re going to need to be re-equitized, there’s going to be write-offs. So if you can bring down (interest rates), it can create some transaction activity.” (Squawkbox, March 6)
  • Squawkbox also featured Roundtable Member Marty Burger (Infinity Global Real Estate Partners CEO and former Silverstein Properties CEO) on Feb. 28 to discuss office-to-residential conversion opportunities in the current CRE environment. (CNBC, Feb. 28)

Today, RER’s Immediate Past Chair Debra Cafaro (Chairman and Chief Executive Officer, Ventas, Inc.) discussed the CRE market with a focus on the senior housing sector on Bloomberg Markets. “For the commercial real estate sector writ large, those tightening financial conditions are having an impact, particularly in sectors like office, where you have the demand fall off. There will be an impact on the smaller lenders. It is something the system will have to absorb over time with $1 trillion of real estate loans coming due in 2024. It is having an effect. The best elixir for that might be lower rates,” Cafaro said.

#  #  #

Treasury Testifies on New Rules for Investment Advisors to Combat Illicit Finance

Treasury Department's FinCEN logo

The director of the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) appeared before the House Financial Services Committee this week to address recent regulatory proposals for investment advisors to combat illicit finance activity and money laundering in U.S. residential real estate. Director Andrea Gacki testified, “We are also considering next steps with regard to addressing the illicit finance risks associated with the U.S. commercial real estate sector.” (Committee hearing and Gacki’s statement, Feb. 14)

FinCEN’s Business Regulatory Proposals

  • The hearing on Wednesday followed a new FinCEN proposal that would require investment advisors to report suspected money laundering to the U.S. government. (Wall Street Journal, Feb. 13)
  • A fact sheet on the proposal explains that although FinCEN is not proposing an obligation for investment advisers to collect beneficial ownership information at this time, it anticipates it will do so in the future. (FinCEN Proposal and Fact Sheet, Feb. 13 | Treasury’s 2024 Investment Adviser Risk Assessment)
  • Last week, FinCEN proposed a rule that would require certain real estate professionals involved in the closing or settlement of residential transfers to report information to FinCEN about the beneficial owners of legal entities and trusts involving all-cash transactions. The rule would not require the reporting of sales to individuals.  (Roundtable Weekly, Feb. 9 | Reuters and AP, Feb. 7)
  • Another set of regulations that took effect on Jan. 1, 2024 is expected to collect personal information from owners of at least 32 million U.S. businesses into a beneficial ownership registry managed by the government.  A beneficial owner is described as individual who owns at least 25 percent of a company or enough to exert significant control over it. (Final Rule | Fact Sheet | RER background on beneficial ownership)
  • FinCEN Director Gacki told the House Committee that more than 430,000 businesses have submitted reports to the registry so far. (PoliticoPro, Feb. 14)

Concerns About Beneficial Ownership Registry

  • In his opening statement, Committee Chairman Patrick McHenry (R-NC), above, was critical of Treasury’s ongoing proposals and its beneficial ownership regulations affecting small businesses. McHenry added, “Until FinCEN can show Congress it can do its current job and appropriately use its existing authorities, I’m skeptical of providing greater authorities and resources.” (FinCEN’s background information and FAQs on beneficial ownership reporting)
  • McHenry added, “The administration has transformed what was a simple and direct program into Frankenstein’s monster of complexity. We now have a new, overly complex and less secure access regime.”

On Oct. 13, 2023, The Roundtable and a coalition of eight national real estate groups urged Treasury Secretary Yellen to delay the implementation of the burdensome reporting requirements. (Coalition letter | Roundtable WeeklyOct. 20 and Sept. 30)

#  #  #