Roundtable’s William C. Rudin Discusses Public Policies to Strengthen CRE and the Economy

Real Estate Roundtable Chairman Emeritus (2015-2018) William C. Rudin (Co-Executive Chairman, Rudin)

Real Estate Roundtable Chairman Emeritus (2015-2018) William C. Rudin (Co-Executive Chairman, Rudin) discussed commercial real estate conditions on CNBC’s Squawk Box this morning, emphasizing how public policies could help the industry meet significant challenges as it faces a wave of looming maturities in a high-interest rate environment.

Federal Action Needed

  • Rudin noted that unless a property owner has a top-tier asset with a stable long-term lease, liquidity is a major issue. “The federal government and the Federal Reserve have to keep giving the banks flexibility to be able to restructure some of the loans.” (Watch Rudin’s comments)
  • Rudin added, “The federal government should support legislation to help incentivize owners to convert obsolete office buildings to residential—and the federal government should be getting their employees back into the office space.” (Entire Rudin interview)
  • Rudin referenced recent testimony by Roundtable President and CEO Jeffrey DeBoer that addressed these issues during a House subcommitteeon the “Health of the Commercial Real Estate Markets and Removing Regulatory Hurdles to Ensure Continued Strength.” (Roundtable Weekly, May 3 and video of DeBoer’s testimony)

Roundtable Recommendations

Roundtable President and CEO Jeffrey DeBoer
  • The Roundtable’s testimony last week addressed a wide swath of concerns for owners, lenders, and local communities. DeBoer discussed specific issues with House policymakers, including market liquidity, the state of the office sector, remote work, affordable housing, and property conversions. (DeBoer’s oral statement and written testimony)
  • DeBoer also emphasized the need for lawmakers to stimulate the production of affordable housing by 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. (Roundtable Weekly, May 3)
  • Separately, The Roundtable and a broad real estate coalition submitted a set of specific policy recommendations last week to Congress detailing a host of pending legislative and regulatory actions that would help provide housing to more Americans. (Roundtable Weekly, May 3)

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 these topics.

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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.

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Fed’s Climate Risk Assessment Exercise Will Include Impact on Banks’ CRE Portfolios

Federal ReserveThe Fed released new details this week about its “pilot climate scenario analysis”—an exploratory exercise that will require six major banks to report by July 31 on how extreme weather event scenarios would impact their operations, investments and real estate portfolios. (Reuters, Jan. 17 and Politico PowerSwitch, Jan. 19)

Risk Scenarios & CRE

  • The pilot exercise aims to learn about climate risk-management practices and challenges of the six largest U.S. banks—and enhance their ability to identify, measure, monitor, and manage climate-related financial risks.
  • The banks will analyze the impact of two risk scenarios on corporate and CRE lending exposures in their portfolios, according to the Fed’s 52-page set of instructions for Bank of America, Citigroup, Goldman Sachs Group, JPMorgan Chase, Morgan Stanley and Wells Fargo. (Fed news release, Jan. 17)
  • One scenario will include how storms, floods and other “physical risks” could affect residential and commercial real estate portfolios in northeast over a one-year horizon.
  • The second scenario will focus on “transition risks,” which refers to financial stresses caused by regulations and market forces that compel shifts to a lower carbon economy. The banks will analyze impacts over a 10-year horizon, using a scenario based on current policies—and one based on reaching net zero greenhouse gas emissions by 2050. (Yahoo News and Fed Participant Instructions, Jan. 17)

What’s Next

Federal Reserve's 2023 pilot climate scenario analysis

  • The Fed plans to publish a summary of its climate scenario analyses by the end of 2023.

  • Banks will calculate and report to the Fed on credit risk parameters such as probability of default, internal risk rating grade, and loss given default.
  • The Fed’s climate exercises are different from bank stress tests, since these climate risk scenarios are exploratory in nature and have no capital consequences. (Fed Participant Instructions, Jan. 17)
  • The central bank’s exercises come as various federal agencies are taking action on risks that climate change may pose to the economy.
  • The Securities and Exchange Commission (SEC) is expected to issue climate disclosure regulations from by April. The proposed rules would require all registered companies to disclose material financial risks related to climate change, and may include new disclosure requirements for “Scope 3” GHG emissions. The Roundtable submitted extensive comments last year on the SEC’s about the proposal. (Roundtable Weekly, June 10)
  • The Federal Insurance Office within the Treasury Department has also requested information on climate-related financial risks from the insurance sector to identify geographic areas that might lack coverage. (ClimateWire, Jan. 18 and Federal Register, August 31, 2021)

Climate-related regulatory proposals affecting CRE will be among the topics discussed during The Roundtable’s Jan. 24-25 State of the Industry Meeting in Washington, DC.

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Fed Reports U.S. Financial Stability Risks Include Inflation, Asset Valuation Pressures, and Cyber Attacks

The Federal Reserve in Washington, DC

Near-term risks to the U.S. economy and financial system include inflation, asset valuation pressures and cyber attacks, according to the Federal Reserve’s semiannual Financial Stability Report released this month. (Wall Street Journal, Nov. 4)

Stability Threats

Fed Report Risks Nov 2022

  • “Higher-than-expected interest rates could lead to increased volatility in financial markets, stresses to market liquidity, and declines in asset prices, including prices of both commercial and residential real estate properties,” the central bank states in its report.
  • The report warns that such effects could cause losses at a range of financial intermediaries, reducing their access to capital and raising their funding costs—and pose adverse consequences for asset prices, credit availability, and the economy.
  • Federal Reserve Vice Chair Lael Brainard stated the American financial system has held up through the turbulent developments of the past year. She said, “Household and business indebtedness has remained generally stable, and on aggregate households and businesses have maintained the ability to cover debt servicing, despite rising interest rates.”

Cybersecurity Concerns

Financial Risks Chart - Federal Reserve

  • Respondents to the central bank’s survey on stability threats also noted continuing concerns about the Russian invasion of Ukraine, high oil prices and a potential conflict between China and Taiwan. Cyber attacks pose an additional risk that “could come as retaliation for sanctions imposed on Russia,” according to the Fed’s report.
  • The Roundtable’s Homeland Security Task Force will hold a conference call on Monday, November 28 that will focus on a new Cyber Risk Summary briefing on Commercial Facilities—includes Commercial Real Estate—from the Cybersecurity and Infrastructure Security Agency (CISA). [To register, contact Andy Jabbour of the Real Estate Information and Sharing Network (RE-ISAC)]
  • U.S. financial institutions processed approximately $1.2 billion in ransomware-related payments last year, a nearly 200 percent increase compared to 2020, according to the Treasury Department’s Financial Crimes Enforcement Network. (FinCEN report, Nov. 1)

Cybersecurity issues and CRE will be discussed during the next HSTF meeting on Jan. 25, 2023—held in conjunction with The Roundtable’s State of the Industry meeting. (Roundtable Weekly, Oct. 7)

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Roundtable-Supported Fed Liquidity Facility Bolstered CRE Finance During Pandemic

Fed Building DC

A report published this week by the Dallas Fed concludes that the Federal Reserve’s Term Asset-Backed Loan Facility (TALF) played a key role in bolstering commercial real estate finance during the pandemic. The Federal Reserve added outstanding CMBS as eligible collateral for lending through the TALF in 2020 after urgent requests from business coalitions that included The Real Estate Roundtable. (Roundtable Weekly, April 17, 2020 and Joint Trades letter, March 24, 2020) 


  • The report by three authors with the Federal Reserve Bank of Dallas’ Research Department states the value of CRE assets at the onset of the pandemic in Feb. 2020 – particularly office towers, retail centers and hotels – suddenly became uncertain. The TALF’s subsequent support of asset-backed securities successfully anchored CMBS prices and helped to steady CRE finance during a tumultuous economic environment.
  • The TALF, previously used during the 2008 financial crisis, was relaunched by the Fed on March 23, 2020 in response to the Covid-19 crisis.
  • A business coalition that included The Roundtable on March 24, 2020 urged the Federal Reserve, Treasury, and Federal Housing Finance Agency to immediately expand the TALF to include non-agency CMBS – including legacy private-label conduit and single-asset single borrower (SASB) assets. The coalition stated the inclusion of private-label assets would stabilize asset prices and shore up the balance sheets of market participants. (Joint Industry letter)
  • On April 9, the Federal Reserve announced the range of TALF-eligible collateral would expand to include triple-A rated tranches of both outstanding (legacy) CMBS, commercial mortgage loans and newly issued collateralized loan obligations. However, the updated term sheet excluded single-asset single borrower (SASB) CMBS and commercial real estate collateralized loan obligations (CRE CLOs). (Federal Reserve news release and Term Sheet)
  • Six real estate industry organizations, including The Roundtable, wrote again to federal regulators on April 14, 2020 about the urgent need to include a wider range of investment grade commercial real estate debt instruments in the Fed’s TALF.
  • The 2020 letter stated, “Commercial and multifamily real estate assets that were perfectly healthy just weeks ago now face massive stress and a wave of payment and covenant defaults.”

  • The Fed on May 12, 2020 broadened the range of leveraged loans that could be used as collateral for the TALF to include new Triple-A rated collateralized loan obligations (CLOs) with leveraged loans. (Fed news release and Term Sheet)

TALF Lessons 

Federal Reserve Building up close

The report published this week concludes the TALF proved especially important in supporting commercial real estate finance. “The TALF program structure provided needed liquidity to investors at the height of the pandemic, but it incentivized borrowers to exit as normal market conditions returned, allowing the program to quickly unwind,” the article states. 

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Federal Reserve’s Robert Kaplan Discusses Economic Outlook with Roundtable; Real Estate Coalition Urges State and Local Officials to Distribute Federal Pandemic Relief Funds

Kaplan Discussion

Federal Reserve Bank of Dallas President and CEO Robert S. Kaplan, top left in photo, on April 12 discussed a wide range of monetary and fiscal policy issues with Roundtable Chairman Emeritus Robert S. Taubman (Chairman & CEO, Taubman Centers, Inc.), top right, and Roundtable President and CEO Jeffrey DeBoer, center. (Watch the Kaplan video interview on The Roundtable’s YouTube Channel)

The Fed View

  • The remote discussion focused on the overall economy, inflation trends, affordable housing, commercial real estate, the banking industry and cryptocurrency. Among Mr. Kaplan’s key points:
    • The Dallas Fed forecast for the 2021 U.S. economy’s growth rate is 6.5 percent

    • The distribution of COVID-19 vaccines is outpacing the spread of the virus, positively affecting economic growth.  

    • A recovering economy follows improved health conditions, with expected increases in consumer mobility and spending.

    • A significant element driving the economic recovery is “Substantial fiscal policy, much more substantial as a percentage of GDP than we had during the Great Recession.” 
  • Kaplan acknowledged the challenge of balancing central bank monetary policies with fiscal policies enacted by lawmakers. “Anytime there’s fiscal actions or other changes, you have to keep recalibrating that balance. There’s no textbook for this because we haven’t been through a period where we were shut down and we’re now reopening … and there’s no precedent in recent years of fiscal policy that’s this size of GDP,” Kaplan said.  (Video of the discussion)
  • He commented about the yield on U.S. Treasuries, which rose to 1.77% last month. “As we recover, it wouldn’t surprise me for it to drift higher, the 10 year,” Kaplan said, adding, “There’s no shortage of capital” to buy Treasuries. (BGov, April 9)
  • Kaplan also addressed the economic trends monitored by the Dallas Fed, reopening progress and CRE debt exposure to banks.  

Pandemic Relief Funds & Distribution 


  • Significant fiscal policy enacted by Washington lawmakers last month authorized hundreds of billions in pandemic relief under the American Rescue Plan Act of 2021 to households, small businesses, and the hospitality industry suffering from the economic impact of COVID-19. (Roundtable Weekly, March 12, 2021)
  • The Wall Street Journal reported on April 13 that state and local authorities are overwhelmed with “how to allocate $25 billion in federal rental relief, leaving many tenants and landlords waiting weeks or months for their share.”
  • The Roundtable is part of a broad real estate coalition that wrote on April 15 to state, county and municipal officials, urging them to distribute the allocated federal funds as soon as possible. (Coalition letter)
  • The coalition letter emphasized the need for elected state and local leaders “to quickly and fully allocate available American Rescue Plan federal funds to provide assistance to renters, consumer-facing small businesses, and impacted industries such as retail, tourism, travel, and hospitality that are having trouble paying rents, mortgages or remaining viable enterprises due to the COVID-19 pandemic.”
  • The letter adds, “Such assistance would make a big difference in the lives of thousands upon thousands of COVID-19 affected renters and businesses in their cities, counties, and states – and would also provide stability to the buildings and communities in which they live.” 

The Treasury Department continues to implement pandemic recovery programs, including the State and Local Fiscal Recovery Fund, State Small Business Credit Initiative, and renter and homeowner assistance. Treasury Secretary Yellen  and White House Rescue Plan Coordinator Gene Sperling met yesterday with members of the National Governor’s Association Executive Committee to determine the most efficient and effective way to get federal resources to states. (Treasury Dept readout, April 15) 

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Senate Banking Committee Chair Urges Expansion of Fed’s Main Street Lending Program to Accommodate Commercial Real Estate

Senate Banking Committee Chairman Mike Crapo (R-ID) on July 31 submitted a letter to Treasury Secretary Mnuchin and Fed Chair Jay Powell encouraging the expansion of the Main Street Lending Program (MSLP) by setting up an asset-based lending program and commercial real estate program.  (Sen. Crapo’s letter, July 31)

  • Specifically, the letter encourages the Treasury and Fed to:
    • Establish a facility to accommodate asset-based lending could open access to critical resources for several industries that could not otherwise access the MSLP based on earnings or cash flow metrics. Such asset-based lending would be predicated on pledged collateral.
    • Address the unique circumstances faced by commercial real estate, including securitized commercial mortgages, whether through access in the MSLP or a separate facility. Several options have been circulated and should be carefully considered in crafting the appropriate terms.
  • The letter also directs the Treasury and Fed to sidestep the need for an additional Congressional appropriation of funds by utilizing the remaining funds available under section 4003(b)(4) of the CARES Act intended for Federal Reserve 13(3) facilities.
  • A coalition of nine real estate industry groups, including The Real Estate Roundtable, on July 21 submitted a set of recommendations to the Senate Banking Committee aimed at improving the Fed’s MSLP for commercial real estate owners and tenants.  The committee is currently reviewing the effectiveness of the MSLP and other Fed credit lending facilities launched to counter the economic repercussions of the COVID-19 crisis. (Real estate coalition letter, July 21 and Roundtable Weekly, July 24)
  • The MSLP became fully operational about a month ago with $600 billion in lending capacity.  Banks who participate in the program must make loans for at least $250,000, with strict requirements, and loans cannot be approved for highly-indebted companies.
  • The program to date has attracted only eight borrowers as of July 27 – according to a report released yesterday by the central bank – and been used to support only about $100 million in loans, with more in process.  (BGov, Aug 7)
  • Separately, four U.S. Senators wrote to Treasury Secretary Mnuchin and Federal Reserve Chairman Jay Powell this week with recommendations on reforming the Fed’s MSLP credit facilities.  (Senators’ letter, Aug. 4)
  • Sens. Mike Braun (R-IN), John Cornyn (R-TX), Kelly Loeffler (R-GA) and Thom Tillis (R-NC) offer specific ways the MSLP program could be amended to better serve borrowers across the nation to save millions of American jobs, including:
    • Increase the maximum debt-to-EBITDA leverage ratio that qualifies borrowers for loans.
    • Eliminate the 200% collateralization requirement in the MSPLF and increase the maximum loan amount.
    • Permit borrowers of MSLP loans to refinance debt within at least 12 months of the maturity period, revising the present prohibition on refinancing debt until it comes within 90 days of the maturity date.

The Congressional Oversight Commission held a hearing today on the MSLP.  The bipartisan commission is a five-person panel established by the CARES Act to monitor use of coronavirus aid funds. Witnesses at today’s hearing included Federal Reserve Bank of Boston President and CEO Eric Rosengren.  The Commission has released three reports, all of which are available for review at the Congressional Oversight Commission’s website.

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