Despite the measures the government has put into place over the past ten months, the lending environment for commercial real estate is worsening, Helsel said. He pointed to two NAR member examples:
- A Memphis apartment broker and certified commercial investment specialist who is on his fifth contract for the Park Tower apartments in Memphis--since the previous four have failed due to the lack of available financing; and
- A commercial realtor in Atlanta that specializes in industrial properties.
The problem, of course, is the moribund CMBS market, Parkus testified. "On the whole, I expect that total losses in CMBS will be approximately 9% to 12% of the outstanding CMBS loan universe, or about $65 billion to $90 billion," he said. "For the 2005-2007 vintage loans, my estimate of total losses is somewhat higher, about 12% to 15%."
The Fed has been urging lenders to pick up the slack, Greenlee said. "As part of our effort to help stimulate appropriate bank lending, the Federal Reserve and the other federal banking agencies issued regulatory guidance in November 2008 to encourage banks to meet the needs of a creditworthy borrower…More generally, we have directed our examiners to be mindful of the pro-cyclical effects of excessive credit tightening." Bottom line, DeBoer and Helsel said, more needs to be done in Washington to pry open credit and lending markets.
DeBoer, who kicked off his testimony with the statement that "I am here today to sound the alarm bell," suggested a policy prescription consisting of extending TALF beyond its current December 31, 2009 sunset date, through the end of 2010; establishing a federally-backed credit facility, possibly created from the PPIP structure or a privately funded guarantee program, for originating new commercial real estate loans; encouraging foreign capital investment in US real estate by amending or repealing the Foreign Investment in Real Property Tax Act; encouraging banks and loan servicers to extend performing loans, based on cash flow analysis; and, temporarily amending real estate mortgage investment conduit regulations to facilitate early review and possible modification to the terms of commercial mortgage loans that have been securitized in CMBS.
Also, he said, it was paramount to reject new taxes such as the carried interest proposal.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
