news_placeholder

Roundtable Urges Federal Bank Regulators to Reestablish CRE Troubled Debt Restructuring Program

On March 17, 2023, the Real Estate Roundtable (Roundtable) requested federal bank regulators to reestablish a troubled debt restructuring program for commercial real estate that would give financial institutions increased flexibility to refinance loans with borrowers and lenders. Roundtable is an association of the nation’s top publicly-held and privately-owned real estate ownership, development, lending and management firms who address key national policy issues relating to real estate and the overall economy. The letter was addressed to the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, National Credit Union Administration, and Consumer Financial Protection Bureau.

The Roundtable stressed the need to provide time for the substantial effects of the historically rapid rise in interest rates to stabilize in the markets, and to address the lingering effects of the global pandemic.   The letter states, “…[b]ecause of the very rapid rise in interest rates (a year increase in the Effective Federal Funds Rate from 0.08% to 4.58%), there is growing concern about what options will be left for borrowers, or for the institutions who hold these loans, as these loans mature. Immediate value adjustments to reflect the new interest rate environment would lead to potentially significant value declines, requiring unprecedented additional equity investments or capital reserves. Such equity infusions or rising capital reserves could conservatively be expected to result in significant job losses, small business closures, greatly reduced municipal revenue, countless bankruptcies and foreclosures. There also is the potential for high negative impact to large real estate lenders and investors including universities and pension funds for teachers, unions, and others.”

In addition, the letter states, “…given the current market turmoil reflected in recent regional banks, which is largely unrelated to commercial real estate lending practices, we anticipate that liquidity will tighten further and lending options for refinancing maturing loans will decrease.”

According to the Roundtable, approximately 936 billion in commercial and multifamily debit is maturing in 2023 and 2024.

See the letter here.

News & Insights