NAR Offers Solutions To CRE Woes

The commercial real estate market is experiencing its worst liquidity challenge in almost 20 years, and it is vital for Congress to take action to prevent a deepening crisis, the National Association of Realtors (NAR) said in testimony to the U.S. House Financial Services' Subcommittee on Oversight and Investigations.

During a field hearing in Chicago Monday, G. Joseph Cosenza, an owner of Oak Brook, Ill.-based Inland Real Estate Group, testified on behalf of NAR and the Illinois Association of Realtors. Cosenza said the crisis is driven by a confluence of high unemployment, a slow economy, weakening commercial property fundamentals and an increase in commercial loan delinquencies.

‘Commercial real estate is the basis for much of the growth in the American industry and economy, and having a stable and well-functioning commercial market is crucial to our nation's economic recovery,’ Cosenza said. ‘But the market is now in the midst of a financial meltdown, and many property owners are underwater. We cannot regain our footing until action is taken on such issues as an enhancement of liquidity and extensions of terms for performing properties.’

Cosenza outlined a number of proposals that he urged the congressional panel to consider.

First, Cosenza advocated for passage of H.R.3380 – the Promoting Lending to America's Small Businesses Act – which would increase the cap on credit union lending to 25% of total assets. Currently, the credit union lending cap is 12.25% of total assets. Due to the slumping economy and falling commercial property values, many commercial banks have tightened their credit standards and reduced their loan volumes. Credit unions, which have filled such voids in the past, are unable to do so now because of the lending cap, NAR says.

Cosenza also pointed out that commercial loans are often short-term, and property owners must refinance frequently.

‘More than half of the outstanding business loans held by credit unions have been extended by those approaching, or at, the cap,’ he stated. ‘That means that credit unions with experience in handling commercial loans are unable to continue helping us get out of this crisis.’

Lenders should be encouraged to extend the term of current loans, Cosenza added, but they have been wary of offering extensions because of oversight and regulatory concerns.

He said incentives and improved cashflow for investors of commercial property would help fend off some of the challenges the market faces and soften some of the commercial liquidity crisis.

‘The most effective means of improving the cashflow on real property is to provide more generous depreciation allowances,’ Cosenza testified. ‘NAR believes that some combination of accelerated depreciation (or shorter recovery periods) and passive loss relief would be significant investor incentives.’

NAR also supports developing a mortgage insurance program for commercial debt and an extension of the Term Asset-Backed Securities Loan Facility (TALF) program. A proposed mortgage insurance program would provide insurance on the difference between the current value of a commercial property and the debt service. NAR believes an extension of TALF will help stimulate the commercial mortgage-backed securities market and that the program requirements should be less burdensome for investors.

SOURCE: National Association of Realtors, House Financial Services Committee


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