Commercial Real Estate Finance Market June 20, 2017 Presented by - PowerPoint PPT Presentation

Sustaining Liquidity for the Commercial Real Estate Finance Market June 20, 2017 Presented by Thomas Kim, Senior Vice President, Commercial/Multifamily Bill Killmer, Senior Vice President, Legislative & Political Affairs

Presentation Overview  Capitol Hill 101 and Introduction to Advocacy  Strengths of the Commercial Real Estate Finance Ecosystem  MBA Commercial and Multifamily Policy Priorities  Recommendations for Policymakers  Hill Meeting Day Agenda

Capitol Hill 101 and Advocacy

Capitol Hill 101 • The primary committees of jurisdiction dealing with Commercial and Multifamily Real Estate Finance issues: • House Financial Services Committee • Jeb Hensarling (R-TX) Chairman and Maxine Waters (D-CA) Ranking Member • Senate Banking Committee • Michael Crapo (R-ID) Chairman and Sherrod Brown (D-OH) Ranking Member • Other committees of jurisdiction for our issues include: • House and Senate Appropriations Committees • House Ways and Means Committee • Senate Finance Committee

Washington Environmental Scan • Policy Landscape: the intersection of ongoing regulatory actions and legislative needs • The 115 th Congress: • House Ratio: 238 GOP, 193 Democrat (4 vacancies) • Senate Ratio – 52 GOP, 46 Democrats, 2 Independents • Ongoing necessity to connect with, instruct, and persuade policy makers 5 BK

Introduction to Advocacy • Advocacy is not a once-a-year activity • The most effective advocate for your business is YOU. • Lobbying is about relationships. It’s critical to develop them now because you’ll never know when you might need them. • Contrary to public opinion, Members of Congress and their staffs want to build relationships with their constituents. Become their local expert on our issues. • Ideas for year-round advocacy include: • Develop a relationship with the staffer for your MoC that handles your issue • Meet with your MoC or their district staff back home • Invite your MoC and their staff to visit your office and meet with your team • As Tip O’Neill said, “All politics are local”  If you’re so inclined, become politically active with your local MoC

Strengths of the Commercial Real Estate Finance Ecosystem

Strengths of the Commercial Real Estate Finance Ecosystem  The Commercial Real Estate market is supported by $3 trillion in mortgages from diversified sources of capital , the majority of which comes from the private sector:  Bank portfolio lending  Government-sponsored enterprises  Federal Housing Administration  Securitization markets  Life insurance companies  Pension funds and other institutional investors  Mortgage bankers serve as intermediaries working with multiple capital sources to deliver financing to owners of commercial real estate. The varied business models and funding sources contribute to a competitive business-to- business market.  This financing ecosystem fosters investment in commercial real estate, distributes investment risk and return, and reduces the cost of constructing and maintaining properties.

Strengths of the Commercial Real Estate Finance Ecosystem Credit performance remains strong. Source: FDIC, Wells Fargo Securities and Intex, ACLI, Fannie Mae and Freddie Mac

MBA C/MF Policy Priorities

MBA C/MF Overall Policy Priorities  Enhance Capital Formation and Liquidity in Commercial / Multifamily Real Estate  Tax policy should support commercial real estate and the flow of capital to real estate markets  Role of mortgage bankers  CREF ecosystem  Support the Multifamily Rental Housing Finance Market  FHA multifamily and healthcare progress  GSE multifamily policy  Strengthen Portfolio Lending on Commercial Real Estate  Bank portfolio lending  Life insurance companies  Strengthen the Long-Term Viability of the CMBS Market  Promote Regulatory Clarity to Facilitate Compliance and to Leverage Technology

Recommendations for Policymakers

Recommendations for Policymakers Tax Policy Should Support Commercial Real Estate and the Flow of Capital to Real Estate Markets  The deductibility of business interest on real estate is vitally important.  The Low-Income Housing Tax Credit (LIHTC) is a critical source of funding for the development of affordable rental housing for low-income households.  The flexibility and broad applicability of the like-kind exchange rule should be preserved.  The current entity-level tax treatment of pass-through entities should be preserved, including real estate investment trusts (REITs), REMICs, S Corporations, limited liability companies (LLCs), and limited liability partnerships (LLPs).  Downstream adverse commercial and multifamily real estate impacts of tax policy changes should be identified and mitigated.  MBA supports tax rules that are stable over time.

Recommendations for Policymakers Maintain FHA as a Critically Important Program for Financing Multifamily and Residential Healthcare Properties  Provide stable and sufficient resources to FHA to support workforce housing, affordable rental housing and residential healthcare properties.  Modify and improve regulatory barriers under the Davis Bacon Act, including streamlining and simplifying wage rate determinations.  Revise, update, reduce or eliminate regulatory or programmatic barriers inhibiting FHA-insured financing  Expand HUD’s targeted affordable multifamily housing programs including the Low -Income Housing Tax Credit (LIHTC) program and the remove the cap on volume of units for the Rental Assistance Demonstration (RAD) program.  Invest and prioritize the public-private partnership of FHA lenders and FHA which has helped private sector lenders produce the majority of FHA affordable rental housing.  Train FHA staff to sustain the success of the FHA Multifamily transformation/reorganization efforts.  Update FHA policies and procedures to reflect the competitive landscape and economic trends in the housing market.

Recommendations for Policymakers Improve the regulatory regimes governing specific capital sources  Bank Portfolio Lending  Clarify and modify the High Volatility Commercial Real Estate (HVCRE) rule for construction lending.  Promote balanced and transparent examination approach by regulators.  Securitization and Market Making  Build greater flexibility into Risk Retention rule for CMBS.  Reject Basel Committee’s Fundamental Review of the Trading Book Proposal affecting CMBS.  Reject or opt out of Basel Committee’s Step -in Risk Proposal as it affects securitization vehicles.

Recommendations for Policymakers Improve the Regulatory Regimes Governing Specific Capital Sources  GSE Multifamily  Implement transparent and reasonable process to adjust lending caps, as necessary, in light of market developments.  Pass GSE reform legislation that reforms system, preserves existing multifamily financing executions, and promotes competition.  Life Company Lending and Investments  Modify Risk Based Capital rule for CRE equity investments.  Clarify treatment of mortgage loan participations as mortgages.  Retain current Risk Based Capital regime for CRE loans.

Recommendations for Policymakers • Narrowly tailor regulatory regimes that are not intended to govern CRE finance • Regulations such as the Home Mortgage Disclosure Act (HMDA) were intended for consumer- facing lending, rather than business-to-business lending in commercial real estate finance. • Regulators should provide guidance that excludes applicability or otherwise limits disruption to the commercial/multifamily finance market – where CRE lending is not the focus of the regulation. • Recognize the interplay between capital sources that finance commercial real estate  Given the diversification of financing sources, one source should step in when another experiences disruption – so long as the regulatory regime allows it.  Regulations (and regulators) should allow sufficient flexibility to allow lenders to step in when liquidity needs cannot be met.

Logistics and Capitol Hill Agenda

Housekeeping Takeaways for Tomorrow • Briefing Book and “Leave Behind” documents as tools • Grand Hyatt as base hotel; transportation to Capitol Hill • Overview of June 21 meetings on Capitol Hill • Reception following Hill Meetings at Grand Hyatt • Mortgage Action Alliance

Capitol Hill Day Agenda • 10:00 – 10:30am – David Mork, Chief of Staff, Rep. Pete Roskam (R-IL) • Possible Issue Areas: Tax Reform (House leadership/committee perspective) • 10:30 – 11:00am – Adam Carasso, Senate Finance Committee – Minority Staff • Possible Issue Areas: Tax Reform (Senate leadership/committee perspective) • 11:00 – 11:30am – Brandon Casey, Chief of Staff, Ways and Means Committee – Minority Staff • Possible Issue Areas: LIHTC • 11:30 – 11:45pm – Nick Morrison, Legislative Assistant, Senator Jeff Flake (R-AZ) • Possible Issue Areas: Davis-Bacon Reform • 11:45 – 12:00pm – Sen. Chris Murphy • Possible Issue Areas: HUD Appropriations • 12:00 – 12:15pm – Sen. John Kennedy (R-LA) • Possible Issue Areas: Banking committee update; Flood Insurance • 1:30 – 2:00pm – Rep. Robert Pittenger (R-NC) • Possible Issue Areas: HVCRE

Questions?