Congressman Van Taylor led a bipartisan letter urging the U.S. Secretary of Treasury Steven Mnuchin and Chairman of the Federal Reserve Jerome H. Powell to provide economic support to the commercial real estate market, especially businesses with Commercial Mortgage-Backed Security debt, and the hundreds of thousands of Americans they employ.
WASHINGTON - On Monday, Congressman Van Taylor (TX-03), a member of the House Committee on Financial Services, led a bipartisan letter urging the U.S. Secretary of Treasury Steven Mnuchin and Chairman of the Federal Reserve Jerome H. Powell to provide economic support to the commercial real estate (CRE) market, especially businesses with Commercial Mortgage-Backed Security (CMBS) debt, and the hundreds of thousands of Americans they employ.
"We write to express our concern about the looming crisis in commercial real estate adversely impacted by the COVID-19 pandemic, including the $540 billion Commercial Mortgage-Backed Security market that, if left unchecked, may lead to a wave of foreclosures, exacerbating the current economic downturn and ultimately, resulting in permanent job loss throughout multiple industries and communities across the country," wrote the 105 members, both Republican and Democrat, who signed the letter.
The letter, which was led by Congressmen Van Taylor (R-TX-03), Denny Heck (D-WA-10), Andy Barr (R-KY-06), and Al Lawson (D-FL-05), specifically requests the Department of the Treasury and the Federal Reserve to consider targeted economic support to bridge the temporary liquidity deficiencies facing commercial real estate borrowers created by the COVID-19 pandemic.
Congressman Van Taylor said, "Millions of jobs depend on keeping these properties open. For example, 8.3 million jobs throughout the United States and more than 600,000 in Texas are supported by the hotel industry alone." He continued, "These industries don't need a bailout, but they do need flexibility and support to keep their doors open, provide millions of jobs in communities across the country, and drive their local economies."
“Nearly half of commercial rents were not paid last month, and many businesses will not be able to pay their rent for the foreseeable future” said Congressman Denny Heck. “History shows us this will likely result in a wave of foreclosures, massive layoffs, and less revenue to already cash-strapped state and local governments. We must do everything we can to protect the broader economy from this devastating chain reaction,” said Congressman Denny Heck (D-WA-10).
Congressman Al Lawson (D-FL-05) said, “COVID-19 is causing many of our industries to experience major financial hits, and the commercial real estate is no exception. Without immediate action from our financial institutions, we may see unrecoverable losses to these businesses. We are asking Secretary Mnuchin and Chairman Powell to take necessary measures to ensure this industry has the capability to survive this global pandemic.”
Background The commercial real estate market encompasses hotel, retail, multi-family housing, industrial, and commercial property, industries which support millions of jobs throughout the United States. For example, 8.3 million jobs throughout the United States, and more than 600,000 in Texas, are supported by the hotel industry alone.
As a result of the COVID-19 pandemic, businesses across the country have experienced revenue declines and cash flow shortages, making it difficult to meet monthly debt obligations and ultimately, threatening the livelihood of their business. While Congress and federal agencies have provided critical assistance to many businesses experiencing financial hardship through programs such as the Paycheck Protection Program and Main Street Lending Programs, these initiatives do not fit the needs of the commercial real estate market.
Businesses with CMBS debt have a particular challenge since their loan covenants are governed by multiparty state law contracts which typically prohibit additional indebtedness. Further, CMBS borrowers have less flexibility to modify their loans since bondholders of CMBS trusts expect principal and interest payments to be maintained.