Roundtable Weekly Newsletter by The Real Estate Roundtable

This week’s newsletter by The Real Estate Roundtable contains the following articles we thought would be of interest to you:

  • TRANSPORTATION INFRASTRUCTURE & JOB CREATION – Longer-Term Transportation Spending Bill Clears Key Senate Committee With Unanimous Support; Measure Would Help Expand U.S. Transportation Options Through Innovative Public-Private Financing
  • CAPITAL & CREDIT  – Bipartisan, Real Estate-Supported Covered Bonds Bill Introduced in the Senate; Real Estate Groups Concerned About Potential New SEC Rules That Could Hurt Real Estate Liquidity, CMBS Market Resurgence

TRANSPORTATION INFRASTRUCTURE & JOB CREATION

Longer-Term Transportation Spending Bill Clears Key Senate Committee With Unanimous Support; Measure Would Help Expand U.S. Transportation Options Through Innovative Public-Private Financing

In a bipartisan breakthrough on an issue important to U.S. job creation and commercial real estate, the Senate Environment and Public Works Committee on Wednesday voted unanimously for legislation authorizing two-year, $109 billion funding for a variety of transportation infrastructure projects.

  DeBoer 2010 Annual Podium

 Roundtable President and CEO Jeffrey DeBoer

In a Nov. 9 letter of support to Committee Chair Barbara Boxer (D-CA) and Ranking Member James M. Inhofe (R-OK), Roundtable President and CEO Jeff DeBoer said the “Moving Ahead for Progress in the 21st Century Act” (MAP-21) represents “a significant step” in the direction of transportation policies that are balanced, prudent and forward-thinking. “The bill advances bipartisan solutions to maintain, improve and modernize our infrastructure — while furthering the critically important objective of getting Americans back to work,” he stated.

DeBoer also hailed the fact that MAP-21 would provide funding for two fiscal years. Although this is shorter than the traditional 6-year funding period for comprehensive transportation legislation, MAP-21 would “end the unconstructive cycle of shorter-term highway and transit funding that has hampered the ability of real estate and transportation planning communities to coordinate and develop surface transportation projects that best suit local, regional, state and national needs.” There have been eight short-term extensions of highway/transit funding since the last comprehensive law (SAFETEA-LU) expired in 2009.

In particular, The Roundtable commended the Senate committee for including provisions that would:

 Improve the existing bridge inspection program and authorize a new tunnel inspection program.

 Build on the success of the Transportation Infrastructure Finance and Innovation (TIFIA) program, to provide loans, guarantees, and lines of credit at favorable terms that will leverage private investment.

 Establish a program for projects of national and regional significance to be approved through a merits-based review process.

 Allow funding for electric vehicle charging stations at publicly-owned parking facilities.

 Include a National Freight Network program for funding to states to improve transport of goods in commerce.

DeBoer concluded his letter to Boxer and Inhofe by urging consideration of a “permanently authorized National Infrastructure Bank,” calling this a “critically important mechanism to spur jobs creation and allow our country to develop an intermodal transportation system through public-private partnerships.” Fostering intermodal transportation would help America “keep its competitive edge in the global marketplace,” DeBoer added.

Clinton MSNBC Infra bank

Former President Bill Clinton this week also urged the creation of a national infrastructure bank this week in an MSNBC interview.

MAP-21 now awaits action by the Senate Finance Committee, which must identify other sources to offset the bill’s $12 billion overage that is not covered by receipts from the national gasoline tax. “Everything we’re doing today is predicted on finding an additional $12 billion,” said Inhofe. [BNA Daily Report for Executives, Nov. 9]

Former President Bill Clinton this week also urged the creation of a national infrastructure bank, as part of an interview on MSNBC to tout his new book on job creation. Significantly, Clinton also advocated federal loan guarantees for energy retrofits of commercial buildings — a policy proposal The Roundtable advocates to help jumpstart job creation, increase U.S. energy independence, reduce U.S. greenhouse gas emissions, and help boost commercial property values in the wake of the Great Recession. (View Clinton’s MSNBC interview here).

As a key underpinning of local, regional and national economies, infrastructure is vital to the health of U.S. real estate markets. Modern, well maintained infrastructure that includes an array of transportation options for residents, commuters and businesses can facilitate growth, investment, job creation and vibrant communities.

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CAPITAL & CREDIT

Bipartisan, Real Estate-Supported Covered Bonds Bill Introduced in the Senate; Real Estate Groups Concerned About Potential New SEC Rules That Could Hurt Real Estate Liquidity, CMBS Market Resurgence

Senators Bob Corker (R-TN) and Kay Hagan (D-NC) on Wednesday introduced real estate-backed legislation to foster the creation of a robust covered bond market in the United States, which would provide a new source of liquidity for funding many types of bank loans, including residential and commercial real estate loans (HousingWire, Nov. 9). Importantly, the “United States Covered Bond Act of 2011” would allow high-quality commercial mortgages and commercial mortgage-backed securities (CMBS) to be used as collateral in a new U.S. covered bond market.

Sen. Bob Corker

Sen. Bob Corker (R-TN), co-sponsor of legislation to foster the creation of a U.S. covered bond market.

Popular in Europe, covered bonds are bank-issued debt instruments for which a set of high quality assets — typically loans — is set aside in a “cover pool” for the benefit of bondholders. The value of the assets in the cover pool is greater than the amount of the covered bond — i.e. the covered bond is “over collateralized.” Although covered bonds have some features resembling securitization (e.g., pooled mortgages), the original lenders maintain a continuing interest in the performance of the loans. Thus, underlying assets in the cover pool remain on the issuer’s books.

In a Nov. 8 letter applauding the senators’ bipartisan efforts, The Roundtable’s Jeff DeBoer said a U.S. covered bond market “would support commercial real estate and a broader U.S. economic recovery, while supporting job growth and better serving the American consumer and businesses seeking access to credit.” As confirmed by The Roundtable’s latest quarterly Sentiment Survey (released Oct. 27), commercial real estate fundamentals are again under pressure, even in areas that had recovered significantly in terms of property values, pricing and access to credit and capital.

separate letter of support was sent to Hagan and Corker on Nov. 8 by 18 national real estate organizations(including The Real Estate Roundtable). Despite “important signs of life” in the commercial real estate finance market this past year, the industry “remains uneasy about 2012” — due to a constellation of factors including the euro-zone crisis, high U.S. debt levels, and uncertainty about a large number of pending federal regulations.

Sen. Kay Hagan

Sen. Kay Hagan (D-NC) also co-sponsored the “United States Covered Bond Act of 2011.”

Covered bonds legislation “is needed to promote investor confidence in covered bonds, which in turn would provide additional liquidity and support credit availability in the CRE market,” the real estate industry letter stated, urging all members of the Senate Banking Committee to support the bill.

Similar legislation (H.R. 940) co-authored by Reps. Scott Garrett (R-NJ) and Carolyn Maloney (D-NY) cleared the House Financial Services Committee in June [Roundtable Weekly, June 24], and awaits an opportunity for floor time on the busy House calendar.

Importantly, Treasury Secretary Tim Geithner has expressed support for the creation of a U.S. covered bond market, which would help reduce U.S. government support of the $10.6 trillion U.S. residential mortgage market.

Potential New Rules on Asset-backed Issuers, Mortgage REITs Could Hurt Real Estate Liquidity, CMBS Market, Real Estate Industry Tells SEC

The Roundtable and 13 national real estate trade organizations on Monday submitted a joint comment letterto the Securities and Exchange Commission (SEC) regarding the treatment of asset-backed issuers, mortgage real estate investment trusts (REITs), and other mortgage-related pools under the Investment Company Act of 1940.  The Nov. 7 letter expressed concern that the SEC’s August 31 “Concept Releases” on these issues could signal impending regulatory burdens for mortgage REITs, inhibit a recovery of non-agency mortgage securitization, and hurt real estate credit capacity.

  SEC logo

The SEC’s August 31 “Concept Releases” could signal impending regulatory burdens.

In its August query, the SEC contemplated whether mortgage REITs should be allowed to continue to claim the statutory exemption Congress created for real estate interests under the 1940 Investment Company Act (National Real Estate Investor, Nov. 9).  Without the exemption, mortgage REITs would have to register as investment companies and would be forced to reduce their borrowing (which is essential to their ability to grow and boost shareholder returns).

The SEC is also reportedly weighing whether mortgage REITs should be subject to tighter regulations as part of increased oversight of the mortgage industry as a whole. As The Wall Street Journal explained in an Oct. 15 report, mortgage REITs buy mortgage-backed securities, earning money on the difference between the cost of borrowing and the yield they earn on the mortgage bonds.

According to a Nov. 9 report by CoStar, the SEC expressed concern that companies not regulated by the 1940 law may deliberately “mis-value” their assets, use excessive amounts of leverage, and operate in a manner that favors company insiders and not shareholders.

 NREO Comments to SEC Nov 2011

The Nov. 7 real estate industry letter to the SEC.

The real estate industry letter to the SEC this week welcomed a review of these issues — saying it was “clearly appropriate for the agency to undertake a review of policy that has evolved over the course of 71 years.” At the same time, the coalition said, it “is important that this process does not lead to the narrowing of the SEC’s interpretation” of the real estate exemption under the Investment Company Act.

The exemption, contained under Section 3(c)(5)(C) of the 1940 law, “has been critically important to the liquidity of the real estate market.” Specifically, this provision exempts [from having to register as investment companies] “Any person who … is primarily engaged in…(C) purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.”

“Through SEC staff no-action letters issued in the decades since Congress passed the 1940 Act, this statutory exemption has been understood by the market to include fee interests in real estate; loans or liens that are fully secured by real estate; and assets that are the functional equivalent of an actual interest in real estate or a loan or lien fully secured by real estate, such as whole-pool agency mortgage backed securities and certain commercial real estate “B-Notes,” the Nov. 7 real estate letter stated.

The SEC query — and real estate industry response — will be a key subject of discussion at the upcoming Real Estate Capital Policy Advisory Committee (RECPAC) meeting in New York on Nov. 30.

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