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CREF Highlights July 23, 2020

July 21, 2020 |By Mike Flood

Commercial and multifamily developments and activities from MBA relevant to your business and our industry.

COVID-19 Pandemic to Cause Pullback in Commercial/Multifamily Lending in 2020
Last week MBA released its latest 2020 forecast on commercial and multifamily originations. Due to the ongoing COVID-19 pandemic’s impact on the sector, commercial and multifamily mortgage bankers are expected to close $248 billion of loans backed by income-producing properties this year, a 59 percent decline from 2019’s record volume of $601 billion. Total multifamily lending is forecast to fall 42 percent to $213 billion in 2020 from last year’s record total of $364 billion.

  • Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research, said, “Forecasting amidst the social and economic responses to the virus is difficult, but we do expect originations to drop significantly this year before making a sharp, partial rebound in 2021. Net operating incomes (NOI), property values and cap rates across the different property types are expected to experience varying levels of stress in the months ahead, with hotel and retail properties already being the hardest hit.”
  • Woodwell on the multifamily market: “The multifamily sector has held up quite well so far, with federal government stimulus efforts for the unemployed helping renters make their rent payments. Should such support continue as the economy rebounds, the apartment market will likely remain relatively balanced.”
  • For additional commentary from Woodwell on MBA’s commercial/multifamily forecast and the pandemic’s impact on the sector, visit MBA’s Commercial/Multifamily Market Intelligence Blog.

For more information, contact Jamie Woodwell at (202) 557-2936.

2. SEC Group Issues Statement on Credit Ratings and Countercyclicality
On Wednesday, the U.S. Securities and Exchange Commission’s COVID-19 Market Monitoring Group issued a public statement on ratings actions, procyclicality, and financial stability issues as part of the Group’s exploration of issues related to COVID-19 impacts. The statement, Credit Ratings, Procyclicality and Related Financial Stability Issues: Select Observations, communicated the Group’s initial observations. Among other observations, the Group indicated that, “[g]iven the idiosyncratic nature of the health and economic effects and consequences of COVID-19, we believe that analogies to the role of rating agencies in the 2008 global financial crisis should be approached with caution.”

  • Why it matters: The idiosyncratic nature of the health and economic effects and consequences of the COVID-19 pandemic challenge many assumptions embedded in accounting and capital standards, and financial models.
  • What’s next: MBA will continue to monitor and advocate for change where existing standards, structures, and models need to be adapted to function under the current unanticipated circumstances.

For more information, please contact Bruce Oliver at (202) 557-2840.

3. New York Federal Reserve Publishes Blog Post Detailing Agency CMBS Purchases
The New York Fed blog post describes the deterioration in market conditions that led to agency CMBS purchases, how the Desk conducts these operations, and how market functioning has improved since the start of the purchase operations.

  • Why it matters: Agency CMBS outstanding totals around $750 billion, and accounts for just under half of the $1.6 trillion in total multifamily mortgage debt outstanding, according to the Fed. (The remainder is financed through the nonagency CMBS market and nonsecuritized loans from financial institutions). The agency CMBS market has grown rapidly in the last decade, from about $130 billion in 2010, along with the growth of the agency multifamily lending programs. Major agency multifamily CMBS securitization programs include Fannie Mae’s Delegated Underwriting and Servicing (DUS), Freddie Mac’s K-Series, and Ginnie Mae’s Project Loans.
  • What’s next: As the Fed notes, the agency CMBS market was substantially disrupted in March. Both market-based measures and Desk operations indicate substantially improved market functioning since that time. As such, the frequency and the size of the Desk operations have declined over recent months, although the presence of these operations continues to sustain functioning in the market. MBA will continue to be a resource to the Fed, providing data and technical assistance when needed, as well as be an advocate for support where appropriate to ensure sustainable market functioning across agency CMBS, nonagency CMBS, and all sources of capital supporting commercial and multifamily real estate.

For more information, please contact Andrew Foster at (202) 557-2740.

4. Financial Regulators Begin Review of Secondary Mortgage Market Risks
Last Tuesday the Financial Stability Oversight Council (FSOC) – a group comprised of the heads of the major financial regulators – announced that it had begun a review of potential risks to financial stability associated with the secondary mortgage market. Federal Housing Finance Agency Director Mark Calabria issued a statement following the meeting in which he declared his support for this review.

  • Why it matters: This review marks the first formal “activities-based review” undertaken by FSOC, in contrast to prior reviews that focused on particular institutions. The FSOC review could lead to additional financial or operational requirements for various market participants, though any outcome is dependent on the findings of the review.
  • What’s next: MBA is in regular contact with the FSOC staff and representatives from the various agencies represented on FSOC. During the course of this review, MBA will provide data and market intelligence to ensure that any decisions or actions taken by regulators do not disrupt smooth market functioning.

For more information, contact Bruce Oliver at (202) 557-2840 or Dan Fichtler at (202) 557-2780.

5. MBA Urges HUD to Withhold Publication of Final Disparate Impact Rule
MBA recently asked HUD to withhold publication of the final disparate impact rule and to bring the housing, lending, and civil rights communities together for renewed discussions about how to address the wide housing and wealth gaps faced by communities of color.

  • What’s next: Click here to read the letter.

For more information, contact Justin Wiseman at (202) 557-2854.

6. House Appropriations Committee Passes Robust HUD Funding Bill
Last Tuesday, the full House Committee on Appropriations considered a number of Fiscal Year 2021 funding “minibus” bills, including one containing robust funding for HUD. For example, the proposal contained substantial funding increases for streams for Federal Housing Administration (FHA) cybersecurity and information technology (IT) upgrades, Ginnie Mae administrative expenses, and housing counseling. MBA sent a letter to the committee’s leadership advocating for the industry’s housing priorities – on the heels of a series of meetings between MBA President and CEO, Bob Broeksmit, CMB, and senior House appropriators earlier this year. The bill containing HUD funding passed by a largely partisan vote of 30-22. 

  • Why it matters: The House Democrats’ appropriations bill containing HUD funding signals a first step toward eventual negotiations with Republicans (and the Senate) on a final spending package.
  • What’s next: It is unclear when the full House will move the minibus containing HUD funding to the House floor, or when House and Senate negotiations on a final spending package will begin in earnest.

For more information, contact Ernie Jolly at (202) 557-2741 or Dan Grattan at (202) 557-2712.

Thriving and Surviving During COVID-19: Spotlight on Leadership
Join MBA on Thursday, July 23, from 3:00 – 3:45 PM ET for member call, “Thriving and Surviving During COVID-19: Spotlight on Leadership.” Panelists will focus on the nuances of leadership during uncertain times, providing insights on managing and motivating teams remotely, prioritizing workload, and projects and resource allocation.

  • Why it matters: Given the current landscape, the commercial real estate industry is encountering many obstacles and challenges. These panels will delve into many of these issues and provide important insights and dialogue to help you and your organization best weather these unprecedented times.   
  • What’s next: For both calls, please dial in at 800-768-2983; access code: 6222861.  

For more information, contact Kelly Hamill at (202) 557-2746.

8. Upcoming and Recent MBA Education Webinars on COVID-19-Related Topics
MBA Education continues to deliver timely single-family and commercial/multifamily programming that covers the spectrum of challenges, obstacles, and solutions pertaining to the ongoing COVID-19 pandemic. Below, a list of upcoming and recent webinars – which are complimentary to MBA members:

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