Originally published via email on January 26th online here: https://cmbs.informz.net/informzdataservice/onlineversion/ind/bWFpbGluZ2luc3RhbmNlaWQ9ODI0MTgzNCZzdWJzY3JpYmVyaWQ9NzUzMjExNTIy
NEW YORK, NY (January 26, 2021) — The CRE Finance Council (CREFC), the industry association that exclusively represents the $4.8 trillion commercial and multifamily real estate finance industry, held its annual January conference virtually this year with record attendance of more than 4,200 industry professionals. The three-day conference covered a variety of topics including market fundamentals, distressed commercial mortgage debt and diversity and inclusion in the industry. Author Michael Lewis as the keynote speaker and a fireside chat with FHFA Director Dr. Mark Calabria were also highlights of the online event.
“After an unprecedented year addressing the impacts of COVID on the industry, a contentious election, as well as enormous societal unrest, we are all focused on what the future holds,” stated Lisa Pendergast, CREFC Executive Director. “As an organization dedicated to maintaining liquidity in the commercial real estate space, a vital component of the U.S. economy, CREFC is proud to offer our conference attendees thought-provoking, valuable content that shines a light on how all of these factors impact commercial real estate and the economy writ large. To the good, we are entering a new year in which science prevails and vaccines are available – hopefully in plentiful quantities as we progress through 2021. Notwithstanding a great sense of hopefulness, 2020 was incredibly difficult for a number of commercial and multifamily property owners, our borrowers, particularly in the hotel and retail sectors. With them in mind, we will continue to advocate for appropriate borrower relief, as well as tenant rental assistance via direct government support that goes beyond the limited scope provided by the Paycheck Protection Program. Direct relief to tenants not only provides them with the ability to continue to operate their businesses, but also alleviates the challenges eviction moratoriums impose on property owners and their ability to hold on to their properties.”
Industry Sentiment: What’s to Come…
Overall, panelists conveyed a positive sentiment for the future of commercial real estate in 2021. The introduction of a COVID vaccine has bolstered this view. Panelists often cited the healthy state of the commercial real estate industry, banks and our financial markets when the pandemic struck. The property sectors that suffered the most are retail and hospitality, yet loan servicers acted judiciously with property owners to provide relief to avoid foreclosures with far less of this activity than many expected given the dire circumstances that COVID presented. Indeed, in-foreclosure and REO assets remained low at 1.2% and 1.0%, respectively, across conduit and SASB markets as of December 2020. In the office sector, many anticipate a return to the office in some form beginning later this year, and cited factors such as the critical importance of ‘getting back in person’ for the sake of younger team members, as mentorship and fostering a healthy and collaborative corporate culture are foundational for advancing one’s career path. Some panelists noted they are safely back in the office already while others are looking for assurances of widespread vaccination to begin reentry.
It is no secret that some property types have fared better than others throughout the pandemic. The retail sector was in distress prior to COVID and continued to suffer as brick and mortar retail has been all but made obsolete due to the increase in e-commerce. The rise of e-commerce has created an incomparable demand in industrial space, now the darling of commercial real estate investment. Hospitality has also suffered greatly, but the leisure sector has started to regain its strength though the groups, conferences and meetings sector still lagging behind as business travel continues to be on hold. The office market remains strong for now as long-term leases in place have steadied that sector. However, it is expected that many companies will go through a ‘right-sizing’ exercise ensuring their space holistically meets the needs of a post-pandemic workforce, many of which may now choose to work from home. There is a sense that considerable stress may be looming in the office sector, but time will tell.
Diversity & Inclusion: The Tide Is Turning
Commercial real estate, like other similar industries, has historically lacked diversity. The deaths of Ahmaud Arbery, Breonna Taylor and George Floyd that preceded the massive social awakening last spring forced the country to take a hard look at how we foster diversity in our lives, workplaces and industries. The CREFC member panelists noted in the “Diversity, Equity & Inclusion” session that now it is not only important to be open and inclusive, but it is also critical that companies and individuals be actively anti-racist in order to fully enact change. The panelists made pointed suggestions for making this change happen. To start, diversity and inclusion directives and initiative must come from top down; if leaders set the culture to be inclusive, then employees will fall in line. Second, there must be a multi-pronged approach to tackling the lack of diversity including recruiting diverse talent, retaining that talent, promoting and fostering talent and inclusion- ensuring diverse employees are given a seat at the table and also given the opportunity to speak while there. Another critical way companies will find success in addressing diversity and enacting change was noted by Trevor Freeland, a Managing Director at Deutsche Bank, “Get comfortable being uncomfortable and having those uncomfortable conversations in order to grow.”
FHFA Director, Dr. Mark Calabria on the Future of the GSEs
Dr. Mark Calabria, a celebrated economist and current FHFA Director, joined the final day of the conference for a fireside chat and shared his insights on the current state of the economy and the future of the GSEs. He repeated a theme that the core role of the GSEs is to be counter-cyclical; they are in place to steady the market when there is a crisis, when the private markets are compromised. He also noted that the COVID crisis is different from the Great Financial Crisis of ‘09 but we were able to take some lessons learned then and apply them now. Calabria pointed out that while the GSEs never stopped being private companies, their exit from conservatorship requires a restructuring of their entire capital stack so that both sides balance out; he added that the effort must be process driven, not capital driven. During COVID Fannie Mae and Freddie Mac helped more than 200,000 families in need of assistance by paying property taxes and covering housing costs at no cost to taxpayers. Further, on January 19, Fannie Mae posted that since its return to the LIHTC market in 2018, it has provided $1.5 billion of equity investments to support the creation and preservation of 576 affordable properties as part of an ongoing commitment to affordable rental housing in underserved markets.
Importantly, low interest rates and strong home-purchasing fundamentals have enabled the GSEs to be of critical assistance at no cost to taxpayers. And regarding affordable housing, Dr. Calabria made note that it’s a complex issue that will only be remedied when there is a real partnership between state and local governments.
First 100 Days: What’s in Store for Biden’s Administration?
In his first few days in office, the 46th U.S. President Joe Biden issued more executive orders than any of his recent predecessors. With a clear strategy in place, his first 100 days is focusing on getting the pandemic under control, distributing vaccinations and putting the right personnel in place. President Biden’s Build Back Better plan will tackle the economy, jobs and enact the long delayed focus on infrastructure while retooling the economy for an environmentally sustainable future. The Build Back Better recovery plan will be fully unveiled in February, but those on the CREFC panel agreed we will likely not see legislation from this initiative being signed into law until possibly the fourth quarter. The panel was in agreement that Biden’s COVID package would likely be signed into law in March and be smaller than the proposed $1.9 trillion. As for the House Financial Services Committee, chaired by Congresswoman Maxine Waters, the CREFC panelists noted her focus on COVID response would be related to housing, rental assistance and a continuation of eviction moratoriums, closing the racial wealth gap with diversity and inclusion initiatives and overturning Trump-era regulations that impacted the financial services sector.