Fed Responds to Lawmakers' Concern Regarding Commercial Real Estate Loan Workouts

March 18, 2010

Recently, the Federal Reserve (Fed) responded to a joint letter from 79 members of Congress, which urged the U.S. Treasury and Fed to take a more active role in commercial real estate credit markets. The Fed stated that the assessment of commercial real estate exposures is one of its "highest priorities." The Fed also intends to continue to analyze commercial real estate markets as well as the effectiveness of its supervisory guidance. Furthermore, the Fed also believes its ongoing industry and examiner outreach will be critical as regulatory agencies and the industry work through challenging issues in the commercial real estate credit markets.

Lead by Reps. Calvert (R-CA) and Kanjorski (D-PA), the bipartisan letter was sent to the U.S. Treasury and Fed in late January, raising concerns that liquidity problems in the commercial real estate industry may threaten an economic recovery. Specifically, the letter asked the agencies to establish clear methods for loan modifications, develop metrics to differentiate performing and non-performing properties, and take other steps to provide investor confidence in commercial real estate markets. NAR and Commercial REALTOR leaders worked with Congress on the letter and encouraging cosigners.

More than $1.4 trillion in commercial real estate loans will come due by 2013, and roughly 65% of those deals will have trouble getting financing. Depressed conditions in the commercial real estate market continue to threaten our nation's economic recovery.

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