On Sunday, Jan. 25, Dick Parsons, Rupert Murdoch, Howard Rubenstein, Bill Rudin and others gathered at the Upper East Side manse of Jerry Speyer to talk with Governor David Paterson about the state’s budgetary gap. Commercial real estate was barely mentioned, odd given that the host, Mr. Speyer, is one of New York’s biggest landlords, as is Mr. Rudin.
Odd, too, because, amid the kerfuffle over how the federal government should come to the rescue of recession-wracked New York, commercial real estate is withering in plain sight, a rather ugly vine in a tangle of more prominently suffering, and easier-to-sympathize-with, victims.
Still, there is much to talk about! The Real Estate Roundtable, the national commercial real estate industry’s main lobbying arm in D.C., is busy trying to win support for a proposal that would take $20 billion in economic stimulus, or TARP, funds to reignite the commercial credit markets that animate such things as skyscraper and building-portfolio sales.
The money would be used to create a structure modeled on TALF, or the Term Asset-Backed Securities Loan Facility, which will within the month begin using federal stimulus dollars to finance investor purchases of healthy consumer and business loans. (Mr. Rudin has championed the Roundtable’s proposal locally.)
“What we are advocating is, once TALF is running and is functioning for consumer loans and small-business loans, the same concept would work in the commercial real estate arena,” said Jeffrey DeBoer, the Roundtable’s president. “A commercial, TALF-like facility could provide financing to buy triple-A securities backed by commercial loan mortgages. Then banks would be more willing to make the loans. … That is the crux of what we’re asking for.”
By the Roundtable’s estimate, the $6 trillion commercial real estate industry is supported by $3 trillion in debt. Somewhere between $400 billion and $600 billion of that debt matures every year. In the days when the market functioned, banks and the commercial mortgage–backed securities market would refinance about 80 percent of that maturing debt.
“The CMBS issuance had been running roughly around $200 billion a year,” Mr. DeBoer said. “In 2008, they issued between $8 and $15 billion. Clearly, there is a shortfall just when you look at that sector.”
This, mind you, has little to do with so-called “toxic assets.” So severe is the credit crisis for commercial real estate that even well-performing assets are having trouble.
“If a loan comes up for maturity and there’s fundamentally nothing wrong with the loan, and it just needs to be extended, people are having a hell of a time getting financing,” said Thomas MacManus, chairman and CEO of Cushman & Wakefield Sonnenblick Goldman.
Douglas Durst, of the Durst Organization, described it another way: “The credit market no longer exists.” When Mr. Durst refinanced the healthy 4 Times Square in 2006, he got a 6 percent interest rate. “Somebody recently traded some of those notes at a 50 percent discount, because there’s just no market available,” he said.
There’s little question among experts that there is a problem, and that the problem is pressing. But Mr. DeBoer has his work cut out for him.
“People give us ideas all the time. Some are good ideas, some are terrible ideas,” said Steven Adamske, the spokesman for the House Financial Services Committee, which would originate such legislation.
Of the committee’s five New York metro–based members, only Representative Gregory Meeks of Queens told The Observer he supported the Roundtable’s proposal. The other four—Carolyn Maloney, Nydia Velázquez, Gary Ackerman and Carolyn McCarthy—declined our requests for comment.