[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
HEALTH OF THE COMMERCIAL REAL ESTATE
MARKETS AND REMOVING REGULATORY
HURDLES TO ENSURE CONTINUED
STRENGTH
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON HEALTH CARE
AND FINANCIAL SERVICES
OF THE
COMMITTEE ON OVERSIGHT
AND ACCOUNTABILITY
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
APRIL 30, 2024
__________
Serial No. 118-106
__________
Printed for the use of the Committee on Oversight and Accountability
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available on: govinfo.gov
oversight.house.gov or
docs.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
55-547 PDF WASHINGTON : 2024
COMMITTEE ON OVERSIGHT AND ACCOUNTABILITY
JAMES COMER, Kentucky, Chairman
Jim Jordan, Ohio Jamie Raskin, Maryland, Ranking
Mike Turner, Ohio Minority Member
Paul Gosar, Arizona Eleanor Holmes Norton, District of
Virginia Foxx, North Carolina Columbia
Glenn Grothman, Wisconsin Stephen F. Lynch, Massachusetts
Michael Cloud, Texas Gerald E. Connolly, Virginia
Gary Palmer, Alabama Raja Krishnamoorthi, Illinois
Clay Higgins, Louisiana Ro Khanna, California
Pete Sessions, Texas Kweisi Mfume, Maryland
Andy Biggs, Arizona Alexandria Ocasio-Cortez, New York
Nancy Mace, South Carolina Katie Porter, California
Jake LaTurner, Kansas Cori Bush, Missouri
Pat Fallon, Texas Shontel Brown, Ohio
Byron Donalds, Florida Melanie Stansbury, New Mexico
Scott Perry, Pennsylvania Robert Garcia, California
William Timmons, South Carolina Maxwell Frost, Florida
Tim Burchett, Tennessee Summer Lee, Pennsylvania
Marjorie Taylor Greene, Georgia Greg Casar, Texas
Lisa McClain, Michigan Jasmine Crockett, Texas
Lauren Boebert, Colorado Dan Goldman, New York
Russell Fry, South Carolina Jared Moskowitz, Florida
Anna Paulina Luna, Florida Rashida Tlaib, Michigan
Nick Langworthy, New York Ayanna Pressley, Massachusetts
Eric Burlison, Missouri
Mike Waltz, Florida
------
Mark Marin, Staff Director
Jessica Donlon, Deputy Staff Director and General Counsel
Alan Brubaker, Senior Advisor
Tyler Sanderson, Senior Counsel
Mallory Cogar, Deputy Director of Operations and Chief Clerk
Contact Number: 202-225-5074
Julie Tagen, Minority Staff Director
Contact Number: 202-225-5051
------
Subcommittee on Health Care and Financial Services
Lisa McClain, Michigan, Chairwoman
Paul Gosar, Arizona Katie Porter, California Ranking
Virginia Foxx, North Carolina Minority Member
Glenn Grothman, Wisconsin Alexandria Ocasio-Cortez, New York
Russell Fry, South Carolina Greg Casar, Texas
Anna Paulina Luna, Florida Summer Lee, Pennsylvania
Nick Langworthy, New York Jasmine Crockett, Texas
Eric Burlison, Missouri Eleanor Holmes Norton, District of
Vacancy Columbia
Ayanna Pressley, Massachusetts
C O N T E N T S
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Page
Hearing held on April 30, 2024................................... 1
Witnesses
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Mr. Jeffrey DeBoer, President and CEO, The Real Estate Roundtable
Oral Statement................................................... 5
Mr. Jeffrey Weidell, CEO, Northmarq
Oral Statement................................................... 7
Mr. Doug Turner (Minority Witness), Senior Fellow for Housing
Policy, Center for American Progress
Oral Statement................................................... 8
Written opening statements and statements for the witnesses are
available on the U.S. House of Representatives Document
Repository at: docs.house.gov.
Index of Documents
----------
* Statement for the Record, ICSC; submitted by Rep. Fry.
* Statement for the Record, NAR; submitted by Rep. McClain.
* White Paper, Brookfield, ``The Misunderstood U.S. Office
Market''; submitted by Rep. Crockett.
* Letter, April 29, 2024, from Mayor Bowser, to Chair McClain;
submitted by Rep. McClain.
* Statement for the Record, CREFC30; submitted by Rep. McClain.
* Statement for the Record, ICSC; submitted by Rep. McClain.
* Letter, March 14, 2024, from Rep. Garcia to Secretary
Buttigieg; submitted by Rep. Garcia.
* Letter, April 20, 2023, from Rep. Garcia to Secretary Yellen;
submitted by Rep. Garcia.
Documents are available at: docs.house.gov.
HEALTH OF THE COMMERCIAL REAL ESTATE
MARKETS AND REMOVING REGULATORY
HURDLES TO ENSURE CONTINUED
STRENGTH
----------
Tuesday, April 30, 2024
House of Representatives
Committee on Oversight and Accountability
Subcommittee on Health Care And Financial Services
Washington, D.C.
The Subcommittee met, pursuant to notice, at 2:17 p.m., in
room 2154, Rayburn House Office Building, Hon. Lisa McClain
[Chairwoman of the Subcommittee] presiding.
Present: Representatives McClain, Foxx, Grothman, Burlison,
Porter, Lee, Crockett, Norton, and Pressley.
Also present: Representative Garcia.
Mrs. McClain. This hearing of the Subcommittee on
Healthcare and Financial Services will come to order. Welcome,
everyone.
And without objection, the Chair may call or declare a
recess at any time.
I recognize myself for the purpose of making an opening
statement.
All right. I would like to thank our witnesses for
appearing before the Subcommittee today, sincerely. We are here
to examine the strength of the commercial real estate markets
and talk about what Congress can do proactively to ensure the
financial health of this enormous part of our economy. The
continued health of commercial real estate industry is critical
to Americans of all stripes. Whether it is the construction
industry that builds and rehabilitates properties; to the
people that clean and manage the properties; to the tenants,
both commercial and residential; America needs a healthy
commercial real estate industry.
I do have a little fear. The headwinds are building and
could lead to serious distress, and we need to hear what
policy-makers, what we can do to avoid reaching the point of no
return. Listen, we have time, we have a runway, but we cannot
face another real estate crisis that requires taxpayers to bear
the burden of that.
It is undeniable that COVID-19 and the pandemic reshaped
the commercial industry. Throughout the pandemic, businesses,
both large and small, enacted telework policies, and consumers
adjusted to online retail. These trends have not changed
significantly as the world has returned to a sense of normalcy.
In 2023, the national office vacancy rate reached almost 20
percent, 19.2 percent for office vacancies. Delinquency rates
were about 6.5 percent during the final months of 2023. This
increase comes as more than $2.2 trillion in commercial debt
will come due between now and 2027, and refinancing this debt
comes as interest rates have jumped due to the Biden
Administration's inflationary crisis.
The Democrat spending spree has driven rampant inflation
and forced the Federal Reserve to take significant action to
tame inflation. Sadly, the Federal Reserve's interest rate
increases are not the only concern the Federal Government is
causing in the commercial real estate market. The Department of
Housing and Urban Development has continued to decrease the
number of loans it has made to support the commercial housing
market. At the Department of Transportation, developers have
reported that it takes a year longer after the loan is approved
to receive a disbursement on a qualifying commercial real
estate asset. This delay is unacceptable.
Across the Federal Government, agencies are allowing staff
to work from home despite decreased productivity, failures to
adequately regulate important sectors of our economy, and calls
from Congress.
[Audio malfunction.]
Mrs. McClain. Someone has got something to say.
[Laughter.]
Mrs. McClain. Even Mayor Bowser has told President Biden
that his Administration's telework policies are killing
Washington, D.C.'s local businesses. The Biden Administration
has offered vague information and statistics to support their
claim that post-pandemic telework has been successful. It took
4 months and the threat of a subpoena from the Federal agencies
to produce to the Committee basic information about their use
of telework.
Listen, I am from the private sector, so I do have a bias.
When you do not show up for work, you lose your job. For too
long, this Administration has allowed Federal employees to
skirt by on lax telework policies on the back of American
taxpayers. The commercial real estate market cannot flourish if
its offices are empty. The American people cannot flourish when
their Federal offices refuse to show up for work and do their
jobs, delaying new treatment and approvals, halting new
infrastructure projects, and enabling waste, fraud, and abuse.
We have to get back to doing America's business. Congress and
the Federal Government must do more to get out of the way of
industry leaders and eliminate burdensome regulations and red
tape.
Despite these troubling headwinds, there are signs that the
health of the commercial industry real estate market is
actually strong, right? We have these headwinds. We have all of
these negatives, but there is a sense that the commercial
industry is strong. I want to keep it that way. I want to make
sure that we do not end up in a bad situation, right?
Neighborhood retail properties continue to perform well.
Industrial real estate has also been a bright spot, with
analysis predicting moderate rent growth over the next 10
years. Multifamily properties continue to hold strong with
vacancy rates remaining stable. It is vital that we bring
Federal employees back into the office and ensure our
commercial real estate market remains strong.
I am looking forward to having this very important
discussion, and I want to yield to Ranking Member Porter for
her opening statement on this topic as well.
Ms. Porter. The calm before the storm is where everything
gets very peaceful before a big disruption. Congress gets this
phenomenon. It is like last week's calm district work period
before now facing a month of unpredictable governance in the
House. While it is easy these days to predict chaos in our
politics, Congress also needs to spot other possible disasters
while we are in a calm period. So, I want to thank my
colleague, Chairwoman McClain, for calling this hearing.
Too many of us get lulled into a false sense of security,
and nowhere is that truer than with financial crises. Over and
over again, when the economy is strong, politicians are so busy
taking credit that they fail to see storms on the horizon. Last
spring, government leaders were shocked when Silicon Valley
Bank, Signature Bank, First Republic all collapsed. Most folks
had not thought about bank failures since the financial crisis
of 2008, but all of a sudden, those banks failed. Businesses
were at risk of not making payroll or failing, deepening the
storm. Even though we weathered that storm, the government
should have seen it coming. Why didn't we? Maybe because
Congress was negligent during the calm.
In 2018, Republicans were joined by over four dozen
Democratic lawmakers to green light a bill that made it easier
for banks to legally take a position where the banks would be
less likely to be able to pay their depositors when they wanted
their money back. That law increased the risk of a storm, but
Washington was too busy enjoying the calm to prepare for it.
The 2008 financial crisis is the same story.
Washington thought that mortgage markets would be OK.
Mortgages where you can choose what to pay, lending 115 percent
of a home's value, what could go wrong besides everything? Yet,
the Federal Reserve itself insisted the risk was under control,
with Chairman Greenspan saying in 2006 that, ``There is no
evidence that home prices will collapse'' and later admitting
that ``He didn't see it coming.'' Why? Because he did not look,
and neither did Congress, which praised Greenspan right up
until they blamed him. It really makes you wonder what
financial warning signs are we ignoring right now in this
period of calm? Look no further than commercial real estate.
This year, commercial property owners across the country
are due to repay $929 billion in debt. That debt is held by
banks, hedge funds, investment vehicles, pension funds, and
others. If we do not want a major financial meltdown, the vast
majority of that debt needs to be paid back, but commercial
property owners are having a hard time doing that. Property
owners are not making the same money that they did before the
pandemic. The businesses who were their tenants canceled or did
not renew leases, and many cannot make payments, especially
with rising interest rates, and those interest rates make it
harder to sell their properties or pay off their mortgages. And
to make it even worse, some local governments are doubling down
on the commercial real estate crisis. Can you believe how
aligned we are?
Mrs. McClain. Cats and dogs living together.
Ms. Porter. That is right. Can I be the dog?
Mrs. McClain. Yes.
Ms. Porter. OK. Today, any property transfer in Los Angeles
County worth more than $10 million gets taxed at a whopping 6
percent. This kind of big tax change adds huge risk to the
commercial real estate market at the worst possible time. It
compounds the risk of a major collapse that all levels of
government should be working together to prevent. Look,
commercial property owners take risks, and losing money is one
of them, but when the whole market crashes, that causes a
problem that hurts all of us. It could mean widespread
unemployment, bank failures, and slow economic growth.
So, what do the banks and other lenders do? They keep
extending due dates for loans, hoping that commercial property
owners will eventually get into a better place to pay them
back, but that has not happened even after a few years of
extensions. Ultimately, property owners will need to pay back
the loans, or they will default on them. Those are the only two
choices. The longer we postpone the outcome, the bigger the
balance grows and the greater the economic risk becomes.
Problems never get smaller when you push them into the future,
and this one will get bigger. Let us try to prevent or minimize
a future storm for our economy while we are still in the calm.
I yield back.
Mrs. McClain. Thank you. I am pleased to welcome our
witnesses for today. Mr. Jeffrey DeBoer is the president and
CEO of the Real Estate Roundtable, an expert in commercial real
estate management, ownership, and development. Welcome. Mr.
Jeffrey Weidell is the CEO of NorthMarq and an expert on
commercial real estate debt and equity financing, testifying on
behalf of the Mortgage Bankers Association. Thank you for being
here. And Mr. Doug Turner, a Senior Fellow for Housing Policy
at American Progress. Welcome, sir. We look forward to hearing
what you have to say on today's important subject.
Pursuant to the Committee Rule 9(g), the witnesses will
please stand and raise their right hand.
Do you solemnly swear or affirm that the testimony that you
are about to give is the truth, the whole truth, and nothing
but the truth, so help you God?
[A chorus of ayes.]
Mrs. McClain. Let the record show that the witnesses
answered in the affirmative. Thank you, and you may have a
seat. We appreciate you being here today and look forward to
your testimony.
Let me remind the witnesses real quick that we have read
your written statements, and they will appear in full in the
record. Please limit your oral statements to 5 minutes. As a
reminder, please press the button on the microphone in front of
you so that it is on, and we can hear you. When you begin to
speak, the light in front of you will turn green. After 4
minutes, the light will turn yellow. When the light comes on,
which is red, your 5 minutes has expired, and we would ask you
to please wrap up. I now recognize Mr. DeBoer for your witness
testimony.
STATEMENT OF JEFFREY DEBOER
PRESIDENT AND CEO
THE REAL ESTATE ROUNDTABLE
Mr. DeBoer. Well, thank you very much. I think I will just
align myself with your remarks. That seemed to be right on
point, but seriously, thank you for holding this important
hearing today. It is frequently, I think, misunderstood because
real estate is so intertwined with the economy, how important
it is to the economy, and you both highlighted many ways. Let
me just point a couple of other things out.
The industry directly supports more than 15 million jobs in
the economy. Real estate asset values and transaction volume
provide the principal source of tax revenue for local budgets,
paying for education, road construction, law enforcement,
emergency planning. And people oftentimes do not think about
pension fund, but pension funds invest a substantial amount of
money in commercial real estate, and those returns build nest
eggs for the retirement for millions of people. I also want to
be clear that today, the commercial real estate industry is not
here seeking a bailout of any sort. We agree with what you are
saying. Let us understand the problem and get in front of it,
but there is no bailout. To the contrary and, again, consistent
with what you said, we believe all stakeholders, regulatory and
private sector, should work together to make sure that real
estate continues to be a prime part of our economy and enables
cities to grow, business needs to be met, and housing
challenges to be beaten.
I want to focus my comments, my oral statement anyway, on
two sectors of the real estate commercial market that are on
the top of your minds: the office sector and housing. Regarding
the office market, stress began to elevate in 2023 as the
uncertainties of the post-pandemic office space use came to be
better known, and then became combined with higher inflation-
induced operating costs and higher inflation-fighting finance
costs. These factors, in essence, created a perfect storm of
significant challenges for the office market, but even in
office markets, there are notable differences. Some individual
owners are facing considerable pressure, potentially leading to
foreclosures, as you mentioned, defaults, and large losses of
equity. At the same time, many top tier modern office buildings
with strong ownership and workplace amenities are currently
weathering the storm. Most commercial real estate bank loans,
by the way, are 8-to 10-year terms. They are frequently
interest only, and many times they were originated with
floating interest rates.
You might want to look at what came before to understand
where we are today. The environment of government-mandated,
artificially low interest rates began in earnest in 2008. Rates
increased marginally over the next decade, but they remained
historically low during that time period. Commercial real
estate markets, office markets in particular, were in balance,
roughly about 12 percent office vacancy at that time. It is
easy to forget that the Fed was holding the Federal funds rate
at around zero as recently as the first quarter of 2022.
Moreover, commercial real estate loans from that period are
generally considered to have been originated quite
conservatively, 50 percent to 60 percent loan-to-value and a
strong debt coverage. The Fed started hiking rates, as we all
know, in the first half of 2022 and, in a span of roughly 18
months, raised rates 11 times, bringing the key Fed funds rate
to a target range of five-and-a-quarter, or five-and-a-half,
the highest since early 2001. Not since the 1980's has the Fed
hiked rates at this speed.
Around this time, as concerns about a recession increased,
regulators for banks began calling for increased loan loss
reserves on commercial real estate lending, and they also
called for a reduction in commercial real estate loan portfolio
concentration. In other words, not only were financing costs
rising rapidly, but financing availability was shrinking.
Liquidity was contracting substantially in all commercial real
estate markets, but particularly office. For example, in the
second quarter of 2023, the overall commercial property debt
market rose only 1 percent. Diminished market liquidity and the
drop in transaction value, in turn, increased pressure further
on property evaluations. It is in this environment that nearly
half of the $4.7 trillion property debt market originated
during the government-mandated low interest rate period is
scheduled to mature by 2027. This is an environment where base
interest rates have risen nearly 500 basis points in a 24-month
time, and one in which lenders are urged to reduce their
commercial portfolios.
There have been, and it is worth acknowledging, helpful
policy actions. Principally last year, the Federal regulators
issued guidance where they instructed lenders to work with
creditworthy borrowers, and they gave flexibility to
restructure maturing commercial loans. That was helpful, but
more needs to be done. Banks need to be encouraged to
restructure existing loans with new equity. These new loans
should be classified as performing, and they should also
reflect transitory assets. When a new owner comes in, they have
to move that asset into a stabilized position. That should not
be criticized.
I also want to mention office use space. During the
pandemic, authorities sent people home, and that was probably
the right thing to do, and the real estate industry worked
diligently to provide safe work environments and to accelerate
the reopening of activity. Today, returning to in-person work
is critical to the health of cities, local economies, tax
bases, and small businesses, as you have mentioned, but while
the private sector office space occupancy is slowly picking up,
the Federal Government workforce is behaving as if the pandemic
still exists. This is despite President Biden's call for
agencies to return to work. We applaud the work of this
Committee in the SHOW UP Act, and we think that more effort
should be done. It has passed the House. Let us get it through
the Senate.
In summary, this self-reinforcing cycle of higher financing
costs, less credit availability, and fewer transactions must be
broken. And it certainly should not be made worse by adopting
procyclical measures, such as the Basel III endgame and other
regulatory matters, that will restrict credit and capital
formation, and the Federal Government should get back to work.
Now, regarding housing, yesterday a coalition sent a letter
to Congress cataloging a host of pending items that we have,
including converting obsolete buildings into housing,
increasing the low-income housing tax credit volume caps,
incentivizing local zoning and permitting reforms, increasing
efficiency in the Section 8 Housing Voucher Program, and more.
Finally, I would like to note that rent control and eviction
moratoriums are, on first blush, appealing concepts, but they
have proven time and again that they are counterproductive to
addressing the housing shortfall.
I probably went over time. Thank you for your indulgence,
and I think I only said in conclusion once. So, thank you.
Mrs. McClain. Thank you, sir. We will now hear from Mr.
Weidell. Thank you.
STATEMENT OF JEFFREY WEIDELL
CEO
NORTHMARQ
Mr. Weidell. Chairwoman McClain, Ranking Member Porter, and
the Members of the Subcommittee, thank you for the opportunity
to speak to you today on behalf of the Mortgage Bank
Association. My name is Jeff Weidell. I am Chief Executive
Officer at NorthMarq, a top ten commercial real estate finance
and sales firm with expertise in debt, equity, property sales,
and loan servicing. I am testifying in my capacity as the
current Chair of the MBA's commercial multifamily board of
Governors. My full written statement provides an overview of
the commercial real estate sector.
In short, it is exceedingly difficult to paint the picture
of commercial real estate with broad brush strokes. The market
is big and diverse, with a range of different property types,
geographic markets, and submarkets, borrower and lender types,
and loan and deal vintages. These property types include
multifamily, retail, industrial, lodging, self-storage, office,
and many others. They are located in markets across the
country, from downtown corridors to rural areas. They are owned
by sophisticated institutions and funds, by public companies,
and by private investors and individuals.
The MBA estimates there are $4.7 trillion of highly
diversified commercial mortgage debt outstanding. About $2
trillion of that is backed by apartment buildings, $740 billion
by office, $415 billion each by retail and industrial, and then
the remainder by the other range of property types. MBA also
estimates that roughly $1 trillion in commercial real estate
mortgages will mature this year. However, it is also important
to note that its statistics show 96.8 percent of outstanding
loans are performing. Commercial banks hold the largest share
of this debt at $1.8 trillion, but that bank total is not just
office. It is diversified between all the various property
types that I previously mentioned. The GSEs hold the second
largest amount of commercial mortgage debt at $1 trillion. Life
insurance companies hold $733 billion, and other capital
sources combined hold $573 billion.
Certainly, delinquency rates on commercial mortgages have
been rising, particularly for loans backed by office
properties. Twenty percent of the commercial mortgage debt is
set to mature in 2024. Multifamily markets make up the largest
piece of those maturities this year at $257 billion, followed
by office at $206 billion, but every property, as you
mentioned, and every owner are in unique situations. The mix of
variables involved are critical to determining which properties
and loans face challenges and which do not.
Between 2014 and 2022, on average, commercial property
values grew by 90 percent, and multifamily values grew by 144
percent. In other words, if owners have been holding a property
over time, they likely have built a fair amount of equity. The
real challenge and the opportunity is that the markets have
reset from where they were a few years ago in terms of interest
rates, property values, and, in some instances, the fundamental
operations of the properties themselves. Owners, developers,
lenders, and other market participants are all working through
the process of transitioning the commercial real estate market
to this new reality of higher rates.
What can regulators do to ensure a smooth transition? Kind
of four things I note here. First is re-propose the Basel III
Endgame. If it is left unchanged, it will negatively impact the
availability of commercial credit. The second is exempt
multifamily and commercial property loans from the HMDA and
Section 1071 reporting. Third is to urge HUD on in two ways: to
reduce its multifamily mortgage insurance premiums and
application fees and to reconsider program requirements that
raise the cost of building rental housing. And last of these
items, we would like you to urge state insurance commissioners
to work with key stakeholders to address the cost and
availability of property insurance.
Now, what can Congress do? Three points: pass bipartisan/
bicameral tax proposals, pass bills that provide incentives for
state and local governments which help support and increase the
affordable housing supply, and enhance existing affordable
housing programs and initiatives. Thank you again for this
opportunity to represent the MBA, and I look forward to
answering any questions.
Mrs. McClain. Thank you, Mr. Weidell. The Chair now
recognizes Mr. Turner for 5 minutes.
STATEMENT OF DOUG TURNER
SENIOR FELLOW FOR HOUSING POLICY
CENTER FOR AMERICAN PROGRESS
Mr. Turner. Thank you. Chairwoman McClain, Ranking Member
Porter and distinguished Members of the Subcommittee, I
appreciate the opportunity to address you on an important
aspect of the topic at hand today.
At the same time, many communities have seen greater
vacancies in office buildings and other commercial properties,
the Nation itself is several years into a substantial housing
shortage and, particularly, an affordable housing shortage. The
problem is not new. Housing production has not kept pace with
demand since 2007. Estimates currently are that the country
needs an additional 2 to 4 million housing units, but that
number grows as production lags household formation. According
to the last data from the Census department, almost 41 million
households are considered housing cost burdened, meaning they
pay more than 30 percent of their gross income for housing.
That is almost a third of the country. More than half of the
renters and over 19 million homeowners are housing cost
burdened. We have actually not fared well in the production of
affordable housing for almost 15 years. There are 43 million
rental households but fewer than 14 million units available at
a price point under $1,000.
Today, in discussing the conversion of commercial space to
housing, one of the most relevant populations here are those
perhaps more in the middle-income tiers. Those making $35,000
to just under $50,000, half of them--half of them--pay 30
percent or more of their gross income for housing costs. This
is no longer a problem of only those in poverty, though it is
certainly, certainly a problem for those who are on far lower
incomes. This problem now reaches well into the middle class.
There is no question that higher mortgage rates have
hampered the effort to reduce the housing cost burden.
Uncharacteristically, they also reduced the supply of existing
homes for sale. Typically, when mortgage rates rise, prices of
existing homes fall to compensate, but we have a number of
owners with pandemic-era mortgages well below 4 percent who do
not wish to sell, and there are roughly 2 million fewer
existing homes for sale than would typically be the case. It is
overly simplistic to say that housing of any type would be
helpful, but to the greatest extent possible, the country needs
new housing units that immediately serve lower-income and
middle-class families specifically to conversion.
This is not a new idea. Former office buildings, department
stores, hotels, and schools have been converted to housing, and
those have spanned from luxury condominiums to homeless
shelters. The difference is that those are typically vacant
buildings, and the commercial office properties we are looking
at now, there is an urgency, which is not typically a factor if
we are going to convert them to housing. We have an urgency as
a country, communities have an urgency, and, yes, owners and
lenders have an urgency to preserve the maximum possible value
of their assets. Conversion on this scale is needed by many
stakeholders.
There are great environmental benefits to conversion. Even
older office buildings are typically more energy efficient,
climate resilient than much newer freestanding homes. The scale
of feasibility remains a question. Few days go by that at least
one article in my news feed does not have a story that either
says conversion is the ultimate solution to all the problems
facing both industries or that it is a naive fantasy that is
just never going to work, and the truth lies somewhere in
between. Commercial real estate conversion is not a panacea for
all of the problems. They are assets in market-specific
conditions, and we need to do this for the wider benefit of
American communities.
The Biden Administration has prioritized affordable
housing, even issuing in October the first version of a
guidebook to aid the process of conversion. And I think it is
helpful to understand that this sent a strong signal of the
seriousness of the Administration to both the CRE problems and
a recommitment to affordable housing.
I see I am over, but I want to compliment the Real Estate
Roundtable for a second. They sent a letter to the Council of
Economic Advisors in April and offered some very specific
suggestions on how to improve the conversion process. Many of
these are sensible, and they could help direct what is an
evolving policy. We have not seen an attempt to convert this
much real estate in a short period of time. One of his points
was that new incentive programs are needed, and there is an
agreement there that we would have to find this, to expand the
toolbox for both the Federal Government and the local
communities. So, again, I think there is more common ground
here as well.
I will wrap up. Thank you. Thank you for the opportunity to
speak with you about our country's need for more affordable
housing and the part that this situation can play in the shared
goals of the leaders of both the commercial real estate
industry and those of affordable housing. Thank you.
Mrs. McClain. Thank you, Mr. Turner. The Chair now
recognizes Mr. Burlison for 5 minutes.
Mr. Burlison. Thank you, Madam Chair. Under President
Biden, Americans have been consistently experiencing a
detrimental impact to their pocketbooks through inflation, and
the polls indicate that Americans believe that they are worse
off under this scenario than the previous Administration. The
answer seemed to be to reduce inflation or to pass the
Inflation Reduction Act. Mr. DeBoer, do you believe that the
Democrat legislation, the Inflation Reduction Act and the
American Rescue Plan, actually succeeded in lowering inflation
and, ultimately, interest rates?
Mr. DeBoer. Well, I would like to leave it to others on
that point, but I will say that raising interest rates applied
primarily to the commercial real estate industry and car
buyers. Much of the economy was not even subject to interest
rates going up, education, the spending under the
infrastructure bill, and other things. Do I think that bill
lowered inflation? I do not know. To the extent, maybe it
opened up the supply chain problems.
Mr. Burlison. Mr. Weidell, do you believe that the
Inflation Reduction Act lowered inflation?
Mr. Weidell. I cannot speak to the Inflation Reduction Act.
Our industry is benchmarked mainly off of short-term interest
rates and the 10-year Treasury, and we are still kind of
suffering through the rate increases there and the inflation in
the cost of mortgages.
Mr. Burlison. OK. So, let us dive into that then. So, we
are experiencing higher interest rates than before. Either one
of you can chime in. How is that having an economic impact on
your industry?
Mr. Weidell. I could jump on that one. I mean, from a
mortgage finance perspective, it is pretty simple, and it is
consistent with what is happening on the residential side. It
seems as if a lot of existing mortgage rates are about four
percent. The current market, let us call it 6 1/2 percent, and
that is a major adjustment. You cannot qualify for the same
amount of leverage, and the leverage costs more. So, when
people come to us for a loan, we are often coming up with less
proceeds than they need at a higher cost, and that is the
transition the industry is going through.
Mr. DeBoer. I think that also there is so many mortgages
that were originated in the period of historically low interest
rates that are now coming up to be refinanced, and they are 500
basis points roughly higher on the Fed funds rate.
Mr. Burlison. Yes.
Mr. DeBoer. That makes it very, very difficult to refinance
commercial mortgages under this scenario.
Mr. Burlison. So, that is a good question because we have
experienced this before where we have had a cliff. I mean, do
you see this as a cliff effect where you have got a lot of
commercial loans that are now hitting their expiration date or
coming up for renewal, and they are going to have a dramatic
increase in their interest rates. Do you see----
Mr. DeBoer. I would not necessarily term that issue as a
cliff. It is more of a slow-moving train wreck as these
mortgages come up, they are restructured, the meetings are
going on with lenders. Some are not going forward. Some are.
So, it kind of builds up. It is not an overnight problem, I
guess I would say.
Mr. Weidell. The mortgages that are maturing this year, I
mentioned the word ``vintages,'' and they come from all
different vintages. A lot of our industry operates off of 10-
year mortgages, a convention on kind of the longer-term, and
then some operate on bank loans off a 3-year. So, for example,
we will have a 10-year loan from 2014 maturing this year in
2024, as well as a 3-year loan from 2021 maturing this year in
2024, and they tend to have very different characteristics. The
one that has been in place longer probably has more margin. The
one that just came in, into effect a few years ago does not
have the margin. So, there is a mounting maturity, but the
maturities are not the same.
Mr. Burlison. So, are we seeing a softening in the industry
from demand because of the ecommerce move to have people work
from home as well?
Mr. DeBoer. I think there is substantial question in the
office market about future office needs, but the occupancy has
been going up. On interest rates, I would also say just because
the rates went up, the values are coming down, so refinancing
those mortgages at the number that they were originated at is
going to be very, very difficult without a lot of equity and
new capital going into that product. This is a very self-
fulfilling prophecy. As rates go up, values go down,
concentrations are decided to be lessened, and values go down
again, so.
Mr. Burlison. Real quick, the last question is, how do you
see this comparing to what we experienced in 2008?
Mr. DeBoer. Well, 2008. You want to take this, Jeff?
Mr. Weidell. No.
[Laughter.]
Mr. DeBoer. I would say I think in 2008, arguably, there
were a lot of loans that may have been originated that were
not, let us say, conservatively underwritten and maybe never
should have been written in the first place, that were coming
due that clogged up the plumbing within the financial system.
That is not what is happening here. These mortgages were issued
in a conservative basis. Markets were largely in balance when
they were done. They have been thrown out of balance because of
high interest rates and a change in the demand side of things,
primarily. So, I do not see them as all that equal.
Mr. Burlison. My time has expired.
Chairwoman McClain. Thank you. The Chair now recognizes Ms.
Crockett for 5 minutes.
Ms. Crockett. Thank you, Madam Chair. Mr. Turner, as a
trained attorney, I am not supposed to ask a question I do not
know the answer to----
[Laughter.]
Ms. Crockett [continuing]. But I am so about to do that
because I trust and believe in you, OK? So do not let me down.
I want to level set really quickly. Inflation, Biden-induced or
pandemic-induced?
Mr. Turner. Goodness. No pressure.
[Laughter.]
Mr. Turner. Thank you for that. I think that, first of all
and as was said earlier----
Ms. Crockett. Hold on. I only got 5 minutes, and I got a
lot of questions. So, just real quick, Biden or----
Mr. Turner. There was a period of extraordinarily low
interest rates after the 2008. I mean, over the long term, the
average 30-year mortgage rate, which is what I am most familiar
with in housing, I think that it was much more supply chain,
COVID-related than----
Ms. Crockett. OK.
Mr. Turner [continuing]. Anything President Biden did.
Ms. Crockett. Thank you so much. My next question is, as it
relates to inflation, is this a domestic inflation, or has
inflation been global?
Mr. Turner. Well, there are others who can speak much more
to global economics than I can with my expertise being----
Ms. Crockett. But you agree with me that it was global?
Mr. Turner. It is. There are very few markets anymore that
are purely domestic----
Ms. Crockett. OK.
Mr. Turner [continuing]. Particularly for financial
problems.
Ms. Crockett. Thank you. So, I just want to make sure that
we level set with that really quickly about the fact that the
inflation that we are experiencing has not been a Biden-Harris-
induced inflation but pandemic related, as well as inflation
has been global and not domestic or limited to domestic, as
well as the fact that the United States is actually rebounding
better as it relates to our inflation than some of our other
counterparts that are similarly situated. So, I wanted to make
sure that we talked about that really quickly, in addition to
the fact that every time we come into this Committee, it seems
like maybe once every so few months, we got to start blaming
these government workers for not going to work because they are
lazy. That is what we hear, is that all of our problems in the
world are because of telework. If I had a dime for every time
we blamed telework, then I may have enough money to pay Trump's
legal fees for his four criminal indictments.
But nevertheless, what I would like to make sure that I get
admitted into the record, so Madam Chairwoman, I would ask
unanimous consent to enter into the record a 2024 white paper
from 2024, Brookfield published----
Mrs. McClain. Without objection.
Ms. Crockett. OK. Thank you.
All right. So, there are a couple of things that I want to
talk about. Is there a problem as it relates to commercial real
estate right now? Yes, there is, and I appreciate your response
that you just had about the fact that it is not necessarily the
same as 2008. It is nothing like 2008 from everything that I
can tell, and that is coming from the business major side of me
that is speaking, but I do want us to make sure that we focus
on a couple of things that are going on.
At one point in time, we used to have a thing called a
typewriter, and then we moved on to computers, and then we
moved on to computers with the internet. At another point in
time, we used to have this thing called a telegram, and then we
moved on to landline telephones, and then we moved on to
cellphones. And at one point in time, we used to have horse and
buggy, and then we moved on to gasoline-operated vehicles, and
now we are moving on to E-vehicles.
Here is the deal. We have a transitioning workforce. We
understand that while a lot of people were not in their offices
specifically because of the pandemic, we know that some
companies and corporations saw benefits in not being in the
building as they had to adjust because of the pandemic, but
they found that, you know what? Maybe this is where we should
develop, and they decided to do that, and I think that that is
OK, but we now have to adjust. So, I want to talk to you about
solutions. I do not want to just say, well, you know, back
before the pandemic, everything was great. Back before the
pandemic, a lot of people did not die either. So, yes, there
are a lot of things that I would prefer did not take place as a
result of the pandemic, but I just cannot go back. And so, I
want to talk about solutions because that is what we are
supposed to do in Congress. Instead, we play games, but I am
going to be real with you, and I want to ask you all questions.
Anybody can jump in.
In my opinion, as we have these commercial buildings that
are sitting vacant for whatever reasons, and it seemed like the
numbers were ticking up for those businesses specifically as it
relates to commercial properties. Would it be helpful if the
Federal Government offered a subsidy of some sort or some sort
of incentive to convert some of that commercial real estate
that is sitting there empty into, say, housing because that
would solve two issues that we currently have. We have a
housing supply issue, and we also have an issue as it relates
to the cost that a lot of commercial property is enduring right
now. Anybody jump in? And, Madam Chairwoman, I would just ask
that you allow them to answer. Thank you.
Mr. DeBoer. Ma'am, it would be very, very helpful if there
was some sort of Federal subsidy. A lot of state and local
governments are providing incentives to convert. Here in D.C.,
there are some, New York has some, other cities, but the
Federal Government could be very helpful with some sort of a
conversion tax credit, perhaps modeled after the REHAB tax
credit that is in law now or something. These conversions, as
Mr. Turner mentioned, are extremely expensive. It is not good
for every building, but it is good for some, and it would, as
you said, help housing and it would help cities and so forth,
so the answer is yes.
Ms. Crockett. Thank you so much.
Mr. DeBoer. And by the way, Mr. Gomez, who is on this
Committee, has been working on a bill in this area that could
be very helpful.
Ms. Crockett. I will let him know that you have lobbied for
him.
[Laughter.]
Mrs. McClain. Thank you. The Chair now recognizes Mr.
Grothman for 5 minutes.
Mr. Grothman. See, there we are. Even our witness thinks
the answer is more government money. That is why we are broke.
OK. Mr. Weidell, your testimony states the current
Administration is producing overburdensome regulations. Can you
give me some examples and explain why it is an issue?
Mr. Weidell. Sure. I think the two that we speak of, you
know, kind of on a simple basis involve things that are more
consumer driven and really should not apply to the multifamily
business and commercial properties in terms of the HMDA in the
section 1071 reporting. You know, these things are more for
small proprietors and business owners, and we are really
involved in property finance and it kind of creates a layer
of----
Mr. Grothman. Can you narrow it down and give me a specific
example where it does not apply?
Mr. Weidell. I am going to have to allow the MBA to provide
that information to you because they have access to that. I
mean, and in the other area I would go to HUD, and, you know,
the regulations and the structure of HUD is such that it is the
least preferred alternative in the market when it could be the
most preferred alternative. And that has to do both with the
cost of delivery and the timing of delivery, and the structure
of it and the regulations involved. Yes, the MBA will get back
to you on the details, but within HUD, I mean, for example,
they require guarantees of access of fire service and water and
sewer. They require sound studies, burrowing animal studies,
all these sort of things that are covered by other government
agencies that are duplicative in the work, and they add to the
timeline and the cost and not really to the housing which we
need to build.
Mr. Grothman. OK. Mr. DeBoer, I want you to elaborate a
little bit on inflation, the effect higher interest rates have
on the whole commercial real estate market.
Mr. DeBoer. Sure, and I should also rehabilitate myself a
little bit, in your eyes anyway. Not only is Mr. Gomez, but
also Congressman Mike Carey, is very interested [inaudible].
Mrs. McClain. Can you turn your mic on?
Mr. DeBoer. In terms of inflation and cost, both the
pandemic and what the President has done. Many of these
programs have Davis-Bacon attached to it and provisions like
that, that drive up the cost of construction dramatically, so I
just want to separate----
Mr. Grothman. Could you give us an idea how much it drives
it up?
Mr. DeBoer. We have seen indications between 20 and 25
percent of cost is going up on some projects, yes.
Mr. Grothman. OK. Which projects do they require it on?
Mr. DeBoer. Well, anything under the IRA is in that case,
and there are a variety of programs. Some people want, for
example, to attach that to this conversion situation. We think
that would be counterproductive, so, and obviously, interest
rates are a big problem for existing owners seeking to
refinance.
Mr. Grothman. Could you give me some just ballpark, throw
out some numbers of a typical example, and you can show us how
much it would drive up rents or cause the underlying property
owner to go under?
Mr. DeBoer. I would prefer to get back to you on that,
except to say that if you had a loan of, let us say, a hundred
dollars that was done at 65 percent loan-to-value, today, with
higher interest rates, that hundred-dollar value is probably
down to $80. You are not going to refinance the $65 on that.
You are only going to get probably $45. So, you are going to
have to pay down that $65, and you are going to have to put
additional capital into the property because of what is
happening in the market in terms of driving office tenants to
higher-amenity buildings, if that helps, but I would be happy
to give you a more concrete----
Mr. Grothman. OK. If you could give us an example of some
sort of commercial development, and apart from the interest
rates, how much would a property you are building, say, go up
in the last 3 years since the big inflation, the big increase
in government debt?
Mr. DeBoer. I think those would be a unicorn to find in the
economy where they have gone up in the last 3 years. We are
seeing office declines of 30-40 percent. All assets went down
in value because interest rates went up. It is a simple math
situation there. On operating costs, keep in mind, property and
casualty insurance premiums have dramatically increased over
the last several years.
Mr. Grothman. OK. The cost of building residential real
estate has gone up considerably.
Mr. DeBoer. Yes.
Mr. Grothman. Has that affected the cost of building
commercial real estate, or you just stopped building
commercial?
Mr. DeBoer. Of course. Yes, it does. Land, labor materials
have all gone up in cost, yes.
Mr. Grothman. OK. Thank you.
Mr. DeBoer. It does not matter if it is residential or
office.
Mr. Grothman. Thank you.
Chairwoman McClain. Thank you. The Chair now recognizes Ms.
Norton for 5 minutes.
Ms. Norton. Thank you. This is a question for Mr. Turner.
The commercial real estate market is obviously critical to our
Nation's economy, and it is critical to the District of
Columbia's economy, and I represent the District. D.C., like
other cities, has seen a sharp decline in the assessed value of
commercial office buildings since COVID, leading to a reduction
in tax revenue for our cities. This dramatic reduction in
office values is both deeply concerning and an opportunity to
reimagine our downtowns.
I would like to turn to the residential real estate market,
which is also critical to our economy and American families.
The shortage of affordable housing in the District of Columbia
and across the country is troubling. The National Low-Income
Housing Coalition estimated that we have ``a shortage of 7.3
million rental homes, affordable and available to renters with
extremely low incomes.'' Mr. Turner, is our Nation's housing
affordability crisis a recent development?
Mr. Turner. ``No'' is the very short answer. Thank you for
that question. We have always had a percentage--we term it cost
burdened, meaning you are paying more than 30 percent of your
gross income for housing expense. Even after the 2007-2008
bubble where there was a great deal of housing built that
sometimes was unoccupied, we still had a sizable percentage of
the population, a sizable number of households who could not
find affordable housing or pay for it. It is important to note
that the operating cost of housing, including insurance,
maintenance, even if the home is free, without the ability to
pay those operating costs to continue it, if that is more than
30 percent of the income, it is not an affordable home. We have
had this for a very long time, and it has gotten worse in terms
of the unit count in the last 15 years, and operating costs are
driving that, but, no, ma'am, this is not a new problem. This
is just one that has been exacerbated.
Ms. Norton. Well, Mr. Turner, what would it mean for
American families and for our economy if we could expand the
availability of affordable housing?
Mr. Turner. I do not think it is an overstatement to say
that it would mean real financial futures for many of them. I
mean, if you are paying 50 percent of your income for rent, you
have very little money to buy the proper foods, for
transportation, for all of life's other necessities. You are
likely taking much more consumer debt. I mean, we like to think
of homeownership as the path to gaining equity and to gaining a
stake. Exactly the opposite is happening with those who are
unable to find housing that is affordable to them. They are
having to forego something.
Ms. Norton. Well, Mr. Turner, what are the most important
things we here in Congress should be doing to expand the
production of affordable housing for Americans?
Mr. Turner. It is extraordinarily important that we look at
the raw number that needs to be provided. We have programs, and
the funding levels of those programs, the use of those
programs, the direction of those all need to look at the
greatest needs. I hope this is answering your question. I mean,
encouraging starter homes instead of homes that have grown to
2,500 square feet, encouraging apartments being built or
rehabilitated that are actually affordable to the lowest-income
tier and, where necessary, providing more rental subsidy for a
number of families who otherwise are still going to fall below
the affordability gap there.
Ms. Norton. Thank you, and I agree that expanding the
availability of affordable housing must be an urgent priority.
I thank the Biden Administration for their focus on addressing
this challenge, including through the American Rescue Plan, and
I yield back.
Mrs. McClain. Thank you. The Chair now recognizes Ms. Foxx
for 5 minutes.
Ms. Foxx. Thank you, Madam Chairwoman. I thank our
witnesses for being here today. Mr. Weidell, in your testimony,
you state that the Biden Administration is producing ``over
burdensome regulations''. Can you give us some examples of
those regulations and tell us how that is harmful to the
commercial real estate sector?
Mr. Weidell. Well, I think there are a couple. We had
mentioned a few before. Certainly, the Basel regulation is a
high priority for the MBA to make sure it does not go through
in its current form. It will diminish liquidity in the banking
system at a time when we really need it. The other is just to
amplify on HUD. HUD has actually seen a decrease in volume of
construction of units by about 75 percent at a time where
everybody agrees those units are needed to a great degree, and
it is simply overburdened both by cost and by the regulations.
Ms. Foxx. And I want to do a quick follow-up on that.
President Biden boasted his Administration is cracking down on
junk fees in private industry that he argues are unnecessary
and driven by greed. Meanwhile, as you point out in your
testimony and just now, the Department of Housing and Urban
Development seems happy to apply its own junk fees that
undoubtedly have a greater impact. How do these government-
driven junk fees impact the development of commercial real
estate?
Mr. Weidell. Well, certainly to the negative. You know, the
higher the cost, the less the development, and it is certainly
something the MBA has been working on and has kind of a long
list of these fees that we would like to see reduced or
eliminated.
Ms. Foxx. OK. Further, you discussed the mortgage insurance
premium that is required for certain loans backed by the
Federal Housing Administration. How would developers and
communities benefit from lower insurance rates or from the
opportunity to acquire insurance by other measures?
Mr. Weidell. Again, the cost of financing is a significant
component of the cost of the construction. So, to the extent it
brings down the cost of the financing, which is what that would
do, it increases the leverage and the ability to build
projects.
Ms. Foxx. Thank you. Mr. DeBoer, what are the most
significant barriers, either Federal or local, that developers
and investors face when deciding to build multifamily projects?
Mr. DeBoer. You know, I think I got that. You asked what
the major considerations were in building affordable housing.
Land costs obviously, but some of these things you just
mentioned, junk fees in owning real estate. That increases the
operating costs and expenses of owning property, but certainly
zoning issues, permitting problems. I would throw out the
Section 8 Program, which is a longstanding program but requires
apartments usually to be vacant while they check to make sure
that the person qualifies, so the owner is floating that, and
then to recover the Section 8 voucher amount is a lengthy
process. That could be streamlined. It would be very, very
helpful. And just to respond over here on the low-income
housing tax credit, if that was done, it would produce about 2
million new low-income homes over the next decade. So, there
are things that could be done.
Ms. Foxx. I think anybody with half a brain understands
that the high cost of housing is coming from unnecessary rules
and regulations from the local government, state government,
and the Federal Government. It does not take a rocket scientist
to figure this out. Could you describe how the Biden
Administration's actions, Mr. DeBoer and then Mr. Weidell, if
you want to, describe how the Biden Administration's actions
have undermined growth in the commercial real estate market. Do
not repeat what you have already said, but any other comments
that you want to make?
Mr. DeBoer. I think I probably said more than I could have
said. I cannot think of anything more except----
Ms. Foxx. OK.
Mr. DeBoer [continuing]. To agree with your comment about
too much regulations are negative.
Mr. Weidell. I would just offer there are two components.
One is the GSEs. Freddie and Fannie were unable to meet their
cap allocations last year, and we would like to see them meet
those this year and provide liquidity to the market overall.
They are focused appropriately on mission driven and affordable
housing, but the greater market can use their help, too, and
assistance.
Ms. Foxx. Well, thank you very much. Madam Chair, I yield
back.
Mrs. McClain. Thank you. The Chair now recognizes Ms. Lee
for 5 minutes.
Ms. Lee. Thank you, Madam Chair. Unfortunately, my district
is not unique in experiencing the dual challenges of a
struggling downtown market alongside an affordable housing
crisis. Although Pittsburgh is only the 28th largest
metropolitan area in the country, we have the fifth highest
concentration of office space in the U.S., and right now, more
than 20 percent of that office space is vacant. At the same
time, according to the Habitat for Humanity of Greater
Pittsburgh, Pittsburgh is in need of at least 15,000 affordable
homes. That means dozens of our downtown buildings are standing
empty while thousands of hardworking families are experiencing
housing insecurity and are part of the unhoused crisis.
But as we have heard from our witnesses' testimony, it is
clear that we have an opportunity, and, in my view, an
obligation to solve both of these problems, perhaps at the same
time, by converting unused office space into affordable housing
and other mixed uses that meet the needs of the community.
In my district, the Urban Redevelopment Authority, through
the city of Pittsburgh, just recently launched a new pilot
program to enact these exact types of efforts, with a focus on
ensuring that everyone who works downtown has the opportunity
to live downtown, also. For decades, systematic discrimination,
redlining, and policies weighted toward the corporate interests
have led to high housing costs that have collectively fueled
the exodus of Black residents from the city. Now, under the
leadership of Mayor Ed Gainey, our city is committed to
righting these wrongs by re-envisioning and rebuilding a
downtown that benefits everyone. So, Pittsburgh cannot achieve
these goals without the engagement of commercial real estate
developers and without additional Federal resources.
So, Mr. DeBoer, what are some of the key challenges
developers face when considering converting an office space
into a housing development?
Mr. DeBoer. Well, size. How big is the building? What is
its configuration? What is the floor plan? What are the window
sizes? Does it fit with zoning? All kinds of issues to convert.
It is not an easy process, and there is a very real problem,
too. The building needs to be vacant, and, you know, how do you
move out those last business tenants if you do want to convert?
So, there are a lot of hurdles, but it is not impossible. As
Mr. Turner said, it is not a panacea, either, to these
problems, but I applaud you for what is going on in Pittsburgh,
and it should go on elsewhere, and do not confine it to office
buildings. There are other obsolete buildings, whether they are
small retail centers or something like that, that could also be
converted to housing.
The last thing I would say on that is look at it from both
ends of the spectrum. Part of the problem with availability for
low-income or lower-income housing availability is the lack of
availability for single-family housing at the other end, and
production at the single-family level has been way off for a
decade or more as well. So, it is the whole spectrum.
Ms. Lee. Yes. Thank you, Mr. DeBoer. Mr. Turner, what role
should the Federal Government have in supporting the conversion
of, for instance, office spaces into affordable housing, and
can you speak to what actions the Biden Administration has
already taken to that end?
Mr. Turner. Yes, I will. First of all, I think that the
Biden Administration most recently has, through HUD and other
efforts, really tried to incentivize local municipalities,
state and local government, to be more open with their zoning
and land use laws, which is a problem in doing this. I think
that providing additional, again, subsidy for this, raising the
amounts of programs that are both now on the books, and perhaps
looking to new programs to fund this is extraordinarily
important. And so, it is a great partnership.
Ideally, it is a partnership between state and local
government and the Federal Government because the Federal
Government, but for very few places, is the place that actually
has the resources----
Ms. Lee. Yes.
Mr. Turner [continuing]. But they do not need to be
proscriptive, and I think the Biden Administration really
recognizes that. There is a whole point unrelated to Pittsburgh
here. They are encouraging the use of manufactured housing in
areas where it is good--you do not want that in downtown
Pittsburgh, I am sure, but it is very important in other ways.
So, I think they are very open to that.
Ms. Lee. Certainly. If I can ask another one more. How do
we ensure that conversion incentive programs actually serve
underserved populations and do not just enrich large
corporations and corporate landlords?
Mr. Turner. We have to put very strict income limits, and
actually, ideally, a mixed-income facility, mixed-income
development is best, but, yes, we have to have strong
oversight. I see my time is up. Sorry. Strong oversight. I
mean, that is the one thing.
Ms. Lee. We finish our sentences all the time here until
they gavel us.
Mr. Turner. That is the one thing in discussions of HUD,
and, I mean, you know, there is a really clear and important
role for HUD and other Federal agencies to play in fair
housing. I mean, as you spoke to African-American families
leaving Pittsburgh and things like this. One of the numbers
that bothers me the most about housing is that, from a
homeownership standpoint, only 44 percent of African-American
households own their home, whereas 65-plus percent of others
do. Frighteningly, in 1970, that number was 42 percent when 2
years prior it had been actually legal to discriminate against.
So, we have not moved that needle. I know it is something that
the Biden Administration takes very seriously, and I appreciate
your letting me go over time just to say that.
Ms. Lee. Thank you, Madam Chair.
Mrs. McClain. Thank you. Without objection, Representative
Garcia from California is waived onto the Subcommittee for the
purpose of questioning the witnesses today at today's
Subcommittee hearing.
Mr. Garcia. Thank you very much, Madam Chair. I appreciate
you and appreciate the witnesses. I wanted just to thank this
opportunity for joining the Subcommittee.
Mrs. McClain. Go ahead. Go ahead. You are good.
[Laughter.]
Mr. Garcia. Should I continue? OK. Well, I will start over.
First of all, thank you to our witnesses for being here. A
really important topic, and I am grateful to be waived on to
the Subcommittee for today.
I served as Mayor of Long Beach for 8 years prior to just
joining the Congress last year, and so issues around housing,
commercial sector viability, kind of real estate markets, and
how we are ensuring that the most vulnerable are supported, I
think are all important issues and all have been important to
me. Downtowns, we know, are vital economic engines. It is where
the workforce oftentimes lives. It is where oftentimes you can
find housing that is currently being built. There is good
density policy typically in downtowns, all things which lead
usually to a good, strong, vibrant community. We also know that
we are facing major challenges, especially post-COVID, as it
relates to our downtowns.
Now, downtown commercial vacancy rates, we know, are much
higher after the pandemic. This has been discussed. According
to estimates, we know that values of office buildings have also
fallen pretty dramatically during this time, and really, the
pandemic really had, I think, obviously, a huge part in this.
Now, the industry often relies on short-term loans, which we
know are now more expensive than ever to refinance. As much as
$1.5 trillion in commercial real estate loans are set to mature
this year and the next, and U.S. regional banks will provide a
bulk of these loans, putting them especially at risk.
So, just last year, I wrote to the Treasury over this issue
and to evaluate whether stress in the commercial sector posed a
systemic risk to regional banks. I asked the Treasury Secretary
to do more, to respond, and to advise Congress on what to do,
especially as it relates to downtowns.
I would like to ask for unanimous consent to introduce that
letter into the record.
Mrs. McClain. Without objection.
Mr. Garcia. Thank you.
Commercial vacancies also create, we know, additional
problems. As has been discussed by my colleagues today, cities
face declining tax revenue. Nearby small businesses like
restaurants, shops, dry cleaning places, places where you can
maybe pick up flowers or groceries, all suffer when we have
vacancy rates, and we are not building enough housing. We know
that living nearby office buildings has also been a challenge
as we see these vacancy rates across the country, but it is
crucial that we also look at the opportunities.
We have a massive shortage demand. We have a massive need
for additional tenant support across this country. We know that
demand is high, but we also know that the rent is really high,
so people are forced to spend so much of their income on rent
and just to survive. They cannot save, invest, and certainly
cannot afford to spend oftentimes on other services that also
help build cities. The whole economy pays a price, and we know
this is not just a local issue.
The shortage of affordable housing costs us all
approximately $2 trillion a year due to lower wages and
productivity, and it is a travesty also that in the wealthiest,
most powerful country in history, we have over 650,000 of our
fellow Americans that are homeless, that are unhoused, and this
is especially true in my home state of California.
And I want to thank those of you that really promote
density. We have to get away in this country from thinking
``density'' is a bad word. Density is the future. It is how we
build more housing. We have to ensure that we are densifying
cities, we are densifying suburbs, that we are creating and
removing as much regulation to build as much housing of all
types as possible, with, of course, focusing on affordable at
any opportunity that we can build, including, I believe,
policies that force, in certain areas, inclusionary zoning,
which I think can be a positive tool for downtowns especially.
I also want to note that the Administration has recognized
this opportunity. They released, of course, its guidebook to
available Federal resources to commercial and residential
conversions. Mr. DeBoer, I know you wrote back to the
Administration once the guidebook was released. You had some
praise for the creativity but also saw some obstacles within
the guidebook as well, and I agree with some of those
challenges that you noted. In your letter, you had mentioned
the RRIF Program, the Railroad Rehab Improvement Financing
Program. I also wrote to Secretary Buttigieg as well. I will
enter that into the record.
Mrs. McClain. Without objection.
Mr. Garcia. A lot of the money is not getting out of the
door, and so that is a huge issue. And so, before I close, I
just wanted to give you a second to respond. There are
resources right now in our Federal agencies, but why is the
money not getting out the door? Is it an issue of the
application process, or what can we do in Congress to help
ensure that that happens faster?
Mr. DeBoer. I would just echo what you said. The
application process is quite lengthy. These programs are not
well coordinated. You mentioned Transportation has a
significant amount of grant money under the TIFIA loans, RRIF
loans, and so forth. The process is lengthy. NEPA, by the way,
the National Environmental Protection Act, there is a long
process to get through that. Perhaps you could waive NEPA on
conversions, that would speed the process. Conversions are, as
Mr. Turner said, environmentally friendly, and so I would do
that, sir. Thank you.
Mr. Garcia. Well, thank you very much. Just to close, I
will just say I know, while oftentimes unpopular, I do think
there is a Federal purpose and a role for the Federal
Government as it relates to zoning across the country. We
should densify all of America. Thank you.
Mr. DeBoer. By the way, the previous President started an
effort to incentivize local governments to speed up their
permitting and their processing, which has also been followed
up a little bit by the Biden Administration. So, there is an
effort, whether it is through block grant proposals or other
things, to incentivize local governments to reduce the weight
given to NIMBYs and so on and so forth.
Mr. Garcia. Thank you.
Mrs. McClain. Thank you. The Chair now recognizes Ms.
Pressley for 5 minutes.
Ms. Pressley. Thank you, Madam Chair. Across the country,
downtown areas were hit hard by the pandemic and are still
recovering. Boston is no exception with foot traffic still only
about half of it what it was before the pandemic. However,
areas dedicated to culture, art and retail services are showing
signs of improvement, in large part due to the role of small
businesses. Mr. Turner, how do small businesses contribute to
the economic success and sense of community that are unique to
downtown areas?
Mr. Turner. Thank you. Representative, I think they are
critical. I mean, one of the reasons that conversions to
housing of office space should work and should be attractive to
a large or some percentage of the population is that they have
these sort of cultural amenities, that they have restaurants,
that they have those type of things available, very different
perhaps, than living far out. So, yes, I mean, this has hurt a
number of small businesses. You can walk not far from here and
see a number of empty what were retail bays. And, you know, so
replacing or fixing that by having people who live in a place
rather than people who work in a place where that is the best
use of it, I believe, would help small business tremendously.
Ms. Pressley. Thank you. Mr. Turner, what barriers do small
businesses face when attempting to access commercial real
estate in downtown areas?
Mr. Turner. Well, let me preface, my expertise here is
housing. I think that you do need a headcount, if you will,
right? I mean, there has to be a tipping point where
conversions, be it conversions, office space, or attractions,
are sufficient to bring the number of people to, say, a
restaurant or something. So, it is a tipping point issue, I
believe.
Ms. Pressley. Thank you. Well, you know, Boston actually
has been really innovative in our efforts to support small
businesses, offering grants and wraparound services through, it
is a new program called SPACE, Supporting Pandemic-Affected
Community Enterprises, and incentivizes small business owners
to set up shop in vacant storefronts. So, these efforts have
been particularly impactful for our BIPOC businessowners, who,
even before the pandemic, were already underrepresented in the
downtown area. Mr. Turner, I am very passionate about the
merits of mixed-use development in housing, and could you just
speak to how that supports our housing affordability goals,
also smart growth, transit arena development that is also mixed
use, how that supports not only our affordable housing goals
and our housing goals writ large, but also how we can support
small businesses? Can you speak to that model?
Mr. Turner. Absolutely, and I appreciate that question. I
think too often when we talk about conversion of office
buildings, that we think of the largest glass building that,
you know, is very high priced, filled with attorneys, and can
we make that into housing, you know, like, empty it out and
make it into housing. And I do not think that that is really
what we are talking about mainly in conversion. I think that
the best model is the one you just described, where you may
leave, if it is a very large building, a portion of that
building for commercial uses. And then, you know, we have a mix
of both incomes of those moving in, subsidizing those who
cannot afford it, perhaps not those who can afford it, but it
is going to be more attractive to them, right? Back to your
small business question, it is going to be more attractive, and
you are going to be more likely to have success with these
projects where you are not just getting a place to live, but
you have many amenities around it. So, I agree with you.
Ms. Pressley. Wonderful. Thank you. And again, just to lift
up this innovative model in the city of Boston to support our
small businesses. In Boston, small businesses have already
received nearly $3 million in SPACE grants, 75 percent of which
are minority owned and more than 60 percent are women owned. I
really do think this should be a national model that is backed
by Federal investment. By uplifting our small business owners
and strategically investing in affordable housing, inclusive
development, accessible spaces, we can ensure that downtowns
leverage commercial real estate to emerge from this pandemic
better than before. Thank you, and I yield.
Mrs. McClain. Thank you. I now recognize myself for 5
minutes.
I appreciate your honesty and your candor today. It seems
to be coming clear to me that we are at a crossroads with the
commercial real estate market right now. What I am looking for
is how do we plan now and what steps do we need to take now to
make sure we have sustainability and we do not end up in a
crisis, right? My concern is, and these are just the facts,
inflation has steadily climbed over the past 2 years, and in
response, the Feds have raised interest rates over 550 basis
points. There is consistent data that shows vacancies are
rising, delinquencies are climbing, and there was a recent
spike in foreclosures last month. Those are, maybe not
alarming, but they are definitely pause for us to look at in
areas of concerns, right? I do not think we are there, but if
we do not address these issues on a proactive basis, I think we
are going to wake up and think, oh my gosh, now we are in a
crisis. Let us avoid that.
What I am trying to get a gauge on is what is your level of
concern right now in this real estate market?
Mr. Weidell. Is that for everyone?
Mrs. McClain. Yes, and try and keep it brief if you can.
Mr. Weidell. Sure. I will summarize. We were able to have a
meeting with the NBA and Chairman Powell about a month and a
half ago, and we kind of voiced these concerns and they took
their measured approach to this. And I know he came away with a
statement claiming, at least at the bank level, that this is
manageable, right? The banking system is manageable, and
given----
Mrs. McClain. Did he give you any indication of why? Did
you talk about liquidity, the new changes of liquidity that the
banks are required to have?
Mr. Weidell. Boy, I cannot speak to his thinking, but I can
speak to the fact that this is a known risk. Once we had the
great financial crisis, they were very in tune with commercial
real estate and commercial real estate exposure. So, this is
something that has been quantifiable to them and has been
measured, and they analyze, and they stress the reserves, and,
consequently, it is not an unknown. It is not something out of
left field.
Mrs. McClain. With all due respect, right up until the time
that it is a crisis. So, I understand. Mr. DeBoer?
Mr. DeBoer. The level of concern, I guess I would say, is
high. High. These mortgages need to be extended and
restructured. The banking system right now is not encouraged to
do that necessarily, and there should be some way to
incentivize banks to get back into lending, by and large.
Construction lending is almost nonexistent right now. So, I
guess I would urge that regulators start to acknowledge that
not all commercial real estate is the same. The office market
is where the main problems are, and instructing institutions to
lower their concentration in commercial real estate may mean
that they are not making loans to perfectly creditworthy
borrowers in another asset class.
Mrs. McClain. So, there needs to be some changes in the
restructuring of loans, underwriting perhaps at the banks. Is
that what you are saying?
Mr. DeBoer. No. I think in supervisory guidance, there
should be more flexibility not only in not criticizing banks
for working with borrowers, but there should be more
flexibility when they say reduce your concentration in real
estate. And, you know, office loans are not an enormous part of
bank lending. Commercial real estate is an enormous part of
local and regional banking.
Mrs. McClain. You got about $2 trillion coming due, though.
Mr. DeBoer. Yes, but not in office, OK? So, I just think
there needs to be a better distinction and not a monolithic
treatment of commercial real estate.
Mrs. McClain. OK.
Mr. DeBoer. There should be incentives to treat
restructured loans. Where equity has gone in, those should be
now classified as performing loans, so almost a new loan.
Mrs. McClain. OK. Thank you. We have heard concerns that
proposed capital standards coming out of the Federal Reserves
are punitive to the real estate industry, and I would like to
know if you can comment on this. Is the U.S. banking system
vulnerable due to its commercial real estate exposure?
Mr. Weidell. Well, again, I think that is along the same
lines of the last question. We cannot speak to that. The
analysis that we have done with other lenders, particularly
with the life insurance lenders and the other sectors, are that
their portfolios are somewhat diversified and balanced, and
they have adequate reserve capacity. You know, the banking
system has different oversight, as you just spoke to it. I
would say the fact that loans mature is a normal course of
business.
Mrs. McClain. But under these conditions?
Mr. Weidell. Right, and there is capacity in the system to
refinance those loans. It is the willingness and the ability to
do it with the capital structure they have that is kind of
important.
Mrs. McClain. And the regulations and the constraints
perhaps.
Mr. Weidell. And to Mr. DeBoer's comment, yes, if a loan
has been paid down with some equity infusion, it should be
reclassified as something that is performing and be willing to
loan.
Mrs. McClain. Thank you. I now yield to Ranking Member
Porter for 5 minutes.
Ms. Porter. Thank you very much. What factors, Mr. Weidell,
do banks consider when deciding whether or not, or I will say
lenders broadly, not just banks. What factors do they consider
when deciding whether or not to give a borrower more time to
pay a commercial mortgage?
Mr. Weidell. OK. That varies significantly, and it probably
varies significantly on their capital source and their
oversight.
Ms. Porter. Let me limit it to office.
Mr. Weidell. OK. But, again, you know, it depends on the
lender. Does the lender have the ability and capacity to extend
the loan? That is kind of the first criteria, right? If it is a
securitized mortgage with Wall Street, they cannot simply do
that.
Ms. Porter. OK. Great. Let us actually pause there. I just
looked at helpful testimony, and you are right, whoever said
it, that banks' biggest exposure in commercial real estate is
not office, but it is the biggest chunk of the commercial
mortgage-backed security market. Am I correct? I looked at the
chart. It is red. I am pretty sure this is what you gave me.
So, how do we work those out?
Mr. Weidell. Not my area of expertise, but they go to a
special servicer, and those special servicers are very busy,
and they consult with the owner, and they consult with the
bondholders, and, effectively, there is a process there for
determining just what you said. Do we have an ability to extend
this loan and not take repayment with the bondholders in
exchange with something else of the owner?
Ms. Porter. But is there enough flexibility in the terms of
most of those commercial mortgage-backed security agreements to
allow that kind of negotiation because this was a huge problem
in RMBs, as you recall. Is it going to be better or different
here?
Mr. Weidell. I think there is somebody in the back of the
room I just met who has better experience with that who could
explain it. I know they are busy. It seems as if the system
thus far is working, you know, and in the meantime, the CMBS
market is issuing new debt to help its way out of this cycle.
Ms. Porter. Well, respectfully, I think issuing new debt to
help its way out is what it always does. Whether it works or
not, is a little bit of a different story. I think that is what
Wall Street does, and it is a good thing, but I do not know
that we can look to that as necessarily a positive sign. And I
guess I am mostly worried about, this hearing has been really
wide ranging, and I think one of the things I have taken from
it is that we ought to have some more hearings. Because I have
not been fully satisfied with what we have said about the
office situation, and particularly with regard to the CMBS and
the life insurance companies, who have very, very different
regulatory relationships than banks, and I think we need to dig
into that a little bit more.
I mean, part of what I am concerned about is, and this goes
to what the Chairwoman was saying, is that this kind of mowing
and waiting, I will call it, like the owner of the property, he
is mowing the grass, and he is waiting for the market to turn,
and kind of pretend and extend mindset is going to hit its
limits at some point. How long do you think we can sustain kind
of extensions in office space the way we have been?
Mr. Weidell. Again, I do not want to be avoiding the
question directly, but it is very circumstantial. I know
certain life insurance companies have pretty much budgeted a 5-
year program for this, saying that we do not expect a recovery
in this space to occur this year or next, and anything we
structure, we want to give 5 years to. So, they are looking at
it in an extended way.
Ms. Porter. OK. Let me ask Mr. DeBoer. Commercial real
estate has gone up a lot in the last decade, 2014, 2022, in the
last 8, 10 years, 90 percent, and that is not multifamily. That
is the more traditional commercial real estate. Given that it
has gone up so much, did these companies fail to pay down? I
mean, in other words, it is one thing when your property value
is declining, and you have very limited options. I understand
it is more expensive to refinance today, I understand that the
income on the properties is lower than it is today, but your
property is worth a lot more than it was. Have they continually
levered up to where the loan-to-value ratio has continued to be
high?
Mr. DeBoer. No, I think your point----
Ms. Porter. Could you turn your microphone on? Yes. Thank
you.
Mr. DeBoer. I think your point is a very good point, but
not everyone bought in 2012, and so the vintage, I think, was
referenced earlier. If someone bought in 2012, 2013, low
interest rates, they have seen a substantial increase in their
value. They have seen equity created, OK, but that is not
necessarily true for the 2019-2020 buyer. There again, when you
asked about what someone would look at on extending a loan,
what is the vintage of the property? What is the financial
strength of that borrower? Do they have capital to put in to
justify extending that loan? That is the best I can do on that.
But your point is obviously perfectly correct, but, again, with
rates going up 550 basis points or whatever you have, you have
a tremendous impact on value and a destruction of equity at the
same time that you are requiring new equity to go in to
refinance, at the same time, you need new equity to amenitize
that building----
Ms. Porter. You chew up a lot of that added value with all
of those things put together.
Mr. DeBoer. Yes. Right. I mean----
Ms. Porter. Do you mind? I know I am over time, but do you
mind?
Mrs. McClain. Yes.
Ms. Porter. Otherwise, I am going to ask for another round,
so you might as well just let me keep going.
I want to talk about HUD. I know that the Chairwoman had
this on her mind as well. I think this is your testimony Mr.
Weidell, that you said something along the lines of HUD is
quickly becoming the most expensive, difficult--one of you said
this, and I know it was not Mr. Turner--that HUD is quickly
becoming one of the most difficult, expensive places to do
multifamily, and the volume at HUD for multifamily is down 75
percent in the last two fiscal years. Mrs. McClain and I both
were like, tell us more. Why, and what can we do about that
because that seems counter to everything that we have said
about supply.
Mr. Weidell. Well, thank you for noticing that, and that is
what we think as well. We are all talking about building more
for affordable housing, and here is an opportunity to do it,
and it is not getting done.
Ms. Porter. Well, it is going the wrong direction even.
Mr. Weidell. Correct.
And as a practitioner, I have not done a lot of HUD
business because it is generally the lender of last resort at
this point. The process is way too long. The requirements are
way too great. They evolve, they get added during the process,
and particularly with the rise in interest rates, it just made
a lot of projects unfeasible that may have been put into the
pipeline 2 years ago, and by the time they got into the HUD
pipeline now, with all of these requirements, they do not work.
Ms. Porter. So, I just want to make sure I am understanding
this. So, it is not that there has been any huge, wild change
in the requirements. You may think there are too many. Someone
else may think there is not enough. Let us just posit they have
basically stayed the same, but what you are saying is now that
interest rates are higher, you are paying more for the money to
do the project. You do not have as much leftover to absorb all
of the costs of the loan itself.
Mr. Weidell. There are new ones, I am being reminded, and I
know there were a couple that came out just last week that we
are really not in favor of. But these things, what happens is
obviously during good times, you could kind of overcome some of
these obstacles, but
Ms. Porter. Well, if money is cheap, that helps.
Mr. Weidell. When money is cheap, it helps, and you can get
through all of this. When money got expensive, expensive, then
all of these things really mattered, and that is where we are,
and it is a great time, really, to examine what is necessary in
this process and what is not necessary. And, you know, one of
the contentions here is there is a high insurance premium that
borrowers are paying, and HUD has performed exceptionally well.
Ms. Porter. Yes.
Mr. Weidell. There have been very few losses. It has been
good for the taxpayer and the Treasury.
Ms. Porter. Well, we have seen mortgage insurance premiums
come down on single family, and I think it is time to consider,
at least, whether we can do something similarly on multifamily,
particularly when we have a lot of people within the
Administration talking about density. Like, multifamily is
dense compared to single family, so that seems like a sensible
thing.
And I guess the last thing I just want to close on, and I
appreciate your indulgence, is I am so frustrated with
Congress. I could end this so many ways, I just want to say. I
am so frustrated with Congress for not taking up the Affordable
Housing Credit Improvement Act. I just do not get it. There are
221 Members signed onto this bill. Half are Democrats. Half are
Republicans. You know what I call that? A goddamn miracle. So,
I just do not understand why we cannot get this moving, and I
really would implore, like, the wonderful, talented people that
work with MBA and other organizations to really turn up the
heat on Republican leadership, just because it controls the
Floor, to get this bill on the Floor because we just do not see
this kind of good agreement on commonsense stuff. And to have
the business community behind it at the same time we have the
low-income housing for all, do-gooder community behind it, I
mean, it is a miracle. And I just would love to see this get
over the finish line before the end of this Congress. Thank you
so much.
Mrs. McClain. Thank you. In closing, I want to thank our
witnesses once again for your testimony today. It was a very
good conversation. I think it was truthful, it was honest, it
was candid, but I do agree with the Ranking Member. I think
there is a lot more to talk about, and we just have scratched
the surface today. So, I know she has talked twice, but I am
going to give her an opportunity to do her closing remarks as
well.
Ms. Porter. I just want to close on one observation, which
is when we talk about commercial real estate, particularly
office, and we are talking about life insurance companies and
mortgage-backed securities, I think it is really easy to lose
that there is a human element in office space default. I think
when we are talking about residential, it is easy to see the
foreclosure, it is easy to see the family becoming homeless,
but offices employ some of the most underappreciated, hardest-
working, low-income Americans who are janitors and cleaning
staff and security guards, and they are all going to be victims
of any kind of office property collapse or big downturn. And
so, I just want to end with humanizing a little bit.
I am probably one of the last people in Congress that you
will hear fighting just for Wall Street to make one more
dollar, and so I just want to make clear that is not all that
is at stake here. It is the vibrancy of local communities. It
is whether or not they are occupied, and crime goes down. It is
whether those people have places to go to work. And so, I just
want to recognize that there are lots of partners here,
including those in organized labor and others who really need
to see the office market stabilize. And if it is going to
change, then it changes in a smooth and gradual way, so we
avoid those job losses.
Mrs. McClain. I ask unanimous consent to enter into the
record CREF-30, dated April 30 of 2024; SISC, April 30, 2024;
and a letter from Muriel Bowser dated April 29 of 2024.
And without objection, so ordered.
I now recognize myself for my closing statements.
Today's hearing, I think, was a necessary step toward
monitoring the health of the commercial real estate market. So
many times, what I see, is we have hearings after the fact. We
are not proactive. We do not talk about what we can do to avoid
a consequence or a crisis. We just want to come up and
pontificate and lay blame after the crisis has occurred, and we
have seen that time and time and time again. What I would like
to do is more of what we are doing today, and I appreciate your
thoughts, your inputs, and the comments really on both sides of
the aisle, is we have some issues. And we can talk about who is
at fault and who is at blame.
But, look, we have COVID. That happened. We have interest
rates that are higher. That is a fact. We have vacancies that
are up. We have delinquencies that are up. I mean, in my
opinion, the telework may have been a great answer to the
problem during the pandemic. But we have a ton of office space,
especially downtown D.C., and people are not working. People
are not going into the office to work. And some of my
colleagues said, oh, well, we just think they are lazy. I do
not think that is the case at all. People are logical. I mean,
if I do not have to workout and I can eat McDonald's and stay a
supermodel, I would do that. That is just not the case, right?
We have to look at these events, and we have to be able to
project a policy's effect.
Office vacancies matter, interest rates, getting people
back to work matter, and they matter for this simple fact: when
people are back to work--and just read the letter--when people
are back to work, there are more coffee shops, there are more
restaurants that are open, there are more dry cleaners, there
are more small businesses, and small business is what was the
heart and soul that built America. And without small businesses
and people working at those small businesses, we do not have
tax revenue, and it is our economic systems that give us our
social programs, and that is what is hampering D.C. right now.
No one is back to work. Office space is empty. Interest rates
are up. I mean, project a policy's effect.
What my greater concern is, is what do we do with the
amount of paper that is coming due and these loans that are
coming due in 2027, roughly $2 trillion of them, so we do not
wake up and say, oh my gosh, we are at crisis, and we ask the
American people, because whether it is a subsidy or a bailout,
that falls on the backs of the American taxpayer, we do not
have to go back to the American taxpayer like we have done so
many times in the past and say, we need you to bail us out. Let
us work on commonsense legislation.
What I have heard, we have got some good ideas today. Let
us eliminate some of this regulation, make it easier and less
burdensome for both businesses and lending institutions to
refinance some of these loans, to reclassify some of these
loans. And I think, Mr. DeBoer, you said something very
interesting, is let us take a look. Instead of a one-size-fits-
all approach, maybe we need to change some classifications. So,
what I am most proud of with this hearing today, is we actually
talked about some real solutions, so we avoid a problem.
So, with that, I thank you all for being here. I thank my
Ranking Member, and a little administrative business.
With that, and without objection, all Members have 5
legislative days within which to submit materials and
additional written questions for the witnesses, which will be
forwarded to the witnesses.
If there is no other further business, without objection,
this Subcommittee stands adjourned. Thank you.
[Whereupon, at 3:55 p.m., the Subcommittee was adjourned.]
[all]