Senator Dodd Calls on Federal Bank Regulators
to Report Efforts to Stabilize the Commercial Real Estate Market
February 23, 2010
While the prospect of stimulus work may be promising for companies
working in commercial construction, such as glazing contractors
and glass fabricators, it does not change the fact that the construction
industry is one that has been extremely hard hit. And though there
are a number of reasons for the lack of new construction projects,
increasing vacancy rates is one that has been on the forefront of
recent discussions. As Ken Simonson, chief economist for the Associated
General Contractors of America, notes, "We still have sharply
rising vacancy rates for offices and retail space, sluggish occupancy
and that combination means none of those income-producing
segments are producing enough now to make them attractive prospects
for more construction." (CLICK
HERE to read that full article.)
One member of Congress has taken strides to find out just what is
being done to try and help this situation.
Senate Banking Committee Chairman Chris Dodd (D-CT) sent a letter
to Federal bank regulators and asked that they report on their efforts
to stabilize the "very troubled" commercial real estate
market (CRE). Despite positive signs in the economy, Dodd noted
evidence the commercial real estate market continues to struggle.
This evidence, according to Dodd, includes the following:
- Last month, the Congressional Research Service reported "delinquency
rates for commercial mortgages climbed from 4 percent at the end
of the third quarter of 2009 to more than 6 percent in January
- At a Congressional Oversight Panel hearing last month, a Federal
Reserve official testified that "Federal Reserve examiners
are reporting a sharp deterioration in the credit performance
of [CRE] loans in banks' portfolios and loans in commercial mortgage-backed
securities," and warned that more than $500 billion of CRE
loans will mature each year over the next few years; and
- This month the Congressional Oversight Panel reported "that
nearly half of CRE loans at present are "underwater"
and that the largest "loan losses are projected for 2011
Given growing concerns, agencies on the Federal Financial Institutions
Examination Council released a policy statement in October on prudent
commercial real estate loan workouts to "assist examiners in
evaluating institutions' efforts to renew or restructure loans to
creditworthy CRE borrowers."
In his letter, Chairman Dodd followed up, writing these agencies
and stating, "I would like you to provide an update on how
this guidance is helping to stabilize the CRE market. In addition,
I would like an explanation of how [each agency] has addressed the
CRE issue so far, and what additional steps you plan to take."
Chairman Dodd continues, "I believe that the weakness in the
CRE market requires prompt and robust responses from the regulators
to guard against harmful effects on financial institutions and the
economy. I urge you to redouble your efforts to provide appropriate
oversight of this vital component of our economy, and look forward
to working with you to bring much needed stability to the CRE market."
However, economists say that even if there is an improvement in
commercial real estate conditions it won't necessarily spur new
building projects. As Simonson adds, "We do not expect demand
for commercial construction loans to improve much, even if bankers
loosen their lending standards, until vacancies decline and rents
or room rates increase for office, retail, warehouse and hotel space."
HERE to read Senator Dodd's letter to Federal bank regulators.
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