Proposed Bill Would Bail Out Beleaguered CMBS Industry

Members of the U.S. House of Representatives are planning to introduce a bill to provide cash support to commercial mortgage-backed security borrowers. The measure is dubbed the Helping Open Properties Endeavor, or HOPE, Act.

Flickr, Jeffrey Zeldman

Under the terms of the bill, the U.S. Treasury Department would set up a facility that businesses could use to stay current on mortgage payments, particularly businesses stuck with CMBS loans. Unlike borrowers who hold standard bank loans, they have had a harder time getting forbearance.

“The numbers are getting more dire and the projections are getting more stern,” Texas Republican Rep. Van Taylor told The Wall Street Journal. Taylor is sponsoring the bill with Rep. Al Lawson, a Democrat from Florida, and Andy Barr, a Republican from Kentucky.

The facility would be paid for by using funds already appropriated under the CARES Act.

A number of lending facilities have been created by Congress and the Federal Reserve to assist industries hit by the pandemic, including the Paycheck Protection Program Loan Facility, the Main Street New Loan Facility, the Main Street Priority Loan Facility and the Term Asset-Backed Securities Loan Facility. None has addressed the crisis in CMBS yet, the National Law Review reports.

To be eligible for the new program, a borrower must be adversely affected by the coronavirus pandemic. Also, a borrower has to show that a property’s revenue wasn't dropping before the pandemic took hold of the United States.

Since the hotel and retail industries have been hit the hardest by the pandemic, CMBS loans associated with those property types are now at the most risk of going into special servicing, if they haven't already.

In June, about 10.32% of CMBS loans were delinquent, an increase of 317 basis points over May, Trepp reports, and a near-record high. Loans associated with lodging have been particularly troubled, with 24.3% of them delinquent. Some 18.07% of retail-associated loans are delinquent.

Industry groups, especially those connected to retail or hospitality, are pushing hard for the bill.

"Without federal liquidity assistance we are looking at unnecessary damage to financial markets, increased unemployment and irreparable harm to communities across the country," ICSC President and CEO Tom McGee said in a statement.

"Industries with CMBS debt have a particular challenge in that loan covenants are governed by multiparty state law contracts, which typically prohibit additional indebtedness barring borrowers from turning to banks for help," McGee said.

Investors are also looking askance at CMBS. Earlier this month, Blackstone Group said it is closing a fund that specializes in CMBS. The investment giant will liquidate the fund's assets to pay shareholders.

Contact Dees Stribling at dees.stribling@bisnow.com.

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