Contact Us

Prominent Lobbying Group Seeks Government Help Avoiding CRE Debt Maturity Crisis

Commercial real estate valuations have been dropping this year, and some industry leaders are worried they are locked on a path toward disaster in the absence of government intervention.


Real Estate Roundtable President and CEO Jeffrey DeBoer published an open letter on March 17 calling for emergency measures that would allow borrowers and lenders to work out short-term debt extensions without government-guided financial institutions labeling them as troubled debt restructurings.

In the letter, initially reported by GlobeSt, DeBoer acknowledged that the Federal Reserve raising its benchmark interest rate from near zero in 2021 to more than 4.5% early this year leaves borrowers with maturing low-interest loans little choice but to add equity to their properties or keep capital reserves to close new financing.

Those same rising interest rates are directly harming property values, DeBoer said in the letter. Maturity events and refinancing are also occasions for new appraisals, which have been coming in much lower this year.

"As a result, lenders must not be forced to make immediate pro-cyclical markdowns that could reasonably be expected to result in forced asset sales leading to further deterioration of bank balance sheets," DeBoer said.

"Instead, we urge that you take action immediately to provide increased latitude for financing institutions to work constructively with borrowers. Such action will avert what we believe would be an unnecessary crisis."

Similar guidance was given multiple times during the Great Financial Crisis as well as at the outset of the pandemic and during last summer's initial liquidity crunch.

The loss of investor confidence in banks has imperiled their ability to continue lending for commercial real estate. Of the $5.5T in debt tied to multifamily and commercial properties in the U.S., a shade over 50% was originated by banks, according to Trepp and Federal Reserve data cited by DeBoer. Of that debt, $936B is scheduled to mature this year or next.

Banks, which had already tightened lending standards in reaction to a tougher climate, now face systemic concerns that didn't originate in real estate but could further drive down the price of assets, leaving borrowers with no options but foreclosure or forced sales that incur financial losses, DeBoer said. 

"A deflationary spiral must be avoided at all costs," DeBoer said. "As recent events are only amplifying the contraction of credit, it is important for the agencies to take measures to maintain sufficient liquidity levels and support positive economic activity."

To an extent, the difficulty in refinancing debt and the distasteful prospect of selling properties at a loss is a direct result of the all-time highs the industry experienced in 2021 when the economy benefited from billions in federal stimulus dollars and began recovering from the initial shock of the pandemic but before the Fed started raising rates. Yet until lending picks back up, the billions of dollars in private equity funds waiting to pounce on distressed assets will likely remain idle.

DeBoer's letter was addressed to Fed Chair Jerome Powell, Vice Chairman of Supervision Michael Barr and federal finance agencies such as the Federal Deposit Insurance Corp. Real Estate Roundtable's board includes executives from  BrookfieldBlackstoneRelated Cos., Tishman Speyer and Starwood Capital Group.