Fed Official: Fed Striking Balance In Commercial Real-Estate
Market
By Jessica Holzer, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- A senior Federal Reserve official said the central
bank was striving to maintain a balance between ensuring credit flows to the
battered commercial real estate market while banks properly manage their
exposure to the market.
"This emphasis on achieving an appropriate balance between credit availability
and safety and soundness continues, and applies equally to today's CRE markets,"
the Associate Director of the Fed's Division of Banking Supervision and
Regulation Jon D. Greenlee said in prepared testimony for Congress' Joint
Economic Committee Thursday.
"At the same time, it is important that supervisors remain balanced and not
place unreasonable or artificial constraints on lenders that could hamper credit
availability," Greenlee said.
Money to finance new construction of shopping malls, apartment complexes,
hotels and office parks has dried up as banks have yanked back on lending. The
securitization market - a key source of funding for the commercial real estate
industry - also remains in a deep freeze.
Billions of existing debt on such properties will mature this year and real
estate developers fear they won't be able to refinance it. Meanwhile, property
values have plunged 24% since their peak in 2007, Greenlee said, making it even
trickier for developers to get loan extension from lenders.
"The decline in property values and higher underwriting standards in place at
banks will increase the potential that borrowers will find it difficult to
refinance their maturing outstanding debt, which often includes substantial
balloon payments," Greenlee said in prepared remarks.
The Federal Reserve has taken steps to get lending flowing to the industry. On
June 16, it announced it would accept as collateral new issuance of commercial
mortgage-backed securities as part of its emergency program to thaw the
securitization market. As early as next week, the Fed is expected to extend that
to existing, or "legacy", CMBS already held by investors.
-Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@
dowjones.com
(END) Dow Jones Newswires
07-09-091019ET
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