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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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