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Bipartisan members of Congress have requested a relief plan for commercial mortgage-backed securities (CMBS) borrowers and the impacted commercial real estate sector. Through no fault of their own, CRE businesses have experienced a significant drop in revenue due to COVID-19-related government-mandated closures.
As a result of an ICSC alert, where our members generated more than 1,100 emails to their representatives, more than 100 representatives signed onto a letter requesting that Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell take steps to protect the $540 billion CMBS market, which is at risk of collapsing. Such a development would result in significant job losses in an already fragile economy.
“Due to unexpected loss of revenue and rent, many shopping center owners are facing the challenge of paying debt obligations with impaired cash flow,” said ICSC president and CEO Tom McGee. “Without federal liquidity assistance, we are looking at unnecessary damage to financial markets, increased unemployment and irreparable harm to communities across the country. 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.”
Federal response programs, including the soon-to-be operational Main Street Lending Program, are designed to benefit businesses, but those programs do not help CMBS borrowers (or real estate owners who are currently ineligible for MSL loans), as servicers have limited contractual flexibility to modify loans, the letter to Congress notes.
“CMBS borrowers are tied to a different set of rules than typical borrowers, and they need relief during this time, as well,” McGee said. “These shopping center properties are an integral part of local communities and provide hundreds of millions of dollars in tax revenues, as well as one in four jobs, that are at stake if help is not provided.”