Commercial Real Estate

Floor Speech

Mr. CALVERT. Mr. Speaker, tonight I want to discuss an important issue that is significantly impacting our economy but has not received nearly enough attention and action by the administration and this Congress. If the issue is not addressed, it will continue to drag down and harm our already shaky national economy.

I am referring to the deterioration of the commercial real estate sector. Now, when I speak of commercial real estate, I am talking about properties that can be found in every community in America: retail properties, office space, industrial facilities, hotels, and apartments. Similar to the residential real estate crisis we experienced, the commercial real estate market faces significant strains as a result of declining property values, refinancing difficulties, and economic uncertainty.

Commercial real estate values throughout the United States are collapsing, going down as much as 40 to 50 percent in some regions. We have seen this happen in parts of southern California, in my own congressional district. I know we have seen it in many other parts of the country from New York to Idaho and Nevada to Florida. Most experts predict that the declining trend in commercial real estate values will continue through 2011 and 2012.

Many economists are concerned by this trend because the health of our commercial real estate market has a direct and lasting impact on the stability of thousands of small businesses, and small and midsize banks, which could result in significant job losses across the country. The commercial real estate sector provides more than 9 million jobs and generates billions of dollars in Federal, State, and local tax revenue.

Additionally, many property owners are underwater. An analysis by Deutsch Bank indicates that of the almost $1.4 trillion in commercial real estate loans that will mature over the next 4 years, as many as 65 percent will struggle with refinancing, even if they are performing loans with payments being made on time.

The Congressional Oversight Panel, created by Congress in 2008 to review the current state of our Nation's financial markets and regulatory system, dedicated an entire report to the commercial real estate liquidity crisis, entitled ``Commercial Real Estate Losses and the Risk to Financial Stability,'' which was released on February 11 of this year. The report estimates that bank losses alone could range as high as $200 billion to $300 billion. The panel wrote, ``A significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American.''

This week and next, many of my fellow colleagues in Congress will be visited by members of the National Association of Realtors as part of their annual meeting in Washington, D.C. They will talk about how the commercial real estate market is in the midst of a serious financial crisis and share stories of how small businesses across the country continue to suffer. Many of my colleagues and economic experts agree that the continuing crisis in the commercial real estate market could lead to a double-dip recession.

Due to the growing economic threat of the faltering commercial real estate market, I spearheaded a bipartisan effort with my friend from Pennsylvania, Congressman Paul Kanjorski, to raise these concerns to Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke on January 29 of this year. The letter, signed by 77 of our colleagues, called for the establishment of a clear method for measuring the effectiveness of recently announced commercial real estate loan modification guidance. Furthermore, the letter called on Secretary Geithner and Chairman Bernanke to institute metrics that will allow banks to more clearly differentiate performing versus nonperforming loans in order to treat them appropriately.

On February 17 of this year, I once again joined Mr. Kanjorski to author a letter addressed to the heads of the FDIC, OTC, OCC, and NCUA to bring to their attention our concerns and highlight the findings of the February 11 Congressional Oversight Panel report on ``Commercial Real Estate Losses and the Risk to Financial Stability.'' The letter ``urged the regulators to work together and work with the Treasury and the Fed to minimize the impact this problem will have to our economy.''

On March 16 Secretary Geithner testified before the House Appropriations Committee regarding the fiscal year 2011 budget and economic outlook. At the hearing I asked the Secretary directly what steps he intended to take to address the liquidity problems in the commercial real estate sector. Secretary Geithner's response was, ``We have a ways to go to get through the broader adjustment in the commercial real estate that is still ahead of us.''

The administration must take deliberate action to enhance liquidity in the commercial real estate market to avoid the derailment of our economic recovery. Congress can play a role in advancing solutions by closely examining the current status of commercial mortgage market liquidity through oversight hearings with Federal Reserve Chairman Bernanke and other regulators. I call on the Financial Services Committee to hold such a hearing by the summer to reveal the true state of this sector of our economy and discuss regulatory and legislative fixes. The upcoming field hearing on May 17 in Chicago is a good start, but more attention needs to be made. The spotlight of oversight is all Congress needs to do at this time--the power to do something about this problem is in the administration's hands already.

In closing, I truly hope the administration will take the necessary steps to prevent further economic damage and provide a fix for commercial real estate.

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