Statement of Jeffrey Weidell, CEO of Northmarq and MBA 2024 COMBOG Chair, on Commercial Real Estate Markets Before the House Committee on Oversight & Accountability’s Subcommittee on Health Care & Financial Services
April 30, 2024
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WASHINGTON, D.C. (April 30, 2024) – Jeffrey Weidell, CEO of Northmarq and 2024 Mortgage Bankers Association (MBA) COMBOG Chair, testified today at a hearing titled, "Health of the Commercial Real Estate Markets and Removing Regulatory Hurdles to Ensure Continued Strength," before the House Committee on Oversight & Accountability’s Subcommittee on Health Care & Financial Services.
[Note: Please find Mr. Weidell's prepared oral statement below. He may add to or subtract from these remarks during the course of his testimony.]
ORAL STATEMENT
Jeffrey Weidell, CEO of Northmarq and 2024 MBA COMBOG Chair
4/30/2024
Chairwoman McClain, Ranking Member Porter, and members of the subcommittee, thank you for the opportunity to speak with you today on behalf of the Mortgage Bankers Association.
My name is Jeff Weidell and I am the Chief Executive Officer at Northmarq, a top 10 commercial real estate finance and sales firm with expertise in debt, equity, property sales, and loan servicing.
I am testifying in my capacity as the current chair of MBA’s Commercial/Multifamily Board of Governors.
My full written statement provides an overview of the commercial real estate sector.
In short, it is exceedingly difficult to paint the picture of commercial real estate with broad brushstrokes.
The market is big and diverse with a range of different property types, geographic markets and submarkets, borrower and lender types, and loan and deal vintages.
Those property types include multifamily, retail, industrial, lodging, self-storage, office, and many others. They are located in markets across the country from downtown corridors to rural areas.
They are owned by sophisticated institutions and funds, public companies, and private investors and individuals.
MBA estimates there is $4.7 trillion of highly diversified commercial mortgage debt outstanding, with about $2 trillion backed by apartment buildings, $740 billion by office, $415 billion each by retail and industrial, and then the remainder by a range of other property types.
MBA also estimates that roughly $1 trillion dollars in CRE mortgages will mature this year.
However, it is also important to note that 96.8 percent of outstanding loans are performing.
Commercial banks hold the largest share of this debt at $1.8 trillion, but that bank total is not just office. It is diversified between all the various property types I’ve previously mentioned.
The GSEs are the second largest holders of commercial mortgage debt at $1 trillion.
Life insurance companies hold $733 billion and other capital sources combined hold $593 billion.
Certainly, delinquency rates on commercial mortgages have been rising, particularly for loans backed by office properties. Twenty percent of the total commercial mortgage debt is set to mature in 2024. Multifamily makes up the largest piece of those maturities, at $257 billion, followed by office at $206 billion.
But every property and every owner are in a unique situation. That mix of variables will be critical to determining which properties and loans face challenges – and which do not.
Between 2014 and mid-2022, commercial property values grew by 90 percent and multifamily values grew by 144 percent. In other words, if owners have been holding property over time, they have likely built a fair amount of equity.
The real challenge – and opportunity – is that the markets have reset from where they were just a few years ago in terms of interest rates, property values, and, in some instances, the fundamental operations of the properties themselves.
Owners, developers, lenders, and other market participants are all working through the process of transitioning the commercial real estate market to that new reality.
What can regulators do to help ensure a smooth transition?
- Re-propose the Basel III “End Game." If left unchanged it will negatively impact the availability of commercial credit;
- Exempt multifamily and commercial property loans from HMDA and Section 1071 reporting;
- Urge HUD to:
- Reduce its Multifamily Mortgage Insurance Premiums and its application fees;
- Reconsider program requirements that raise the cost of building rental housing, and
- Urge state insurance commissioners to work with key stakeholders to address the costs and availability of property insurance.
Now, what can Congress do?
- Pass bipartisan, bicameral tax proposals;
- Pass bills that provide incentives for state and local governments, which help support and increase affordable housing supply; and
- Enhance existing affordable housing programs and initiatives.
Thank you again for this opportunity to represent the MBA.
I look forward to answering any questions you may have.