The Congressional Oversight Panel held a field hearing in New York City last week to discuss the effectiveness of the government’s efforts to unfreeze the credit markets – with particular focus on credit markets for corporate and commercial real estate lending. The opening statements of panel-members Richard H. Neiman, Superintendent of Banks of the New York State Banking Department, and Damon Silvers, Associate Counsel, AFL-CIO, discussed the need to determine the extent to which large enterprises are able to “obtain financing on reasonable terms in relation to the risks they represent.” Mr. Neiman noted that, unlike the subprime and residential mortgage markets, policymakers are on notice of the downturn in the corporate and commercial real estate markets and “have the opportunity to anticipate what is coming and address the issues before it become an even bigger crisis.” Witnesses at the hearing included:

  • Congresswoman Carolyn Maloney (D-NY), Chair, Joint Economic Committee;
  • Congressman Jerry Nadler (D-NY), 8th Congressional District of New York;
  • Til Schuermann, Vice President, Bank Supervision, Federal Reserve Bank of New York;
  • Richard Parkus, Head of CMBS and ABS Synthetics Research, Deutsche Bank Securities, Inc.;
  • Kevin Pearson, Executive Vice President, M&T Bank;
  • Jeffrey DeBoer, CEO, The Real Estate Roundtable; and
  • Mark Rogus, Senior Vice President and Treasurer, Corning Incorporated.  

While Mr. Schuermann’s written testimony expressed cautious optimism regarding continued bank lending for commercial purposes – whether in the form of commercial real estate or lending for general commercial and industrial purposes – he stated that the “combination of acute stresses in the financial markets, together with stresses on bank balance sheets, in the middle of the worst recession in a generation, should caution us from believing that recover is just around the corner.”

Mr. Parkus’ written testimony introduced three reports he had previously prepared on (i) The Future Refinancing Crisis in Commercial Real Estate, April 23, 2009; (ii) TALF for New Issue CMBS: Fed Releases Terms, May 6, 2009; and TALF for Legacy CMBS: Fed Releases Terms, May 20, 2009. Each of these reports, written from an industry analyst’s perspective, contained an urgent warning regarding the commercial real estate markets.

Both Congresswoman Maloney and Mr. Silvers discussed “anecdotal evidence” that commercial real estate credit markets remain frozen. Other testimony focused on whether governmental programs, such as the TALF program for legacy commercial mortgage-backed securities, would provide additional liquidity in the commercial real estate market and improve pricing on such asset-backed securities