Menendez Urges Treasury And Federal Reserve To Address Rapid Decline Of Commercial Real Estate

Menendez Urges Treasury And Federal Reserve To Address Rapid Decline Of Commercial Real Estate

Washington - U.S. Senator Robert Menendez (D-NJ) is urging Treasury Secretary Geithner and Federal Reserve Board Chairman Bernanke to take early and forceful measures to address the rapid decline of the commercial real estate market and its potentially devastating effects on the broader economy. This sector is currently facing primarily two significant hurdles that could pose risk to the economy:

1) Increase in commercial vacancy rates, mortgage defaults, and foreclosure rates

2) Inability to finance or refinance commercial mortgages because of insufficient lending and the break-down in the secondary market for commercial mortgage-backed securities

"We have already seen the terrible consequences of increasing residential real estate foreclosures, and increasing commercial real estate foreclosures could very soon pose an even bigger problem for the stability of the overall economy.' said Senator Menendez in his letter.

"The federal government can, and must, craft solutions that help kick-start commercial lending and the market for commercial mortgage-backed securities. The U.S. Congress Joint Economic Committee held a hearing on July 9th on commercial real estate and witnesses suggested a range of possible solutions. I look forward to hearing what the Treasury Department's and Federal Reserve's positions are on these proposals and what other efforts are underway at your respective agencies to deal with this potential crisis."

Click here to read the letter: http://menendez.senate.gov/pdf/08272009Commercialrealestateletter.pdf

Full text of letter below:

August 27, 2009

The Honorable Timothy F. Geithner
Secretary of the Treasury
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

The Honorable Ben S. Bernanke

Chairman

The Federal Reserve Board

20th Street and Constitution Avenue, NW

Washington, DC 20551

Dear Secretary Geithner and Chairman Bernanke:

I write to urge the Treasury Department and Federal Reserve to take early and forceful steps to address the rapid decline of the commercial real estate market and its potentially devastating effects on the broader economy. The authorities did not heed my warning when I predicted a tsunami of residential foreclosures in March 2007. I am now deeply concerned about a tsunami of commercial real estate foreclosures and what actions we are taking to avoid that.

We have already seen the terrible consequences of increasing residential real estate foreclosures, and increasing commercial real estate foreclosures could very soon pose an even bigger problem for the stability of the overall economy. The commercial real estate market is currently faced with at least two significant problems that pose systemic risk.

The first problem is that vacancy rates, commercial mortgage defaults, and foreclosures have increased. Increasing unemployment and reduced consumer spending has led to significant declines in commercial real estate income. Since real estate income directly affects commercial property values, the reduced income has led to both a decline in commercial property values of more than one-third since 2007 and to higher default rates on commercial mortgages.

The second problem is the severe inability to finance or refinance commercial mortgages. Banks are not lending enough and the secondary market for commercial mortgage-backed securities has fallen from a peak of $230 billion of bonds issued in 2007 to virtually no bonds being issued today. Commercial real estate transactions have therefore fallen about 80% from their peak.

The federal government can, and must, craft solutions that help kick-start commercial lending and the market for commercial mortgage-backed securities. The U.S. Congress Joint Economic Committee held a hearing on July 9th on commercial real estate and witnesses suggested a range of possible solutions. I look forward to hearing what the Treasury Department's and Federal Reserve's positions are on these proposals and what other efforts are underway at your respective agencies to deal with this potential crisis.

Sincerely,

ROBERT MENENDEZ

United States Senator

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