New legislation would help cash-strapped commercial property owners

Lawmakers on Wednesday introduced a bill to provide cash to ailing hotels and malls that were unable to withhold mortgage payments after the the coronavirus has shut down the US economy.

The bill would create a government-backed financing vehicle that businesses could use to stay on top of their mortgages. In particular, it aims to help those who have borrowed in the market for $ 550 billion for mortgage loans conditioned as bonds and sold on Wall Street.

Many of these business owners struggled to get mortgage relief after the coronavirus forced them to close or reduce, which exposes them to a greater risk of seizure. About 10% of the loans of these commercial mortgage-backed securities were 30 days or more past due at the end of June, including nearly a quarter of loans related to the hard-hit hospitality industry, according to Trepp LLC. .

“The numbers are getting more dire and the projections are getting tougher,” said Rep. Van Taylor (R., Texas), who is sponsoring the bill alongside Rep. Al Lawson (D., Florida). .

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The proposal is an effort to help a corner of the financial markets that many business owners and trade groups believe was left behind when the federal government began to put in place measures to allow owners and businesses to suspend the market. payment of their debts.

CMBS borrowers, especially in the hospitality industry, say they have been unlucky in getting relief on their loans. They usually have to work with special administrators, who are hired by bondholders to negotiate on their behalf and comply with rigid loan provisions. They were slower and less generous than traditional bank lenders, said the borrowers.

Representatives of service agents said the relief process was complex and managing agents would not foreclose properties without first having a conversation with borrowers.

Under the proposal, the banks would allocate money to help these borrowers and the facility would provide a Treasury Department guarantee that the banks are repaid. The funding would come from a $ 454 billion pot set aside for struggling businesses in the previous stimulus bill.

Richard Pietrafesa owns three hotels on the East Coast which have been funded by CMBS loans. They recently had about 50% or less occupancy, which doesn’t bring in enough income to make mortgage payments, he said.

He said he was two months behind on payments for one of his properties, a Fairfield Inn & Suites in Charleston, SC. ​​He has money set aside in a separate reserve, a- he said, but his special agent did not allow him access. make debt payments.

“It’s like a prison for debtors,” said Pietrafesa.

Any troubled business borrower who was previously in good financial health would be eligible to apply for funds to cover mortgage payments. The facility, however, is designed specifically for CMBS borrowers.

Many of these borrowers have provisions in their initial loan documents that prohibit them from taking on more debt without additional approval from their managers.

Rather, the proposed facility would structure the cash injections into preferred shares, which are not subject to debt restrictions.

Senior equity would be considered lower than other debt, but must be repaid with interest before the owner can withdraw money from the business.

Mr Taylor led a bipartisan group of more than 100 lawmakers who signed a letter last month asking the Federal Reserve and the Treasury Department to propose a solution to CMBS problems.

Treasury Secretary Steven Mnuchin and Fed Chairman Jerome Powell have indicated that this issue may be the one best addressed by Congress.

Some in the industry have said that efforts to help the CMBS market disproportionately benefit a handful of large property owners, rather than small business owners.

Mr Taylor said the bill is focused on saving jobs. The hospitality industry, for example, is responsible for much of the recent job cuts.

“It started with the people in my district calling and saying, ‘I lost my job,’” Taylor said.

Write to Ben Eisen at [email protected]

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