Industry leaders say that meetings at the White House, at the Fed’s office and Treasury Department have been quite constructive. Policymakers show they want to find the solution but may need a lot of information to forge ahead and catch up. Anecdotal feedback will not work any longer for projects and other developments that have tanked. The government shows it needs to understand how company financial system works before any bailout can be disbursed, yet again.
At the recent American Resort Development Association (ARDA) 2009 convention held in Florida, Jeffrey DeBoer, president & CEO, The Real Estate Roundtable, said their number one objective is to try to get lending going again for solid commercial real estate. His organization is not in the business of smoothing out business risks in Washington but in the business of making policies on risks anticipated on the credit part of the equation. He said he is in charge of creating the reconnect between originating and securitization market back together in order for lending to flow again.
“We value assets of about $6.5 trillion supported almost 50/50 debt and equity of $3 trillion (debt). We have huge amounts of mortgages that mature every year with this year maturing $300-500 billion of loans; and over the next two years, $1 trillion. We think there will be a wave of foreclosures on the commercial side as we’ve seen on the residential side,” he warned.
In answer to the worsening crunch about to plague the commercial real estate or resort real estate, two facilities may offer solution.
The TALF or Term Asset Lending Facility is like a “giant credit card, which provides very attractive financing to investors, private equity groups and hedge funds to come in and buy newly-originated AAA securities backed by a chosen field of assets, according to DeBoer. Launched in October, it is now running well on the consumer side of the lending equation for which it was originally set up on a one-year term. Commercial TALF has been proposed for 5-10 year-term financing vehicle.
“Most loans can now be made, then packaged and sold in a secondary market. It has seen about $10 billion done so far. We’re looking at expanding it to the commercial mortgage backed securities market in the next few weeks, allowing us to price discovery on the AAA’s to know where values are. The theory is that the rest of the capital stock’s spread will start to narrow. On the consumer side, the spread has come down about 400 basis points; we expect the same thing in commercial markets so that when spreads narrow, it will be more attractive to the lenders,” said DeBoer.
The PPIF or Public-Private Investment Fund put together by the government is a vehicle with equal funds of government and private sector equity, which buys legacy securities or loans also known as toxic loans. DeBoer added: “This program will use private capital leveraged with public money which clearly coagulates out of bankbooks. The theory is this can get rid of some of the loans already on bankbooks that can’t be priced. If originations are priced on AAA’s, then we can start to get investor confidence back into the market including refinancing existing loans and new transactions.” However, the main task is to refinance or re-securitize these loans, a tremendous amount of equity will be required.
Certainly today, new facilities and equity proposals are in place that may add up to a system that is now accepted as cyclical, while the market could not loan to the hospitality/ timeshare industry and commercial real estate.
“We are working hard on the international travelers into the US. The US Department of Commerce recent numbers show 650,000 less travelers today than in 2000 (before September 11). This number constitutes 8 years of work alone this month; however 48 million more people traveled around the world. People who buy timeshare and vacations are now shrinking in numbers. A big market that is shrinking because it is getting harder and harder to get visas to the US,” said Roger Dow, president & CEO, The US Travel Association. He said what they care more about is growing the pot – getting a lot more people to travel. After 9/11, involvement of the government has changed tremendously in the business. “Now we are in a situation in which we have policy that gives us the ability to do business or hurt us significantly,” Dow said. The US Travel Association is also focused on sustainable tourism and other tourism issues including getting a handle on the media and advocating for a healthy tourism economy.
He pointed out to that in October, the AIG effect happened. “AIG had a meeting and the press vilified the group as junkets, partygoers, etc. which caused a phenomenal downturn in our market which cost hotels a few million dollars in one month alone,” he said. There’s this rhetoric going around in Washington and the media sensationalizes it, we’ve decided to take action and run an ad on USA Today saying: “Want to lose one million more jobs? Just keep talking. It got us some attention.” Dow said they went to the White House and went over the state of the vacation industry and its impact to the US economy. “President Obama listened and left us feeling he knows where the challenge lies. The President has the greatest opportunity to tell the world during his visits overseas to pitch America to the world. He was engaged. We will keep the pressure on,” said Dow.
Jerry Kilgore, former attorney general (AG) Virginia, partner, Williams Mullen said there will be an increase in activity in every state with consumers who cannot make payments will unload their primary homes or vacation homes. “As we continue to consumer payment problems, we will see an increase in amount of cases in the state attorney general. See the state AG’s sooner rather than later. State AG’s sue for millions of dollars but settle for just about hundred thousand. Let your state AG you will expand in one state,” he said.
DeBoer commented today’s policy-making process is extremely constructive dialogue to find solutions to get the US out of the downturn. He said: “It’s not a confrontational complication like we’ve had on issues on the past. If you do your homework well, show through data how your plan will be good for the man on the street, you may succeed.”
“With the Obama administration, we’ll have a lot of enforcement and challenges with not only the anti-trust arena but also with the consumer side. State AG’s are giddy about the new LCCs and LTCs and states are in a cash crunch right now. They may want to investigate activities in the industry but may not have the resources to do so,” said Kilgore adding there will be a national association of AG’s meeting in DC for consumer protection talks – to partner together in enforcing consumer complaints and violations in the future. Some states that are cash-strapped to take down companies and get more cash into the vacation business.
Dow said he fears the “nibbling away” of his association’s proposal to the federal government in the next 60 days.