Statement by Jeffrey Weidell, CEO of Northmarq and Chair of MBA 2024 COMBOG, on Commercial Real Estate Markets before the House Oversight and Accountability Committee of the Subcommittee on Health Care and 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 DECLARATION

Jeffrey Weidell, CEO of Northmarq and Chair of MBA COMBOG 2024

30/4/2024

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 CEO of Northmarq, a top 10 commercial real estate sales and financing firm with expertise in debt, equity, property sales and loan servicing.

I am testifying in my capacity as the current chair of the MBA’s Commercial/Multifamily Governance Board.

My comprehensive written statement provides an overview of the commercial real estate industry.

In short, it is very difficult to paint the commercial real estate landscape with broad brush strokes.

The market is large and diverse with a variety of different property types, geographic markets and submarkets, types of borrowers and lenders, and vintages of loans and deals.

These property types include multi-family, commercial, industrial, residential, self-storage, office and many others. They are found 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 that 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 rest for a series of other types of property.

MBA also estimates that roughly $1 trillion in CRE mortgages will sell this year.

However, it is also important to note that 96.8 percent of outstanding loans are in good standing.

Commercial banks hold the largest share of this debt at $1.8 trillion, but the bank’s total is not just one office. It’s diversified across all the different types of property I mentioned above.

The GSEs are the second largest holders of commercial mortgage debt at $1 trillion.

Life insurance companies have $733 billion and other sources of capital combined have $593 billion.

Delinquency rates on commercial mortgages have certainly been rising, especially for loans backed by office properties. Twenty percent of all commercial mortgage debt will mature in 2024. Multifamily makes up the largest portion of these maturities at $257 billion, followed by office at $206 billion.

But every property and every owner is in a unique situation. This combination of variables will be critical in 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 ​​by 144 percent. In other words, if owners have owned properties over time, they’ve likely built up a good 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 cases, fundamental property operations properties

Landlords, developers, lenders and other market participants are working on the process of transitioning the commercial real estate market to this new reality.

What can regulators do to help ensure a smooth transition?

• Re-propose the “End Game” of Basel III. If not amended, it will adversely affect the availability of trade credit;

• Exemption of multifamily and commercial property loans from HMDA and Section 1071 reporting;

• Reduce your Multifamily Mortgage Insurance Premiums and your application fees;

• Reconsider program requirements that increase 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?

• Approve bipartisan and bicameral fiscal proposals;

• Pass bills that provide incentives to state and local governments, which help support and increase the supply of affordable housing; i

• Improve 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.