Remarks by MBA President David H. Stevens During MBA's 26th Annual Commercial Real Estate Finance/Multifamily Housing (CREF) Convention & Expo
|(202) 557- 2727|
Orlando, FL (February 1, 2016) - David H. Stevens, CMB, President and CEO of the Mortgage Bankers Association (MBA) today delivered the following remarks at the association's 26th Annual Commercial/Real Estate Finance/Multifamily Housing (CREF) Convention & Expo.
[Please Note: These are prepared remarks. Mr. Stevens may add to or subtract from these remarks during the course of his presentation. Portions of the text may be omitted during the speech.]
Good morning. Welcome to Orlando and MBA's 2016 CREF Convention. Great to see so many of you here at the largest gathering of commercial and multifamily finance professionals.
At MBA we're committed to listening to our members and serving their needs and I want you to know that we've heard you loud and clear about where and how you'd like to meet. That's why I'm pleased to announce this morning that for the next five years MBA's CREF convention will be held in San Diego, CA!
This morning, I want to talk to you about attraction...
Sometimes businesses attract a lot of good attention. Other times you attract all the attention you want or need, but not necessarily for the right reasons. And sometimes you want to do all you can to attract more of the right attention. All these scenarios are happening right now to the commercial multifamily real estate business.
Today this $3 trillion industry is very attractive to many in the U.S. and worldwide. U.S. commercial real estate lending is quickly emerging as the world's fourth major global investment asset class. Whether you look at the Chinese economy, or how low oil prices have gone, or questions about the government debt of many foreign countries, the strength and stability of the U.S. commercial real estate market looks very attractive right now.
The U.S. economy is also gaining ground, which directly impacts the commercial real estate business. Think about it. When businesses do well, they hire more employees which drives up demand for office space. When hiring and wage growth increases, it means more disposable income, leading to additional shopping and demand for retail space. So naturally, we should see an increase in office properties, industrial properties and possibly shopping malls.
Rents are up. Vacancy rates are down. Prices are up. Cap rates are down. Lending volumes are up. Delinquency rates are down. And, for the coming year, the outlook remains solid. Through MBA's CREF Outlook Survey, leading originators told us they expect commercial and multifamily mortgage lending to continue to increase in 2016.
Lenders' appetites for new loans remain strong, and with strong market fundamentals and the 10 year loans made during 2006 and 2007 maturing this year and next, lenders also anticipate strong demand from borrowers. Loans for all major investor groups are expected to increase in 2016. In the CREF forecast we released this morning, MBA anticipates that this year commercial and multifamily mortgage bankers' originations will set a new record -- passing the $508 billion mark of 2007.
Who wouldn't be attracted to this strong business atmosphere? It sounds like an investor's dream. But you all know better than anyone else that with all that attraction, with all that competition, comes a narrowing of the margins for error. And you're not the only ones seeing this.
For the past four years, I've talked about commercial and multifamily businesses thriving through the recession. We've discussed tipping points in the market that could occur at any time. MBA has continuously stated that commercial and multifamily businesses should not be collateral damage on the way to real estate finance reform. I've cautioned that nobody is immune to regulatory or legislative oversight.
Recently the strong, growing commercial real estate market has attracted the attention of the Federal Reserve. The Fed's leadership invited MBA to provide them a briefing on market conditions. MBA didn't hesitate. We went right to the top, taking MBA member executives to meet with Federal Reserve Chairman Janet Yellen and the Board of Governors to brief them on the state of mortgage finance, with a focus on commercial/multifamily real estate lending. The commercial/multifamily executives in attendance were able to engage in discussion at the highest levels of monetary policy making. This gave Fed decision-makers an on-the-ground view of the real economy, improved their understanding of commercial real estate lending, and further solidified MBA as a go-to resource for all things real estate finance.
As it turns out, the Fed isn't the only market regulator whose attention is attracted to your business. In early December the Fed was joined by the Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) in a joint statement in which they acknowledged the growth and competitive pressures in the commercial real estate market and reinforced prudent risk management practices regarding CRE. Federal regulators are right to be engaged, but more importantly right to be engaged with us.
On the multifamily side, rental properties remain very attractive for many households. So we continue to keep a watchful eye on housing demand for potential opportunities and risks for all segments of the real estate finance market. Currently, the scales are still tipping in the rental community's favor. Through the recession, homeownership rates dropped and more households became renters. Demographic changes over the next decade point to a massive wave of household formation according to MBA's recent housing demand study. With between three and six million additional renter households expected, the demand for affordable rental housing is only expected to grow.
But will households be able to afford rental costs? The number of American households who rent their homes stands at an all-time high. Unfortunately, household income dropped in recent years at the same time the cost of constructing rental properties and real rents have increased. Recently MBA released a white paper on affordable housing noting that a quarter of renter households today are paying half or more of their income on housing. The need to expand the availability of affordable rental housing has rarely been greater.
Affordable, stable housing contributes to a sense of housing security that can have far reaching impacts on communities. MBA will continue to play a leading role to promote housing that is affordable and sustainable.
Briefly on that note, imagine a family, already struggling with their monthly rent, who has to face a serious illness to one of their children. Some may face the choice of having to forfeit a portion or all of their income to be with their sick child. And this is why MBA expanded the Opens Doors Foundation to provide rental assistance to families in this tough situation. You will hear more about the Foundation in just a few moments from Rodrigo, but let me say this - the majority of payments are now going to renters. I cannot stress enough the importance of your support - big or small - for the Foundation and families with children in need. Please stand with us and make a contribution today.
Market and household attraction to commercial/multifamily real estate has also caught the interest of policy regulators. When business is attractive, sometimes you get more attention than you need and therefore expect more regulatory challenges ahead. For example, the Basel III final rule will have potentially significant implications for banks with a concentration of commercial real estate construction loans. We'll continue to work with regulators as they consider new Basel Committee proposals that could impact capital charges for CMBS trading books and the overall bank holdings of commercial real estate mortgages. The latter issue was raised, in the statement from banking regulators I mentioned earlier.
The final CMBS Risk Retention rule was highly responsive to most of MBA's concerns and provided for additional risk retention flexibility. As with other major rules, however, implementation issues emerge - some that require clarity from regulators. We're engaged in active dialogue with these regulators, particularly the SEC, to address areas of uncertainty or unintended consequences. And we continue to believe that there should be more flexibility in the rule for single asset structures, single borrower CMBS, horizontal risk retention holders, and underwriting standards for zero risk retention.
Many life companies would benefit from greater flexibility in the equity risk-based capital rules. We're working with the NAIC and their working groups on that. We're making progress, but our continued advocacy is necessary. And HMDA reporting has become an issue for commercial/multifamily firms. The CFPB's final rule scopes in more multifamily lending, despite the fact that it's non-consumer, business lending. We're helping members on both clarifying the rule's scope, as well as implementation strategies and best practices.
Due to our strong relationship with FHFA, and FHA, we continue to represent our multifamily members on GSE issues, FHA programs, and protecting multifamily liquidity from all capital sources. We recognize the importance of competition in the market, while making sure that our members who work with the agencies have clear rules in supporting workforce and affordable rental housing.
Then there's the challenge of attracting the attention you need to sustain your business. External market trends aren't the only challenge to business health and success. With the unemployment rate dropping, it's becoming more difficult for you to find the right people for the right jobs. Meanwhile, many companies are facing an "employment gap" due to upper and middle management reaching retirement age with fewer new entrants into the company ready to move into those positions of leadership. Growth in higher levels in education, especially among women, over the past decade leave more college graduates looking for the right career. How do they not know about this $3 trillion business sector? How do you attract them? How do you retain them?
MBA recognizes the challenge this presents to your business and we're helping you do something about it. You can start recruiting and networking with some of the top women in the industry this afternoon at the CREF Connects Women in Commercial/Multifamily real estate event. This is a unique opportunity to connect with successful, executive women in your industry.
We've developed the CREF Careers Forum. This is an exciting effort each of you should be involved in to attract the next generation of employees. The CREF Careers Forum provides college students the opportunity to learn about the commercial/multifamily real estate finance industry, connect with businesses like yours, and find out about their next internship, job or career. In partnership with member firms, MBA is working with colleges and universities to promote this exciting, fulfilling, lucrative industry to talented students. Partner with us and you'll have a front-row seat recruiting America's best and brightest graduates.
And MBA continues to expand our education offerings. I'm pleased to announce MBA's new education cooperation agreement with Pepperdine University. Pepperdine is in the process of developing a Commercial Multifamily Graduate Certificate program. MBA is excited to support and collaborate on course content through the licensing of our Commercial Real Estate Basics and Commercial Certified Mortgage Servicer course materials. Students will be able to attend some events at the CREF Servicing and Technology Conference in May and have access to certain MBA education and training programs.
Recruitment alone is never enough; you also have to retain top talent. With that in mind, MBA helps you educate and develop your next generation of company leaders. Our signature programs are offered both online and in classroom settings. They include bank origination, servicing, underwriting, and capital markets. In the past couple of years, MBA has expanded our leadership and certification programs to include Commercial Future Leaders, the Chartered Realty Investor Designation, and the Commercial Certified Mortgage Banker Professional Designation.
With this influx of attraction to your marketplace and the challenges it brings - shifts in the global economy, domestic economic improvement, potential regulatory changes, household formations, and let's not forget the presidential election - how do we maintain the strength and success of the CRE market, of your businesses?
We have a proven record of overcoming challenges. MBA is winning. For years we bargained with Congress for a long-term extension of the Terrorism Risk Insurance Act (TRIA). Because of our collective efforts, early last year we locked in a six-year extension of TRIA. Just last month, an MBA member executive testified before the House Financial Services Subcommittee on Insurance and Housing on the National Flood Insurance Program, which affects both commercial and residential lenders. We urged the subcommittee to approve the Flood Insurance Market Parity and Modernization Act, which would stimulate a market for private flood insurance and maintain liquidity in the marketplace.
I'm also pleased to report the Financial Industry Regulatory Authority (FINRA) has amended its proposed margining requirements in direct response to advocacy by MBA and our members. Under the amended proposal, multifamily and project loan securities would be exempt from mandatory margin requirements, and each broker-dealer would make its own risk limit determination. This is a significant victory for MBA and our members.
Given the attractive, growing market and increased attention from regulators, now is not the time to be complacent. The diverse set of capital sources from our commercial and multifamily members alone demands our collective engagement on many fronts to mitigate the potential volatility in the marketplace. As your partner representing your best interests in the marketplace and in Washington, MBA will continue to:
- Advocate for a policy and regulatory environment that allows for the steady delivery of liquidity among all the major capital sources in commercial and multifamily real estate;
- Promote the role of mortgage bankers as intermediaries - including independent mortgage bankers -- facilitating their ability to do business and strengthening a level playing field that supports competition;
- Educate opinion leaders and policymakers on commercial real estate - both as an engine of our economy and in the formation of our communities; and
- Increase industry engagement across business models in our membership, particularly among young professionals who represent the future of MBA and CRE finance.
Engagement is the key to sustainable success. Overcoming challenges and achieving these goals to maintain a strong commercial/multifamily marketplace only occurs when we work together. In light of the regulatory and legislative challenges of the past year and considering the attention the commercial/multifamily business market is receiving from federal regulators, your political engagement is needed now more than ever. Join and participate in the Mortgage Action Alliance-MAA, MBA's grassroots affiliate-and learn about MORPAC, MBA's political action committee.
Grassroots is a numbers game. MAA's motto is "the larger the group, the louder the voice", and our commercial/multifamily membership needs to be louder if they want to have a voice on the policy and regulatory issues that will shape your business in the coming years.
One of the most important things you can do to support the industry outside of MAA and MORPAC is to attend the National Advocacy Conference. Last year fewer than 35 CMF members joined us in Washington, DC to discuss real estate finance with elected officials. I understand there was some reluctance in previous years, but now the federal regulators are getting involved early and want to hear from us. You can't afford to be absent from the conversation because the last thing you want is Washington making decisions without you.
Take advantage of your partnership with MBA to attract and retain new employees, strategize for the future utilizing MBA's research and economic data, and participate in MBA's roundtables and task forces. We need your participation, your voice, your input. We need you to be part of the dialogue and at the table.
MBA has grown significantly over the past four years. We have never been bigger, stronger, or louder. Within our membership, but especially among our commercial and multifamily members. And I'd like today to announce the expansion of MBA's commercial/multifamily team. Mary Robinson, an attorney with strong financial services and securitization experience, is joining the Commercial/Multifamily Group led by Tom Kim.
At the same time, your businesses are doing well. Despite potential headwinds and global volatility, the CRE market is strong and attracting a lot of attention. You are a major contributor to the U.S. and worldwide economy.
Look, attraction can be a good thing. It means competition, expansion, growth, strength and success. But just like we need balance in the marketplace, we need a balance of the right attraction to maintain healthy competition.
When we attract and maintain the right attention, when we collaborate early and often with stakeholders attracted to our business, when we make the right decisions, when we keep our focus on contributions to growing communities and a thriving economy, when we work together on all of this, we can achieve stability and long-term, sustainable success.