Finance & Economy

Government & Policy

Real Estate

The politics of CRE

April 5, 2023

The politics of CRE

Jeff DeBoer & Sharon Wilson Géno

President and CEO of Real Estate Roundtable & President of NMHC

Be sure to catch this insightful Walker Webcast with Jeff DeBoer and Sharon Wilson Géno, where we delve into the politics of CRE.

Sharon Wilson Géno is the President of the National Multifamily Housing Council and a housing industry veteran with over 30 years of experience. Throughout her tenure in the housing industry, she has worked with countless for-profit, not-for-profit, and government entities in the housing sector. Before her work at the National Multifamily Housing Council, she was the Executive Vice President and COO for the Volunteers of America National Services, overseeing the operation of over 240 properties, totaling over 13,000 units, across 40 states.

Jeff DeBoer has helped shape national real estate policy for over 35 years and is the founder and CEO of the Real Estate Roundtable. The Real Estate Roundtable is an organization that represents the country's 150 largest private and publicly owned real estate ownership, development, lending, and management firms. The member firms have over $4 trillion in real estate holdings.

I had the pleasure of talking with both Sharon and Jeff about everything real estate, from the politics behind the scenes to how recent bank failures will affect lending.

Recent bank collapses and real estate lending

The collapse of Silicon Valley Bank and Signature Bank led to panic in the regional bank sector, which has the potential to cause turmoil in the real estate lending space. Many real estate investors and property developers leverage their relationships with regional banks as a go-to source for financing real estate deals.

However, due to the recent erosion in trust for the regional banking sector, many customers have been moving their funds out of regional banks and into large, national banks such as JPMorgan Chase, Bank of America, and Wells Fargo. This flight in capital away from regional banks has the potential to hamstring the real estate market, as a decrease in deposits will lead to decreased ability to originate loans.

One potential solution that has been proposed is raising the FDIC insurance limits on deposits. Currently, the FDIC insures all deposits up to $250,000. The SVB collapse illustrated that this cap is not nearly high enough in many cases (especially for businesses). This has led many to believe that the FDIC should increase the cap on insured funds, but doing so might not solve the problem completely, as increased insurance would mean increased fees and barriers to entry, which would not bode well for smaller regional banks.

A slow in new construction loans

Rising interest rates have stifled new construction activity in recent months. This will lead to a sharp decline in new inventory as we move into 2024 and 2025. This situation, plus the fact that the U.S. is already facing a housing shortage and an even larger affordable housing shortage, creates the perfect recipe for rent raises. Housing inflation is something that the federal government has been trying to avoid at all costs. However, it seems it will be hard to stop now.

The movement for renter’s rights

Renter’s rights have been a hot topic of discussion for quite some time now, with advocates for tenant’s rights calling for widespread change to how landlords and tenants do business. A few tremendously vocal groups have called for sweeping changes to the residential housing industry. These groups have been working to highlight situations where tenants have been wronged by their landlords, using these situations to call for what they deem to be “much-needed change” in the industry.

Some have even gone as far as calling for universal rent control, something that landlords would surely fight. Others have called for a mandate stating that all Fannie Mae/Freddie Mac loans on multifamily properties must be subject to rent control. This would seriously handicap landlords and lenders alike. Rent control significantly limits the profitability of developers in particular. With limited upside potential, developers would be less likely to take on the risk of building new developments, which would only make the housing supply problem we’re currently facing even worse.

Organizations such as the National Multifamily Housing Council have been lobbying for landlord rights. Sharon and her team were instrumental in helping craft the recent changes to legislation announced by the Biden administration. Organizations like hers play a difficult role in working diligently to help craft legislation that is both good for the American people and for businesses.

Converting office buildings to multifamily

In the wake of the COVID-19 pandemic, the U.S. is oversupplied with office space and undersupplied with residential space. This has led many to the conclusion that converting existing office buildings into multifamily buildings could be a great way to solve our current housing supply issue. This notion has become incredibly popular, especially in cities like San Francisco, which are in dire need of residential space and have an abundance of empty office buildings.

Every empty office building will not be a proper candidate for this kind of project. In many cases, converting existing office buildings into multifamily housing is simply not possible or is prohibitively expensive. These options have historically been overlooked because there aren’t many options or incentives to finance such projects. If proper financing methods are developed, converting office buildings into multifamily buildings could be a very lucrative type of project in the near future.

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