IN SESSION
Are you Ready to
Head to the Hill?
MARK YOUR CALENDAR! ON MAY 5, 2010,
IREM MEMBERS, JOINED BY MEMBERS OF
THE CCIM INSTITUTE, WILL BRING ISSUES
THAT AFFECT COMMERCIAL REAL ESTATE
TO CAPITOL HILL. The IREM & CCIM Institute
Orientation and Capitol Hill Visit Day event are held in
conjunction with the IREM Leadership and Legislative
Summit. Last year, over 275 IREM and CCIM Institute
Members participated in over 225 meetings with their
legislators, educating them on commercial real estate
management and investment issues.
An orientation will be held at the JW Marriott Hotel
in Washington, D.C., on Tuesday, May 4. At the orienta-
tion, legislative staff will explain the issues affecting
the industry and what to expect when meeting with
members of Congress. Participants will receive essential materials to take with them to the Hill. Time is also
provided for members to meet with their delegation and
role play.
>> More information on the 2010 Capitol Hill Visit Day
event is available at www.irem.org/capitolhill.
ACCOUNTING RULES CONTINUE TO IMPACT
COMMERCIAL REAL ESTATE
the credit crisis has Put iMMense Pressure On the cOMMercial real estate
industry. Liquidity in the commercial real estate
market has been considerably hampered by one of its key
lending vehicles–the nearly frozen $900 billion commercial mortgage-backed securities (CMBS) market.
Currently, banks and the CMBS market represent most
of all outstanding commercial real estate loans. In addition
to banks tightening their loan volumes, the CMBS market
has ceased to function with respect to new issuance until
more recently. Even with the recent new issuance of
CMBS, this market continues to be plagued by systemic
dysfunction. Without a functional CMBS market, many
property owners across the country will face a growing
challenge to refinance an estimated $1.4 trillion worth of
commercial real estate loans which are set to mature over
the next few years.
The liquidity crisis has been exacerbated by certain Fair
Value Accounting (FVA) standards, known as mark-to-
market. In particular, the interpretation and application of
FAS 157 led banks to mark down their mortgage-backed
securities as they declined in value, forcing them to report
hundreds of billions of dollars in losses over the last year.
However, in early April 2009, the Financial Accounting
Standards Board (FASB) voted to change these rules to
allow assets to be valued at what they would go for in an
“ordinary” sale, as opposed to a forced distressed sale.
While this rule change is encouraging, other FASB
accounting rules such as FAS 166 and FAS 167 (formerly
FAS 140 and FIN 46(R)) threaten the recovery of the
securitized markets. These two new rules eliminate the
Qualifying Special Purpose Entity (QSPE), which makes
commercial real estate securitization possible. The QSPE
enables banks and companies to treat transfers of finan-
cial assets as a sale rather than a financing for accounting
purposes. This allows firms to keep these transferred
assets off balance sheets. However, the new accounting
rules would essentially force banks “to bring hundreds of
billions of dollars in assets back onto their balance sheets,
forcing them to set aside more capital.” These new rules
also require a company to perform a qualitative analysis
when determining whether it must consolidate.
Representative Scott Garrett (R-N.J.) introduced an
amendment to conduct a study of the impact of FAS
166 and 167 on the securitization markets during the
Financial Services Committee “markup” (analysis) of the
Financial Stability Improvement Act of 2009. IREM will
continue to encourage accounting policy makers to fully
examine FAS 166 and 167.
