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NY Budget Boots Housing Supply

February 6, 2023

On February 1, New York Governor Kathy Hochul (D) released her FY 2024 budget proposal, which includes a substantial number of programs aimed at increasing housing supply.

Why it matters: The Governor’s budget is the key legislative vehicle in New York state for enacting laws and spending. The budget proposal does NOT include statewide rent control (aka good cause eviction) or a mortgage recording tax on mezzanine debt and preferred equity investments.

• However, in past years, certain Assembly members tried to add these policies to the legislative vehicle.
• Assembly members could again attempt to add them during the process this year.

By the numbers: The $227 billion budget supports Hochul’s goal of 800,000 new housing units in 10 years. A few key components include:

• Office Conversions: A proposal would incentivize converting NYC office buildings to housing with at least 20% of units affordable by awarding a 19-year property tax exemption. Buildings constructed before 1991 would be eligible. Bloomberg has more on this provision.
• Zoning & Regulatory Relief: One proposal would rezone neighborhoods near mass transit to allow for higher density; another would require localities to submit housing and zoning data to the state to inform future decisions. Certain environmental reviews would be waived under these proposals.
• Extending 421-a Affordable Housing Incentive: The 421-a program allows certain tax abatement for the development of affordable housing. While the program expired for new projects in June 2022, Hochul proposes to extend the completion deadline for vested projects by 4 years to June 2030. Bisnow has more.

What’s next: The legislature will now consider the legislation, tweak aspects of the budget, and/or include new legislation in a counterproposal. Rent control and a mezz tax could come up in this phase.

• Governor Hochul has an opportunity to line-item-veto new or changed provisions from her initial budget.
• Unchanged portions automatically become law once passed by both chambers.
• The legislature has until March 31 to act.

Contact David McCarthy (dmccarthy@crefc.org) with questions. 

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Congress Sets Financial Policy Agendas

February 6, 2023

The Senate Banking and House Financial Services committees have packed agendas for the first several weeks of 2023.

Why it matters: Agendas show where Congress will focus its attention, and the policy and political priorities of both parties.

House Financial Services Chair Patrick McHenry (R-NC) organized his committee last week and plans nearly a dozen committee meetings through the end of March, including:

1. A Tuesday hearing on China.
2. Hearings on data privacy, followed by February 28 votes.
3. Hearings on capital formation legislation, followed by March 28-29 votes.
4. Testimony by Fed Chair Jerome Powell on March 8.
5. A full committee hearing on digital assets on March 9.

Rep. Maxine Waters (D-CA), now House Financial Services Ranking Member, cried foul at McHenry’s decision to scrap the diversity and inclusion subcommittee she first established as chair. McHenry instead made DEI part of the other Financial Services subcommittees.

What's next: Senate Banking Committee Chair Sherrod Brown (D-OH) announced the hearing schedule for the full committee in February, including:

1. “The State of Housing 2023” on February 9 at 10am.
2. “Crypto Crash: Why Financial System Safeguards Are Needed for Digital Assets” on February 14 and 10am.
3. “Advancing National Security and Foreign Policy Through Sanctions, Export Controls, and Other Economic Tools” on February 28 at 10am.
4. Additional hearings may be added.

All hearings will be live streamed on www.banking.senate.gov.

What they’re saying: Politico reported Brown’s crypto plan is not clear, but part of his goal is to “smoke out what’s happening internationally with crypto” on national security, including countries that use it to “run weapons and drugs and all kinds of unseemly activities that crypto can enable.”

Senate Banking Committee Ranking Member Tim Scott (R-SC) separately announced his own priorities. Scott doesn’t drive the agenda, but his priorities include a number of issues that could achieve bipartisan agreement. Scott is a rumored Republican Presidential aspirant.

Contact Justin Ailes (jailes@crefc.org) or David McCarthy at (dmccarthy@crefc.org) with questions.

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Expect a busy Q1 and Q2 from Congress on China, crypto, housing, data privacy, and capital formation legislation.

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Nikki Haley to Announce 2024 Presidential Bid

February 6, 2023

The field for the 2024 Republican Presidential nomination is starting to thaw.

Last week, former U.N. Ambassador Nikki Haley announced she will make a “Special Announcement” on February 15 and travel to New Hampshire and Iowa.

Our thought bubble: If that doesn’t scream, “I’m running for President,” we don’t know what else will.

Why it matters: Haley is the first high-profile challenger to former President Trump. Her compelling personal background and record as Governor of South Carolina give her an edge that is not to be overlooked.

The big picture: The 2024 Republican Presidential primary field is anticipated to be crowded:

• Former Maryland Governor Larry Hogan (R) was quoted for the first time saying he was “actively and seriously considering” running. He also appeared on three radio shows in New Hampshire.
• Sen. Tim Scott (R-SC) is scheduled to give speeches in Iowa and South Carolina, two early primary states.
• Former VP Mike Pence (R) is staffing up, which includes former Haley staffers.
• Former Secretary of State Mike Pompeo (R) released his book, and increased media appearances, a sign of a Presidential bid to come.
• Members of Florida Gov. Ron DeSantis's (R) team are preparing for a national campaign.

The bottom line: The time between now and when the Republican nominee will be announced during the Republican National Convention in July 2024 is significant. During this period, CREFC will shine a spotlight on the candidates to watch this cycle.

Contact Chelsea Neil (cneil@crefc.org) with questions about the 2024 election cycle.

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ICYMI: Federal Election Commission Increases Contribution Limits

February 6, 2023 

On February 2, the Federal Elections Commission (FEC) increased the amount that individual donors can give per candidate per election to $3,300.

Why it matters: The announcement reflects the current inflationary environment. Donors can now also give a candidate up to $6,600 between the primary and general elections — or $9,900 if a race goes to a runoff.

By the numbers: The amount represents a $400 increase from the $2,900 limit during the 2022 election cycle.

Go deeper: Visit the FEC website for the complete list of contribution limits during the 2024 cycle.

If you have questions about political giving contributions or the FEC, please contact Chelsea Neil (cneil@crefc.org). 

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SEC Releases Annual Report on Rating Agencies

February 6, 2023

On February 2, the Securities and Exchange Commission (SEC) issued its annual report on nationally recognized statistical rating organizations (NRSROs).

Why it matters: The 2006 Rating Agency Act and Section 15E(p)(3)(C) of the Securities Exchange Act of 1934 require the SEC to submit an annual report to the Senate Banking and House Financial Services committees and the public.

The SEC identified the following potential risks for consideration in the NRSRO-specific risk assessments:

• Pressure on surveillance practices during times of stress;
• Pandemic’s impact on commercial real estate;
• Increased likelihood that communications are conducted through unapproved means (e.g., text messaging);
• Process weaknesses in managing conflicts of interest with respect to securities ownership by employee;
• Marketing and development of stand-alone ESG products resulting in conflicts of interest that could affect credit ratings; and
• Developments that could adversely affect the ratings of firms based in China.

On CRE, the report noted “identified potential risks relating to commercial real estate ratings with significant exposure to sectors negatively impacted by COVID-19, and potential non-adherence to methodologies and rating processes” related to:

• Qualitative adjustments made to model implied ratings, model implied subordination levels, and inputs to models used in the ratings process;
• Property valuations; and,
• Default frequency and severity assumptions or projections.

Contact Sairah Burki (sburki@crefc.org) with questions. 

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California Bill Mandates Corporate Emissions Disclosures

February 6, 2023 

On January, 30, California lawmakers introduced a bill that would require large U.S. companies to disclose their greenhouse gas emissions, potentially affecting several thousand major companies.

What is covered: Politico reports the "California Climate Corporate Data Accountability Act" would require all companies earning at least $1 billion in revenue and doing business in California to provide information on their global carbon footprints starting in 2026.

Covered companies would be required to disclose:

1. Scope 1 (direct operations);
2. Scope 2 (energy use); and
3. Scope 3 (upstream and downstream emissions).

The bill would be more stringent than the Securities and Exchange Commission, (SEC) proposed climate disclosure rule, which would only apply to publicly traded companies and would not require all of them to disclose Scope 3 emissions.

Could this be precedent: Politico reports that climate advocates believe this move could be replicated in other states. New York lawmakers are also proposing similar legislation this year, after failing last year.

Likelihood of passage: While a similar effort failed in the California Assembly last year after passing in the Senate, the bill’s sponsor remains optimistic, citing “stronger business support earlier in the process and some legislative districts flipping in November's election.”

But at the Federal level: As reported by the Wall Street Journal and Politico, the SEC may be considering softening elements of its proposed climate disclosure proposal, including Scope 3 emissions disclosure requirements and disclosing the impact of climate events on financial statements. In our comment letter, CREFC noted our members’ significant concerns related to and questions about these proposed requirements.

The SEC continues to receive significant pushback from lawmakers and companies, and given the likelihood of a barrage of litigation, the regulator may try to make the final rule as bulletproof as possible.

CREFC continues to monitor and respond to proposed ESG-related regulation and legislation. Please contact Sairah Burki (sburki@crefc.org) with questions or to join our Sustainability Initiative.

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Initial Biden / McCarthy Debt Ceiling Talks Positive

February 6, 2023

At 9pm on Tuesday, President Joe Biden delivers the State of the Union address to Congress following a productive meeting with House Speaker Kevin McCarthy last week over the debt ceiling.

• What's next: Biden and McCarthy plan to meet again soon.

Why it matters: The start of what could otherwise have been tense and unproductive conversations over how to lift the debt limit are instead very productive and businesslike, creating stability and optimism for a deal.

What they’re saying: McCarthy described the meeting as “a very nice conversation for more than an hour,” and both Biden and McCarthy emphasized that they respect each other. “It doesn’t mean we’re going to agree…but let’s treat each other with respect,” Biden said.

Why it matters: President Joe Biden’s budget director told MSNBC that the White House and Congressional Republicans will reach a budget deal and avert a breach of the debt ceiling:

“Yesterday was a good start. This town, as you know, is all about relationships. This is a beginning of a process, of a marathon. I’ve been in the middle of many of these budget talks, and of course we’re going to find a path.”

Go deeper:

• Democrats use the looming debt limit debate to fundraise — Bloomberg
• US Debt Ceiling Explained: Why It Matters to Markets — Bloomberg
• Mayors Fret Over Possibility of Funding Claw Backs — Route Fifty

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Following productive debt ceiling talks, Tuesday is President Joe Biden's first opportunity to address Congress since Republicans took control of the House earlier this year.

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Weekly Talking Points

February 6, 2023 

A quick summary of key items CREFC is focused on this week. Use it to catch up quickly or to brief your colleagues in a meeting on what is driving the week in government policy.

• NY Housing Focus: Governor Hochul (D-NY) proposed her FY 2024 budget, which includes policies focused on increasing the housing supply. Aggressive renter protections (like rent control) were not included, but the Assembly can make changes. Read More
• California Considers Climate Disclosure: California lawmakers are considering a bill that would require large companies doing business in California to disclose their Scope 1, 2, and 3 emissions. Read More
• Congressional Committee Agendas: House and Senate committees have set their agendas. China, crypto, and ESG are among the hot financial topics. Read More

• Debt Ceiling: Biden delivers his State of the Union speech Tuesday as his early conversations with Speaker McCarthy went better than expected. His budget director is optimistic a deal will be reached. Read More

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CREFC Forum Spotlight: CMBS B-Piece Investors Forum

February 6, 2023 

Together, Lyndsay, Zach, and Jason form the “Leadership Working Group” for CREFC’s B-Piece Investors Forum. Importantly, this group — taking their cues from B-Piece Investor Forum members — sets the agendas and priorities for the Forum, as well as represents their constituencies on CREFC’s Policy Committee.

Key B-Piece Investors Focus Areas

• Ensuring that newly originated retail and office loans have adequate upfront capital reserves, hard lockboxes, and/or set deposits as lower DSCRs make it more challenging to collect significant TI/LC dollars monthly and for loans to withstand declines in tenancy.
• Watching upcoming maturities closely, as higher interest rates and wide bid/asks on the underlying assets are impacting exit strategies on refinances and sales, respectively.
• Evaluating potential five-year CMBS transactions cautiously, as these transactions require sterling credit characteristics, and are more sensitive to losses or extensions.

Looking ahead, leaders are hopeful that stabilizing rates will increase CMBS issuance relative to 2022. The Forum would like to continue the push toward better use of technology to improve the speed of reporting from borrowers to servicers and trustees to investors. In 2023, B-Piece investors see key challenges as:

• Today’s higher interest rates and their impact on borrower demand and refinancings,
• Enforcing rights in loan documents, such as springing lockboxes and “go-dark” sweeps, and
• Underwriting office loans as the sector continues to evolve.

What's next: Forum leaders are seeking nominations for the next Chair Elect to join their leadership slate and look forward to presenting CREFC members with an update on their forum at the Annual June Conference in New York City.

To join the B-Piece Investors Forum, please register here. For any forum related questions, please contact either the Forum Chairs or CREFC’s Kathleen Olin at kolin@crefc.org.

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B-Piece Investor Forum Leadership

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