[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                  HEALTH OF THE COMMERCIAL REAL ESTATE
                    MARKETS AND REMOVING REGULATORY
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                                HEARING

                               BEFORE THE

                      SUBCOMMITTEE ON HEALTH CARE
                         AND FINANCIAL SERVICES

                                 OF THE

                         COMMITTEE ON OVERSIGHT
                           AND ACCOUNTABILITY

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             SECOND SESSION
                               __________

                             APRIL 30, 2024
                               __________

                           Serial No. 118-106
                               __________

  Printed for the use of the Committee on Oversight and Accountability
  

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                       Available on: govinfo.gov
                         oversight.house.gov or
                             docs.house.gov
                             
                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
55-547 PDF                 WASHINGTON : 2024   


               COMMITTEE ON OVERSIGHT AND ACCOUNTABILITY

                    JAMES COMER, Kentucky, Chairman

Jim Jordan, Ohio                     Jamie Raskin, Maryland, Ranking 
Mike Turner, Ohio                        Minority Member
Paul Gosar, Arizona                  Eleanor Holmes Norton, District of 
Virginia Foxx, North Carolina            Columbia
Glenn Grothman, Wisconsin            Stephen F. Lynch, Massachusetts
Michael Cloud, Texas                 Gerald E. Connolly, Virginia
Gary Palmer, Alabama                 Raja Krishnamoorthi, Illinois
Clay Higgins, Louisiana              Ro Khanna, California
Pete Sessions, Texas                 Kweisi Mfume, Maryland
Andy Biggs, Arizona                  Alexandria Ocasio-Cortez, New York
Nancy Mace, South Carolina           Katie Porter, California
Jake LaTurner, Kansas                Cori Bush, Missouri
Pat Fallon, Texas                    Shontel Brown, Ohio
Byron Donalds, Florida               Melanie Stansbury, New Mexico
Scott Perry, Pennsylvania            Robert Garcia, California
William Timmons, South Carolina      Maxwell Frost, Florida
Tim Burchett, Tennessee              Summer Lee, Pennsylvania
Marjorie Taylor Greene, Georgia      Greg Casar, Texas
Lisa McClain, Michigan               Jasmine Crockett, Texas
Lauren Boebert, Colorado             Dan Goldman, New York
Russell Fry, South Carolina          Jared Moskowitz, Florida
Anna Paulina Luna, Florida           Rashida Tlaib, Michigan
Nick Langworthy, New York            Ayanna Pressley, Massachusetts
Eric Burlison, Missouri
Mike Waltz, Florida

                                 ------                                
                       Mark Marin, Staff Director
       Jessica Donlon, Deputy Staff Director and General Counsel
                     Alan Brubaker, Senior Advisor
                    Tyler Sanderson, Senior Counsel
      Mallory Cogar, Deputy Director of Operations and Chief Clerk

                      Contact Number: 202-225-5074

                  Julie Tagen, Minority Staff Director

                      Contact Number: 202-225-5051
                                 ------                                

           Subcommittee on Health Care and Financial Services

                   Lisa McClain, Michigan, Chairwoman
Paul Gosar, Arizona                  Katie Porter, California Ranking 
Virginia Foxx, North Carolina            Minority Member
Glenn Grothman, Wisconsin            Alexandria Ocasio-Cortez, New York
Russell Fry, South Carolina          Greg Casar, Texas
Anna Paulina Luna, Florida           Summer Lee, Pennsylvania
Nick Langworthy, New York            Jasmine Crockett, Texas
Eric Burlison, Missouri              Eleanor Holmes Norton, District of 
Vacancy                                  Columbia
                                     Ayanna Pressley, Massachusetts

                         C  O  N  T  E  N  T  S

                              ----------                              

                                                                   Page

Hearing held on April 30, 2024...................................     1

                               Witnesses

                              ----------                              

Mr. Jeffrey DeBoer, President and CEO, The Real Estate Roundtable
Oral Statement...................................................     5
Mr. Jeffrey Weidell, CEO, Northmarq
Oral Statement...................................................     7
Mr. Doug Turner (Minority Witness), Senior Fellow for Housing 
  Policy, Center for American Progress
Oral Statement...................................................     8

Written opening statements and statements for the witnesses are 
  available on the U.S. House of Representatives Document 
  Repository at: docs.house.gov.

                           Index of Documents

                              ----------                              

  * Statement for the Record, ICSC; submitted by Rep. Fry.

  * Statement for the Record, NAR; submitted by Rep. McClain.

  * White Paper, Brookfield, ``The Misunderstood U.S. Office 
  Market''; submitted by Rep. Crockett.

  * Letter, April 29, 2024, from Mayor Bowser, to Chair McClain; 
  submitted by Rep. McClain.

  * Statement for the Record, CREFC30; submitted by Rep. McClain.

  * Statement for the Record, ICSC; submitted by Rep. McClain.

  * Letter, March 14, 2024, from Rep. Garcia to Secretary 
  Buttigieg; submitted by Rep. Garcia.

  * Letter, April 20, 2023, from Rep. Garcia to Secretary Yellen; 
  submitted by Rep. Garcia.

Documents are available at: docs.house.gov.

 
                  HEALTH OF THE COMMERCIAL REAL ESTATE
                    MARKETS AND REMOVING REGULATORY
                      HURDLES TO ENSURE CONTINUED
                                STRENGTH

                              ----------                              


                        Tuesday, April 30, 2024

                        House of Representatives

               Committee on Oversight and Accountability

           Subcommittee on Health Care And Financial Services

                                                   Washington, D.C.

    The Subcommittee met, pursuant to notice, at 2:17 p.m., in 
room 2154, Rayburn House Office Building, Hon. Lisa McClain 
[Chairwoman of the Subcommittee] presiding.
    Present: Representatives McClain, Foxx, Grothman, Burlison, 
Porter, Lee, Crockett, Norton, and Pressley.
    Also present: Representative Garcia.
    Mrs. McClain. This hearing of the Subcommittee on 
Healthcare and Financial Services will come to order. Welcome, 
everyone.
    And without objection, the Chair may call or declare a 
recess at any time.
    I recognize myself for the purpose of making an opening 
statement.
    All right. I would like to thank our witnesses for 
appearing before the Subcommittee today, sincerely. We are here 
to examine the strength of the commercial real estate markets 
and talk about what Congress can do proactively to ensure the 
financial health of this enormous part of our economy. The 
continued health of commercial real estate industry is critical 
to Americans of all stripes. Whether it is the construction 
industry that builds and rehabilitates properties; to the 
people that clean and manage the properties; to the tenants, 
both commercial and residential; America needs a healthy 
commercial real estate industry.
    I do have a little fear. The headwinds are building and 
could lead to serious distress, and we need to hear what 
policy-makers, what we can do to avoid reaching the point of no 
return. Listen, we have time, we have a runway, but we cannot 
face another real estate crisis that requires taxpayers to bear 
the burden of that.
    It is undeniable that COVID-19 and the pandemic reshaped 
the commercial industry. Throughout the pandemic, businesses, 
both large and small, enacted telework policies, and consumers 
adjusted to online retail. These trends have not changed 
significantly as the world has returned to a sense of normalcy. 
In 2023, the national office vacancy rate reached almost 20 
percent, 19.2 percent for office vacancies. Delinquency rates 
were about 6.5 percent during the final months of 2023. This 
increase comes as more than $2.2 trillion in commercial debt 
will come due between now and 2027, and refinancing this debt 
comes as interest rates have jumped due to the Biden 
Administration's inflationary crisis.
    The Democrat spending spree has driven rampant inflation 
and forced the Federal Reserve to take significant action to 
tame inflation. Sadly, the Federal Reserve's interest rate 
increases are not the only concern the Federal Government is 
causing in the commercial real estate market. The Department of 
Housing and Urban Development has continued to decrease the 
number of loans it has made to support the commercial housing 
market. At the Department of Transportation, developers have 
reported that it takes a year longer after the loan is approved 
to receive a disbursement on a qualifying commercial real 
estate asset. This delay is unacceptable.
    Across the Federal Government, agencies are allowing staff 
to work from home despite decreased productivity, failures to 
adequately regulate important sectors of our economy, and calls 
from Congress.
    [Audio malfunction.]
    Mrs. McClain. Someone has got something to say.
    [Laughter.]
    Mrs. McClain. Even Mayor Bowser has told President Biden 
that his Administration's telework policies are killing 
Washington, D.C.'s local businesses. The Biden Administration 
has offered vague information and statistics to support their 
claim that post-pandemic telework has been successful. It took 
4 months and the threat of a subpoena from the Federal agencies 
to produce to the Committee basic information about their use 
of telework.
    Listen, I am from the private sector, so I do have a bias. 
When you do not show up for work, you lose your job. For too 
long, this Administration has allowed Federal employees to 
skirt by on lax telework policies on the back of American 
taxpayers. The commercial real estate market cannot flourish if 
its offices are empty. The American people cannot flourish when 
their Federal offices refuse to show up for work and do their 
jobs, delaying new treatment and approvals, halting new 
infrastructure projects, and enabling waste, fraud, and abuse. 
We have to get back to doing America's business. Congress and 
the Federal Government must do more to get out of the way of 
industry leaders and eliminate burdensome regulations and red 
tape.
    Despite these troubling headwinds, there are signs that the 
health of the commercial industry real estate market is 
actually strong, right? We have these headwinds. We have all of 
these negatives, but there is a sense that the commercial 
industry is strong. I want to keep it that way. I want to make 
sure that we do not end up in a bad situation, right? 
Neighborhood retail properties continue to perform well. 
Industrial real estate has also been a bright spot, with 
analysis predicting moderate rent growth over the next 10 
years. Multifamily properties continue to hold strong with 
vacancy rates remaining stable. It is vital that we bring 
Federal employees back into the office and ensure our 
commercial real estate market remains strong.
    I am looking forward to having this very important 
discussion, and I want to yield to Ranking Member Porter for 
her opening statement on this topic as well.
    Ms. Porter. The calm before the storm is where everything 
gets very peaceful before a big disruption. Congress gets this 
phenomenon. It is like last week's calm district work period 
before now facing a month of unpredictable governance in the 
House. While it is easy these days to predict chaos in our 
politics, Congress also needs to spot other possible disasters 
while we are in a calm period. So, I want to thank my 
colleague, Chairwoman McClain, for calling this hearing.
    Too many of us get lulled into a false sense of security, 
and nowhere is that truer than with financial crises. Over and 
over again, when the economy is strong, politicians are so busy 
taking credit that they fail to see storms on the horizon. Last 
spring, government leaders were shocked when Silicon Valley 
Bank, Signature Bank, First Republic all collapsed. Most folks 
had not thought about bank failures since the financial crisis 
of 2008, but all of a sudden, those banks failed. Businesses 
were at risk of not making payroll or failing, deepening the 
storm. Even though we weathered that storm, the government 
should have seen it coming. Why didn't we? Maybe because 
Congress was negligent during the calm.
    In 2018, Republicans were joined by over four dozen 
Democratic lawmakers to green light a bill that made it easier 
for banks to legally take a position where the banks would be 
less likely to be able to pay their depositors when they wanted 
their money back. That law increased the risk of a storm, but 
Washington was too busy enjoying the calm to prepare for it. 
The 2008 financial crisis is the same story.
    Washington thought that mortgage markets would be OK. 
Mortgages where you can choose what to pay, lending 115 percent 
of a home's value, what could go wrong besides everything? Yet, 
the Federal Reserve itself insisted the risk was under control, 
with Chairman Greenspan saying in 2006 that, ``There is no 
evidence that home prices will collapse'' and later admitting 
that ``He didn't see it coming.'' Why? Because he did not look, 
and neither did Congress, which praised Greenspan right up 
until they blamed him. It really makes you wonder what 
financial warning signs are we ignoring right now in this 
period of calm? Look no further than commercial real estate.
    This year, commercial property owners across the country 
are due to repay $929 billion in debt. That debt is held by 
banks, hedge funds, investment vehicles, pension funds, and 
others. If we do not want a major financial meltdown, the vast 
majority of that debt needs to be paid back, but commercial 
property owners are having a hard time doing that. Property 
owners are not making the same money that they did before the 
pandemic. The businesses who were their tenants canceled or did 
not renew leases, and many cannot make payments, especially 
with rising interest rates, and those interest rates make it 
harder to sell their properties or pay off their mortgages. And 
to make it even worse, some local governments are doubling down 
on the commercial real estate crisis. Can you believe how 
aligned we are?
    Mrs. McClain. Cats and dogs living together.
    Ms. Porter. That is right. Can I be the dog?
    Mrs. McClain. Yes.
    Ms. Porter. OK. Today, any property transfer in Los Angeles 
County worth more than $10 million gets taxed at a whopping 6 
percent. This kind of big tax change adds huge risk to the 
commercial real estate market at the worst possible time. It 
compounds the risk of a major collapse that all levels of 
government should be working together to prevent. Look, 
commercial property owners take risks, and losing money is one 
of them, but when the whole market crashes, that causes a 
problem that hurts all of us. It could mean widespread 
unemployment, bank failures, and slow economic growth.
    So, what do the banks and other lenders do? They keep 
extending due dates for loans, hoping that commercial property 
owners will eventually get into a better place to pay them 
back, but that has not happened even after a few years of 
extensions. Ultimately, property owners will need to pay back 
the loans, or they will default on them. Those are the only two 
choices. The longer we postpone the outcome, the bigger the 
balance grows and the greater the economic risk becomes. 
Problems never get smaller when you push them into the future, 
and this one will get bigger. Let us try to prevent or minimize 
a future storm for our economy while we are still in the calm. 
I yield back.
    Mrs. McClain. Thank you. I am pleased to welcome our 
witnesses for today. Mr. Jeffrey DeBoer is the president and 
CEO of the Real Estate Roundtable, an expert in commercial real 
estate management, ownership, and development. Welcome. Mr. 
Jeffrey Weidell is the CEO of NorthMarq and an expert on 
commercial real estate debt and equity financing, testifying on 
behalf of the Mortgage Bankers Association. Thank you for being 
here. And Mr. Doug Turner, a Senior Fellow for Housing Policy 
at American Progress. Welcome, sir. We look forward to hearing 
what you have to say on today's important subject.
    Pursuant to the Committee Rule 9(g), the witnesses will 
please stand and raise their right hand.
    Do you solemnly swear or affirm that the testimony that you 
are about to give is the truth, the whole truth, and nothing 
but the truth, so help you God?
    [A chorus of ayes.]
    Mrs. McClain. Let the record show that the witnesses 
answered in the affirmative. Thank you, and you may have a 
seat. We appreciate you being here today and look forward to 
your testimony.
    Let me remind the witnesses real quick that we have read 
your written statements, and they will appear in full in the 
record. Please limit your oral statements to 5 minutes. As a 
reminder, please press the button on the microphone in front of 
you so that it is on, and we can hear you. When you begin to 
speak, the light in front of you will turn green. After 4 
minutes, the light will turn yellow. When the light comes on, 
which is red, your 5 minutes has expired, and we would ask you 
to please wrap up. I now recognize Mr. DeBoer for your witness 
testimony.

                      STATEMENT OF JEFFREY DEBOER

                           PRESIDENT AND CEO

                       THE REAL ESTATE ROUNDTABLE

    Mr. DeBoer. Well, thank you very much. I think I will just 
align myself with your remarks. That seemed to be right on 
point, but seriously, thank you for holding this important 
hearing today. It is frequently, I think, misunderstood because 
real estate is so intertwined with the economy, how important 
it is to the economy, and you both highlighted many ways. Let 
me just point a couple of other things out.
    The industry directly supports more than 15 million jobs in 
the economy. Real estate asset values and transaction volume 
provide the principal source of tax revenue for local budgets, 
paying for education, road construction, law enforcement, 
emergency planning. And people oftentimes do not think about 
pension fund, but pension funds invest a substantial amount of 
money in commercial real estate, and those returns build nest 
eggs for the retirement for millions of people. I also want to 
be clear that today, the commercial real estate industry is not 
here seeking a bailout of any sort. We agree with what you are 
saying. Let us understand the problem and get in front of it, 
but there is no bailout. To the contrary and, again, consistent 
with what you said, we believe all stakeholders, regulatory and 
private sector, should work together to make sure that real 
estate continues to be a prime part of our economy and enables 
cities to grow, business needs to be met, and housing 
challenges to be beaten.
    I want to focus my comments, my oral statement anyway, on 
two sectors of the real estate commercial market that are on 
the top of your minds: the office sector and housing. Regarding 
the office market, stress began to elevate in 2023 as the 
uncertainties of the post-pandemic office space use came to be 
better known, and then became combined with higher inflation-
induced operating costs and higher inflation-fighting finance 
costs. These factors, in essence, created a perfect storm of 
significant challenges for the office market, but even in 
office markets, there are notable differences. Some individual 
owners are facing considerable pressure, potentially leading to 
foreclosures, as you mentioned, defaults, and large losses of 
equity. At the same time, many top tier modern office buildings 
with strong ownership and workplace amenities are currently 
weathering the storm. Most commercial real estate bank loans, 
by the way, are 8-to 10-year terms. They are frequently 
interest only, and many times they were originated with 
floating interest rates.
    You might want to look at what came before to understand 
where we are today. The environment of government-mandated, 
artificially low interest rates began in earnest in 2008. Rates 
increased marginally over the next decade, but they remained 
historically low during that time period. Commercial real 
estate markets, office markets in particular, were in balance, 
roughly about 12 percent office vacancy at that time. It is 
easy to forget that the Fed was holding the Federal funds rate 
at around zero as recently as the first quarter of 2022. 
Moreover, commercial real estate loans from that period are 
generally considered to have been originated quite 
conservatively, 50 percent to 60 percent loan-to-value and a 
strong debt coverage. The Fed started hiking rates, as we all 
know, in the first half of 2022 and, in a span of roughly 18 
months, raised rates 11 times, bringing the key Fed funds rate 
to a target range of five-and-a-quarter, or five-and-a-half, 
the highest since early 2001. Not since the 1980's has the Fed 
hiked rates at this speed.
    Around this time, as concerns about a recession increased, 
regulators for banks began calling for increased loan loss 
reserves on commercial real estate lending, and they also 
called for a reduction in commercial real estate loan portfolio 
concentration. In other words, not only were financing costs 
rising rapidly, but financing availability was shrinking. 
Liquidity was contracting substantially in all commercial real 
estate markets, but particularly office. For example, in the 
second quarter of 2023, the overall commercial property debt 
market rose only 1 percent. Diminished market liquidity and the 
drop in transaction value, in turn, increased pressure further 
on property evaluations. It is in this environment that nearly 
half of the $4.7 trillion property debt market originated 
during the government-mandated low interest rate period is 
scheduled to mature by 2027. This is an environment where base 
interest rates have risen nearly 500 basis points in a 24-month 
time, and one in which lenders are urged to reduce their 
commercial portfolios.
    There have been, and it is worth acknowledging, helpful 
policy actions. Principally last year, the Federal regulators 
issued guidance where they instructed lenders to work with 
creditworthy borrowers, and they gave flexibility to 
restructure maturing commercial loans. That was helpful, but 
more needs to be done. Banks need to be encouraged to 
restructure existing loans with new equity. These new loans 
should be classified as performing, and they should also 
reflect transitory assets. When a new owner comes in, they have 
to move that asset into a stabilized position. That should not 
be criticized.
    I also want to mention office use space. During the 
pandemic, authorities sent people home, and that was probably 
the right thing to do, and the real estate industry worked 
diligently to provide safe work environments and to accelerate 
the reopening of activity. Today, returning to in-person work 
is critical to the health of cities, local economies, tax 
bases, and small businesses, as you have mentioned, but while 
the private sector office space occupancy is slowly picking up, 
the Federal Government workforce is behaving as if the pandemic 
still exists. This is despite President Biden's call for 
agencies to return to work. We applaud the work of this 
Committee in the SHOW UP Act, and we think that more effort 
should be done. It has passed the House. Let us get it through 
the Senate.
    In summary, this self-reinforcing cycle of higher financing 
costs, less credit availability, and fewer transactions must be 
broken. And it certainly should not be made worse by adopting 
procyclical measures, such as the Basel III endgame and other 
regulatory matters, that will restrict credit and capital 
formation, and the Federal Government should get back to work.
    Now, regarding housing, yesterday a coalition sent a letter 
to Congress cataloging a host of pending items that we have, 
including converting obsolete buildings into housing, 
increasing the low-income housing tax credit volume caps, 
incentivizing local zoning and permitting reforms, increasing 
efficiency in the Section 8 Housing Voucher Program, and more. 
Finally, I would like to note that rent control and eviction 
moratoriums are, on first blush, appealing concepts, but they 
have proven time and again that they are counterproductive to 
addressing the housing shortfall.
    I probably went over time. Thank you for your indulgence, 
and I think I only said in conclusion once. So, thank you.
    Mrs. McClain. Thank you, sir. We will now hear from Mr. 
Weidell. Thank you.

                      STATEMENT OF JEFFREY WEIDELL

                                  CEO

                               NORTHMARQ

    Mr. Weidell. Chairwoman McClain, Ranking Member Porter, and 
the Members of the Subcommittee, thank you for the opportunity 
to speak to you today on behalf of the Mortgage Bank 
Association. My name is Jeff Weidell. I am Chief Executive 
Officer at NorthMarq, a top ten commercial real estate finance 
and sales 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 board of 
Governors. My full written statement provides an overview of 
the commercial real estate sector.
    In short, it is exceedingly difficult to paint the picture 
of commercial real estate with broad brush strokes. The market 
is big and diverse, with a range of different property types, 
geographic markets, and submarkets, borrower and lender types, 
and loan and deal vintages. These property types include 
multifamily, retail, industrial, lodging, self-storage, office, 
and many others. They are located in markets across the 
country, from downtown corridors to rural areas. They are owned 
by sophisticated institutions and funds, by public companies, 
and by private investors and individuals.
    The MBA estimates there are $4.7 trillion of highly 
diversified commercial mortgage debt outstanding. About $2 
trillion of that is backed by apartment buildings, $740 billion 
by office, $415 billion each by retail and industrial, and then 
the remainder by the other range of property types. MBA also 
estimates that roughly $1 trillion in commercial real estate 
mortgages will mature this year. However, it is also important 
to note that its statistics show 96.8 percent of outstanding 
loans are performing. Commercial banks hold the largest share 
of this debt at $1.8 trillion, but that bank total is not just 
office. It is diversified between all the various property 
types that I previously mentioned. The GSEs hold the second 
largest amount of commercial mortgage debt at $1 trillion. Life 
insurance companies hold $733 billion, and other capital 
sources combined hold $573 billion.
    Certainly, delinquency rates on commercial mortgages have 
been rising, particularly for loans backed by office 
properties. Twenty percent of the commercial mortgage debt is 
set to mature in 2024. Multifamily markets make up the largest 
piece of those maturities this year at $257 billion, followed 
by office at $206 billion, but every property, as you 
mentioned, and every owner are in unique situations. The mix of 
variables involved are critical to determining which properties 
and loans face challenges and which do not.
    Between 2014 and 2022, on average, commercial property 
values grew by 90 percent, and multifamily values grew by 144 
percent. In other words, if owners have been holding a property 
over time, they likely have built a fair amount of equity. The 
real challenge and the opportunity is that the markets have 
reset from where they were a few years ago in terms of interest 
rates, property values, and, in some instances, the fundamental 
operations of the properties themselves. Owners, developers, 
lenders, and other market participants are all working through 
the process of transitioning the commercial real estate market 
to this new reality of higher rates.
    What can regulators do to ensure a smooth transition? Kind 
of four things I note here. First is re-propose the Basel III 
Endgame. If it is left unchanged, it will negatively impact the 
availability of commercial credit. The second is exempt 
multifamily and commercial property loans from the HMDA and 
Section 1071 reporting. Third is to urge HUD on in two ways: to 
reduce its multifamily mortgage insurance premiums and 
application fees and to reconsider program requirements that 
raise the cost of building rental housing. And last of these 
items, we would like you to urge state insurance commissioners 
to work with key stakeholders to address the cost and 
availability of property insurance.
    Now, what can Congress do? Three points: pass bipartisan/
bicameral tax proposals, pass bills that provide incentives for 
state and local governments which help support and increase the 
affordable housing supply, and enhance existing affordable 
housing programs and initiatives. Thank you again for this 
opportunity to represent the MBA, and I look forward to 
answering any questions.
    Mrs. McClain. Thank you, Mr. Weidell. The Chair now 
recognizes Mr. Turner for 5 minutes.

                        STATEMENT OF DOUG TURNER

                    SENIOR FELLOW FOR HOUSING POLICY

                      CENTER FOR AMERICAN PROGRESS

    Mr. Turner. Thank you. Chairwoman McClain, Ranking Member 
Porter and distinguished Members of the Subcommittee, I 
appreciate the opportunity to address you on an important 
aspect of the topic at hand today.
    At the same time, many communities have seen greater 
vacancies in office buildings and other commercial properties, 
the Nation itself is several years into a substantial housing 
shortage and, particularly, an affordable housing shortage. The 
problem is not new. Housing production has not kept pace with 
demand since 2007. Estimates currently are that the country 
needs an additional 2 to 4 million housing units, but that 
number grows as production lags household formation. According 
to the last data from the Census department, almost 41 million 
households are considered housing cost burdened, meaning they 
pay more than 30 percent of their gross income for housing. 
That is almost a third of the country. More than half of the 
renters and over 19 million homeowners are housing cost 
burdened. We have actually not fared well in the production of 
affordable housing for almost 15 years. There are 43 million 
rental households but fewer than 14 million units available at 
a price point under $1,000.
    Today, in discussing the conversion of commercial space to 
housing, one of the most relevant populations here are those 
perhaps more in the middle-income tiers. Those making $35,000 
to just under $50,000, half of them--half of them--pay 30 
percent or more of their gross income for housing costs. This 
is no longer a problem of only those in poverty, though it is 
certainly, certainly a problem for those who are on far lower 
incomes. This problem now reaches well into the middle class.
    There is no question that higher mortgage rates have 
hampered the effort to reduce the housing cost burden. 
Uncharacteristically, they also reduced the supply of existing 
homes for sale. Typically, when mortgage rates rise, prices of 
existing homes fall to compensate, but we have a number of 
owners with pandemic-era mortgages well below 4 percent who do 
not wish to sell, and there are roughly 2 million fewer 
existing homes for sale than would typically be the case. It is 
overly simplistic to say that housing of any type would be 
helpful, but to the greatest extent possible, the country needs 
new housing units that immediately serve lower-income and 
middle-class families specifically to conversion.
    This is not a new idea. Former office buildings, department 
stores, hotels, and schools have been converted to housing, and 
those have spanned from luxury condominiums to homeless 
shelters. The difference is that those are typically vacant 
buildings, and the commercial office properties we are looking 
at now, there is an urgency, which is not typically a factor if 
we are going to convert them to housing. We have an urgency as 
a country, communities have an urgency, and, yes, owners and 
lenders have an urgency to preserve the maximum possible value 
of their assets. Conversion on this scale is needed by many 
stakeholders.
    There are great environmental benefits to conversion. Even 
older office buildings are typically more energy efficient, 
climate resilient than much newer freestanding homes. The scale 
of feasibility remains a question. Few days go by that at least 
one article in my news feed does not have a story that either 
says conversion is the ultimate solution to all the problems 
facing both industries or that it is a naive fantasy that is 
just never going to work, and the truth lies somewhere in 
between. Commercial real estate conversion is not a panacea for 
all of the problems. They are assets in market-specific 
conditions, and we need to do this for the wider benefit of 
American communities.
    The Biden Administration has prioritized affordable 
housing, even issuing in October the first version of a 
guidebook to aid the process of conversion. And I think it is 
helpful to understand that this sent a strong signal of the 
seriousness of the Administration to both the CRE problems and 
a recommitment to affordable housing.
    I see I am over, but I want to compliment the Real Estate 
Roundtable for a second. They sent a letter to the Council of 
Economic Advisors in April and offered some very specific 
suggestions on how to improve the conversion process. Many of 
these are sensible, and they could help direct what is an 
evolving policy. We have not seen an attempt to convert this 
much real estate in a short period of time. One of his points 
was that new incentive programs are needed, and there is an 
agreement there that we would have to find this, to expand the 
toolbox for both the Federal Government and the local 
communities. So, again, I think there is more common ground 
here as well.
    I will wrap up. Thank you. Thank you for the opportunity to 
speak with you about our country's need for more affordable 
housing and the part that this situation can play in the shared 
goals of the leaders of both the commercial real estate 
industry and those of affordable housing. Thank you.
    Mrs. McClain. Thank you, Mr. Turner. The Chair now 
recognizes Mr. Burlison for 5 minutes.
    Mr. Burlison. Thank you, Madam Chair. Under President 
Biden, Americans have been consistently experiencing a 
detrimental impact to their pocketbooks through inflation, and 
the polls indicate that Americans believe that they are worse 
off under this scenario than the previous Administration. The 
answer seemed to be to reduce inflation or to pass the 
Inflation Reduction Act. Mr. DeBoer, do you believe that the 
Democrat legislation, the Inflation Reduction Act and the 
American Rescue Plan, actually succeeded in lowering inflation 
and, ultimately, interest rates?
    Mr. DeBoer. Well, I would like to leave it to others on 
that point, but I will say that raising interest rates applied 
primarily to the commercial real estate industry and car 
buyers. Much of the economy was not even subject to interest 
rates going up, education, the spending under the 
infrastructure bill, and other things. Do I think that bill 
lowered inflation? I do not know. To the extent, maybe it 
opened up the supply chain problems.
    Mr. Burlison. Mr. Weidell, do you believe that the 
Inflation Reduction Act lowered inflation?
    Mr. Weidell. I cannot speak to the Inflation Reduction Act. 
Our industry is benchmarked mainly off of short-term interest 
rates and the 10-year Treasury, and we are still kind of 
suffering through the rate increases there and the inflation in 
the cost of mortgages.
    Mr. Burlison. OK. So, let us dive into that then. So, we 
are experiencing higher interest rates than before. Either one 
of you can chime in. How is that having an economic impact on 
your industry?
    Mr. Weidell. I could jump on that one. I mean, from a 
mortgage finance perspective, it is pretty simple, and it is 
consistent with what is happening on the residential side. It 
seems as if a lot of existing mortgage rates are about four 
percent. The current market, let us call it 6 1/2 percent, and 
that is a major adjustment. You cannot qualify for the same 
amount of leverage, and the leverage costs more. So, when 
people come to us for a loan, we are often coming up with less 
proceeds than they need at a higher cost, and that is the 
transition the industry is going through.
    Mr. DeBoer. I think that also there is so many mortgages 
that were originated in the period of historically low interest 
rates that are now coming up to be refinanced, and they are 500 
basis points roughly higher on the Fed funds rate.
    Mr. Burlison. Yes.
    Mr. DeBoer. That makes it very, very difficult to refinance 
commercial mortgages under this scenario.
    Mr. Burlison. So, that is a good question because we have 
experienced this before where we have had a cliff. I mean, do 
you see this as a cliff effect where you have got a lot of 
commercial loans that are now hitting their expiration date or 
coming up for renewal, and they are going to have a dramatic 
increase in their interest rates. Do you see----
    Mr. DeBoer. I would not necessarily term that issue as a 
cliff. It is more of a slow-moving train wreck as these 
mortgages come up, they are restructured, the meetings are 
going on with lenders. Some are not going forward. Some are. 
So, it kind of builds up. It is not an overnight problem, I 
guess I would say.
    Mr. Weidell. The mortgages that are maturing this year, I 
mentioned the word ``vintages,'' and they come from all 
different vintages. A lot of our industry operates off of 10-
year mortgages, a convention on kind of the longer-term, and 
then some operate on bank loans off a 3-year. So, for example, 
we will have a 10-year loan from 2014 maturing this year in 
2024, as well as a 3-year loan from 2021 maturing this year in 
2024, and they tend to have very different characteristics. The 
one that has been in place longer probably has more margin. The 
one that just came in, into effect a few years ago does not 
have the margin. So, there is a mounting maturity, but the 
maturities are not the same.
    Mr. Burlison. So, are we seeing a softening in the industry 
from demand because of the ecommerce move to have people work 
from home as well?
    Mr. DeBoer. I think there is substantial question in the 
office market about future office needs, but the occupancy has 
been going up. On interest rates, I would also say just because 
the rates went up, the values are coming down, so refinancing 
those mortgages at the number that they were originated at is 
going to be very, very difficult without a lot of equity and 
new capital going into that product. This is a very self-
fulfilling prophecy. As rates go up, values go down, 
concentrations are decided to be lessened, and values go down 
again, so.
    Mr. Burlison. Real quick, the last question is, how do you 
see this comparing to what we experienced in 2008?
    Mr. DeBoer. Well, 2008. You want to take this, Jeff?
    Mr. Weidell. No.
    [Laughter.]
    Mr. DeBoer. I would say I think in 2008, arguably, there 
were a lot of loans that may have been originated that were 
not, let us say, conservatively underwritten and maybe never 
should have been written in the first place, that were coming 
due that clogged up the plumbing within the financial system. 
That is not what is happening here. These mortgages were issued 
in a conservative basis. Markets were largely in balance when 
they were done. They have been thrown out of balance because of 
high interest rates and a change in the demand side of things, 
primarily. So, I do not see them as all that equal.
    Mr. Burlison. My time has expired.
    Chairwoman McClain. Thank you. The Chair now recognizes Ms. 
Crockett for 5 minutes.
    Ms. Crockett. Thank you, Madam Chair. Mr. Turner, as a 
trained attorney, I am not supposed to ask a question I do not 
know the answer to----
    [Laughter.]
    Ms. Crockett [continuing]. But I am so about to do that 
because I trust and believe in you, OK? So do not let me down. 
I want to level set really quickly. Inflation, Biden-induced or 
pandemic-induced?
    Mr. Turner. Goodness. No pressure.
    [Laughter.]
    Mr. Turner. Thank you for that. I think that, first of all 
and as was said earlier----
    Ms. Crockett. Hold on. I only got 5 minutes, and I got a 
lot of questions. So, just real quick, Biden or----
    Mr. Turner. There was a period of extraordinarily low 
interest rates after the 2008. I mean, over the long term, the 
average 30-year mortgage rate, which is what I am most familiar 
with in housing, I think that it was much more supply chain, 
COVID-related than----
    Ms. Crockett. OK.
    Mr. Turner [continuing]. Anything President Biden did.
    Ms. Crockett. Thank you so much. My next question is, as it 
relates to inflation, is this a domestic inflation, or has 
inflation been global?
    Mr. Turner. Well, there are others who can speak much more 
to global economics than I can with my expertise being----
    Ms. Crockett. But you agree with me that it was global?
    Mr. Turner. It is. There are very few markets anymore that 
are purely domestic----
    Ms. Crockett. OK.
    Mr. Turner [continuing]. Particularly for financial 
problems.
    Ms. Crockett. Thank you. So, I just want to make sure that 
we level set with that really quickly about the fact that the 
inflation that we are experiencing has not been a Biden-Harris-
induced inflation but pandemic related, as well as inflation 
has been global and not domestic or limited to domestic, as 
well as the fact that the United States is actually rebounding 
better as it relates to our inflation than some of our other 
counterparts that are similarly situated. So, I wanted to make 
sure that we talked about that really quickly, in addition to 
the fact that every time we come into this Committee, it seems 
like maybe once every so few months, we got to start blaming 
these government workers for not going to work because they are 
lazy. That is what we hear, is that all of our problems in the 
world are because of telework. If I had a dime for every time 
we blamed telework, then I may have enough money to pay Trump's 
legal fees for his four criminal indictments.
    But nevertheless, what I would like to make sure that I get 
admitted into the record, so Madam Chairwoman, I would ask 
unanimous consent to enter into the record a 2024 white paper 
from 2024, Brookfield published----
    Mrs. McClain. Without objection.
    Ms. Crockett. OK. Thank you.
    All right. So, there are a couple of things that I want to 
talk about. Is there a problem as it relates to commercial real 
estate right now? Yes, there is, and I appreciate your response 
that you just had about the fact that it is not necessarily the 
same as 2008. It is nothing like 2008 from everything that I 
can tell, and that is coming from the business major side of me 
that is speaking, but I do want us to make sure that we focus 
on a couple of things that are going on.
    At one point in time, we used to have a thing called a 
typewriter, and then we moved on to computers, and then we 
moved on to computers with the internet. At another point in 
time, we used to have this thing called a telegram, and then we 
moved on to landline telephones, and then we moved on to 
cellphones. And at one point in time, we used to have horse and 
buggy, and then we moved on to gasoline-operated vehicles, and 
now we are moving on to E-vehicles.
    Here is the deal. We have a transitioning workforce. We 
understand that while a lot of people were not in their offices 
specifically because of the pandemic, we know that some 
companies and corporations saw benefits in not being in the 
building as they had to adjust because of the pandemic, but 
they found that, you know what? Maybe this is where we should 
develop, and they decided to do that, and I think that that is 
OK, but we now have to adjust. So, I want to talk to you about 
solutions. I do not want to just say, well, you know, back 
before the pandemic, everything was great. Back before the 
pandemic, a lot of people did not die either. So, yes, there 
are a lot of things that I would prefer did not take place as a 
result of the pandemic, but I just cannot go back. And so, I 
want to talk about solutions because that is what we are 
supposed to do in Congress. Instead, we play games, but I am 
going to be real with you, and I want to ask you all questions. 
Anybody can jump in.
    In my opinion, as we have these commercial buildings that 
are sitting vacant for whatever reasons, and it seemed like the 
numbers were ticking up for those businesses specifically as it 
relates to commercial properties. Would it be helpful if the 
Federal Government offered a subsidy of some sort or some sort 
of incentive to convert some of that commercial real estate 
that is sitting there empty into, say, housing because that 
would solve two issues that we currently have. We have a 
housing supply issue, and we also have an issue as it relates 
to the cost that a lot of commercial property is enduring right 
now. Anybody jump in? And, Madam Chairwoman, I would just ask 
that you allow them to answer. Thank you.
    Mr. DeBoer. Ma'am, it would be very, very helpful if there 
was some sort of Federal subsidy. A lot of state and local 
governments are providing incentives to convert. Here in D.C., 
there are some, New York has some, other cities, but the 
Federal Government could be very helpful with some sort of a 
conversion tax credit, perhaps modeled after the REHAB tax 
credit that is in law now or something. These conversions, as 
Mr. Turner mentioned, are extremely expensive. It is not good 
for every building, but it is good for some, and it would, as 
you said, help housing and it would help cities and so forth, 
so the answer is yes.
    Ms. Crockett. Thank you so much.
    Mr. DeBoer. And by the way, Mr. Gomez, who is on this 
Committee, has been working on a bill in this area that could 
be very helpful.
    Ms. Crockett. I will let him know that you have lobbied for 
him.
    [Laughter.]
    Mrs. McClain. Thank you. The Chair now recognizes Mr. 
Grothman for 5 minutes.
    Mr. Grothman. See, there we are. Even our witness thinks 
the answer is more government money. That is why we are broke. 
OK. Mr. Weidell, your testimony states the current 
Administration is producing overburdensome regulations. Can you 
give me some examples and explain why it is an issue?
    Mr. Weidell. Sure. I think the two that we speak of, you 
know, kind of on a simple basis involve things that are more 
consumer driven and really should not apply to the multifamily 
business and commercial properties in terms of the HMDA in the 
section 1071 reporting. You know, these things are more for 
small proprietors and business owners, and we are really 
involved in property finance and it kind of creates a layer 
of----
    Mr. Grothman. Can you narrow it down and give me a specific 
example where it does not apply?
    Mr. Weidell. I am going to have to allow the MBA to provide 
that information to you because they have access to that. I 
mean, and in the other area I would go to HUD, and, you know, 
the regulations and the structure of HUD is such that it is the 
least preferred alternative in the market when it could be the 
most preferred alternative. And that has to do both with the 
cost of delivery and the timing of delivery, and the structure 
of it and the regulations involved. Yes, the MBA will get back 
to you on the details, but within HUD, I mean, for example, 
they require guarantees of access of fire service and water and 
sewer. They require sound studies, burrowing animal studies, 
all these sort of things that are covered by other government 
agencies that are duplicative in the work, and they add to the 
timeline and the cost and not really to the housing which we 
need to build.
    Mr. Grothman. OK. Mr. DeBoer, I want you to elaborate a 
little bit on inflation, the effect higher interest rates have 
on the whole commercial real estate market.
    Mr. DeBoer. Sure, and I should also rehabilitate myself a 
little bit, in your eyes anyway. Not only is Mr. Gomez, but 
also Congressman Mike Carey, is very interested [inaudible].
    Mrs. McClain. Can you turn your mic on?
    Mr. DeBoer. In terms of inflation and cost, both the 
pandemic and what the President has done. Many of these 
programs have Davis-Bacon attached to it and provisions like 
that, that drive up the cost of construction dramatically, so I 
just want to separate----
    Mr. Grothman. Could you give us an idea how much it drives 
it up?
    Mr. DeBoer. We have seen indications between 20 and 25 
percent of cost is going up on some projects, yes.
    Mr. Grothman. OK. Which projects do they require it on?
    Mr. DeBoer. Well, anything under the IRA is in that case, 
and there are a variety of programs. Some people want, for 
example, to attach that to this conversion situation. We think 
that would be counterproductive, so, and obviously, interest 
rates are a big problem for existing owners seeking to 
refinance.
    Mr. Grothman. Could you give me some just ballpark, throw 
out some numbers of a typical example, and you can show us how 
much it would drive up rents or cause the underlying property 
owner to go under?
    Mr. DeBoer. I would prefer to get back to you on that, 
except to say that if you had a loan of, let us say, a hundred 
dollars that was done at 65 percent loan-to-value, today, with 
higher interest rates, that hundred-dollar value is probably 
down to $80. You are not going to refinance the $65 on that. 
You are only going to get probably $45. So, you are going to 
have to pay down that $65, and you are going to have to put 
additional capital into the property because of what is 
happening in the market in terms of driving office tenants to 
higher-amenity buildings, if that helps, but I would be happy 
to give you a more concrete----
    Mr. Grothman. OK. If you could give us an example of some 
sort of commercial development, and apart from the interest 
rates, how much would a property you are building, say, go up 
in the last 3 years since the big inflation, the big increase 
in government debt?
    Mr. DeBoer. I think those would be a unicorn to find in the 
economy where they have gone up in the last 3 years. We are 
seeing office declines of 30-40 percent. All assets went down 
in value because interest rates went up. It is a simple math 
situation there. On operating costs, keep in mind, property and 
casualty insurance premiums have dramatically increased over 
the last several years.
    Mr. Grothman. OK. The cost of building residential real 
estate has gone up considerably.
    Mr. DeBoer. Yes.
    Mr. Grothman. Has that affected the cost of building 
commercial real estate, or you just stopped building 
commercial?
    Mr. DeBoer. Of course. Yes, it does. Land, labor materials 
have all gone up in cost, yes.
    Mr. Grothman. OK. Thank you.
    Mr. DeBoer. It does not matter if it is residential or 
office.
    Mr. Grothman. Thank you.
    Chairwoman McClain. Thank you. The Chair now recognizes Ms. 
Norton for 5 minutes.
    Ms. Norton. Thank you. This is a question for Mr. Turner. 
The commercial real estate market is obviously critical to our 
Nation's economy, and it is critical to the District of 
Columbia's economy, and I represent the District. D.C., like 
other cities, has seen a sharp decline in the assessed value of 
commercial office buildings since COVID, leading to a reduction 
in tax revenue for our cities. This dramatic reduction in 
office values is both deeply concerning and an opportunity to 
reimagine our downtowns.
    I would like to turn to the residential real estate market, 
which is also critical to our economy and American families. 
The shortage of affordable housing in the District of Columbia 
and across the country is troubling. The National Low-Income 
Housing Coalition estimated that we have ``a shortage of 7.3 
million rental homes, affordable and available to renters with 
extremely low incomes.'' Mr. Turner, is our Nation's housing 
affordability crisis a recent development?
    Mr. Turner. ``No'' is the very short answer. Thank you for 
that question. We have always had a percentage--we term it cost 
burdened, meaning you are paying more than 30 percent of your 
gross income for housing expense. Even after the 2007-2008 
bubble where there was a great deal of housing built that 
sometimes was unoccupied, we still had a sizable percentage of 
the population, a sizable number of households who could not 
find affordable housing or pay for it. It is important to note 
that the operating cost of housing, including insurance, 
maintenance, even if the home is free, without the ability to 
pay those operating costs to continue it, if that is more than 
30 percent of the income, it is not an affordable home. We have 
had this for a very long time, and it has gotten worse in terms 
of the unit count in the last 15 years, and operating costs are 
driving that, but, no, ma'am, this is not a new problem. This 
is just one that has been exacerbated.
    Ms. Norton. Well, Mr. Turner, what would it mean for 
American families and for our economy if we could expand the 
availability of affordable housing?
    Mr. Turner. I do not think it is an overstatement to say 
that it would mean real financial futures for many of them. I 
mean, if you are paying 50 percent of your income for rent, you 
have very little money to buy the proper foods, for 
transportation, for all of life's other necessities. You are 
likely taking much more consumer debt. I mean, we like to think 
of homeownership as the path to gaining equity and to gaining a 
stake. Exactly the opposite is happening with those who are 
unable to find housing that is affordable to them. They are 
having to forego something.
    Ms. Norton. Well, Mr. Turner, what are the most important 
things we here in Congress should be doing to expand the 
production of affordable housing for Americans?
    Mr. Turner. It is extraordinarily important that we look at 
the raw number that needs to be provided. We have programs, and 
the funding levels of those programs, the use of those 
programs, the direction of those all need to look at the 
greatest needs. I hope this is answering your question. I mean, 
encouraging starter homes instead of homes that have grown to 
2,500 square feet, encouraging apartments being built or 
rehabilitated that are actually affordable to the lowest-income 
tier and, where necessary, providing more rental subsidy for a 
number of families who otherwise are still going to fall below 
the affordability gap there.
    Ms. Norton. Thank you, and I agree that expanding the 
availability of affordable housing must be an urgent priority. 
I thank the Biden Administration for their focus on addressing 
this challenge, including through the American Rescue Plan, and 
I yield back.
    Mrs. McClain. Thank you. The Chair now recognizes Ms. Foxx 
for 5 minutes.
    Ms. Foxx. Thank you, Madam Chairwoman. I thank our 
witnesses for being here today. Mr. Weidell, in your testimony, 
you state that the Biden Administration is producing ``over 
burdensome regulations''. Can you give us some examples of 
those regulations and tell us how that is harmful to the 
commercial real estate sector?
    Mr. Weidell. Well, I think there are a couple. We had 
mentioned a few before. Certainly, the Basel regulation is a 
high priority for the MBA to make sure it does not go through 
in its current form. It will diminish liquidity in the banking 
system at a time when we really need it. The other is just to 
amplify on HUD. HUD has actually seen a decrease in volume of 
construction of units by about 75 percent at a time where 
everybody agrees those units are needed to a great degree, and 
it is simply overburdened both by cost and by the regulations.
    Ms. Foxx. And I want to do a quick follow-up on that. 
President Biden boasted his Administration is cracking down on 
junk fees in private industry that he argues are unnecessary 
and driven by greed. Meanwhile, as you point out in your 
testimony and just now, the Department of Housing and Urban 
Development seems happy to apply its own junk fees that 
undoubtedly have a greater impact. How do these government-
driven junk fees impact the development of commercial real 
estate?
    Mr. Weidell. Well, certainly to the negative. You know, the 
higher the cost, the less the development, and it is certainly 
something the MBA has been working on and has kind of a long 
list of these fees that we would like to see reduced or 
eliminated.
    Ms. Foxx. OK. Further, you discussed the mortgage insurance 
premium that is required for certain loans backed by the 
Federal Housing Administration. How would developers and 
communities benefit from lower insurance rates or from the 
opportunity to acquire insurance by other measures?
    Mr. Weidell. Again, the cost of financing is a significant 
component of the cost of the construction. So, to the extent it 
brings down the cost of the financing, which is what that would 
do, it increases the leverage and the ability to build 
projects.
    Ms. Foxx. Thank you. Mr. DeBoer, what are the most 
significant barriers, either Federal or local, that developers 
and investors face when deciding to build multifamily projects?
    Mr. DeBoer. You know, I think I got that. You asked what 
the major considerations were in building affordable housing. 
Land costs obviously, but some of these things you just 
mentioned, junk fees in owning real estate. That increases the 
operating costs and expenses of owning property, but certainly 
zoning issues, permitting problems. I would throw out the 
Section 8 Program, which is a longstanding program but requires 
apartments usually to be vacant while they check to make sure 
that the person qualifies, so the owner is floating that, and 
then to recover the Section 8 voucher amount is a lengthy 
process. That could be streamlined. It would be very, very 
helpful. And just to respond over here on the low-income 
housing tax credit, if that was done, it would produce about 2 
million new low-income homes over the next decade. So, there 
are things that could be done.
    Ms. Foxx. I think anybody with half a brain understands 
that the high cost of housing is coming from unnecessary rules 
and regulations from the local government, state government, 
and the Federal Government. It does not take a rocket scientist 
to figure this out. Could you describe how the Biden 
Administration's actions, Mr. DeBoer and then Mr. Weidell, if 
you want to, describe how the Biden Administration's actions 
have undermined growth in the commercial real estate market. Do 
not repeat what you have already said, but any other comments 
that you want to make?
    Mr. DeBoer. I think I probably said more than I could have 
said. I cannot think of anything more except----
    Ms. Foxx. OK.
    Mr. DeBoer [continuing]. To agree with your comment about 
too much regulations are negative.
    Mr. Weidell. I would just offer there are two components. 
One is the GSEs. Freddie and Fannie were unable to meet their 
cap allocations last year, and we would like to see them meet 
those this year and provide liquidity to the market overall. 
They are focused appropriately on mission driven and affordable 
housing, but the greater market can use their help, too, and 
assistance.
    Ms. Foxx. Well, thank you very much. Madam Chair, I yield 
back.
    Mrs. McClain. Thank you. The Chair now recognizes Ms. Lee 
for 5 minutes.
    Ms. Lee. Thank you, Madam Chair. Unfortunately, my district 
is not unique in experiencing the dual challenges of a 
struggling downtown market alongside an affordable housing 
crisis. Although Pittsburgh is only the 28th largest 
metropolitan area in the country, we have the fifth highest 
concentration of office space in the U.S., and right now, more 
than 20 percent of that office space is vacant. At the same 
time, according to the Habitat for Humanity of Greater 
Pittsburgh, Pittsburgh is in need of at least 15,000 affordable 
homes. That means dozens of our downtown buildings are standing 
empty while thousands of hardworking families are experiencing 
housing insecurity and are part of the unhoused crisis.
    But as we have heard from our witnesses' testimony, it is 
clear that we have an opportunity, and, in my view, an 
obligation to solve both of these problems, perhaps at the same 
time, by converting unused office space into affordable housing 
and other mixed uses that meet the needs of the community.
    In my district, the Urban Redevelopment Authority, through 
the city of Pittsburgh, just recently launched a new pilot 
program to enact these exact types of efforts, with a focus on 
ensuring that everyone who works downtown has the opportunity 
to live downtown, also. For decades, systematic discrimination, 
redlining, and policies weighted toward the corporate interests 
have led to high housing costs that have collectively fueled 
the exodus of Black residents from the city. Now, under the 
leadership of Mayor Ed Gainey, our city is committed to 
righting these wrongs by re-envisioning and rebuilding a 
downtown that benefits everyone. So, Pittsburgh cannot achieve 
these goals without the engagement of commercial real estate 
developers and without additional Federal resources.
    So, Mr. DeBoer, what are some of the key challenges 
developers face when considering converting an office space 
into a housing development?
    Mr. DeBoer. Well, size. How big is the building? What is 
its configuration? What is the floor plan? What are the window 
sizes? Does it fit with zoning? All kinds of issues to convert. 
It is not an easy process, and there is a very real problem, 
too. The building needs to be vacant, and, you know, how do you 
move out those last business tenants if you do want to convert? 
So, there are a lot of hurdles, but it is not impossible. As 
Mr. Turner said, it is not a panacea, either, to these 
problems, but I applaud you for what is going on in Pittsburgh, 
and it should go on elsewhere, and do not confine it to office 
buildings. There are other obsolete buildings, whether they are 
small retail centers or something like that, that could also be 
converted to housing.
    The last thing I would say on that is look at it from both 
ends of the spectrum. Part of the problem with availability for 
low-income or lower-income housing availability is the lack of 
availability for single-family housing at the other end, and 
production at the single-family level has been way off for a 
decade or more as well. So, it is the whole spectrum.
    Ms. Lee. Yes. Thank you, Mr. DeBoer. Mr. Turner, what role 
should the Federal Government have in supporting the conversion 
of, for instance, office spaces into affordable housing, and 
can you speak to what actions the Biden Administration has 
already taken to that end?
    Mr. Turner. Yes, I will. First of all, I think that the 
Biden Administration most recently has, through HUD and other 
efforts, really tried to incentivize local municipalities, 
state and local government, to be more open with their zoning 
and land use laws, which is a problem in doing this. I think 
that providing additional, again, subsidy for this, raising the 
amounts of programs that are both now on the books, and perhaps 
looking to new programs to fund this is extraordinarily 
important. And so, it is a great partnership.
    Ideally, it is a partnership between state and local 
government and the Federal Government because the Federal 
Government, but for very few places, is the place that actually 
has the resources----
    Ms. Lee. Yes.
    Mr. Turner [continuing]. But they do not need to be 
proscriptive, and I think the Biden Administration really 
recognizes that. There is a whole point unrelated to Pittsburgh 
here. They are encouraging the use of manufactured housing in 
areas where it is good--you do not want that in downtown 
Pittsburgh, I am sure, but it is very important in other ways. 
So, I think they are very open to that.
    Ms. Lee. Certainly. If I can ask another one more. How do 
we ensure that conversion incentive programs actually serve 
underserved populations and do not just enrich large 
corporations and corporate landlords?
    Mr. Turner. We have to put very strict income limits, and 
actually, ideally, a mixed-income facility, mixed-income 
development is best, but, yes, we have to have strong 
oversight. I see my time is up. Sorry. Strong oversight. I 
mean, that is the one thing.
    Ms. Lee. We finish our sentences all the time here until 
they gavel us.
    Mr. Turner. That is the one thing in discussions of HUD, 
and, I mean, you know, there is a really clear and important 
role for HUD and other Federal agencies to play in fair 
housing. I mean, as you spoke to African-American families 
leaving Pittsburgh and things like this. One of the numbers 
that bothers me the most about housing is that, from a 
homeownership standpoint, only 44 percent of African-American 
households own their home, whereas 65-plus percent of others 
do. Frighteningly, in 1970, that number was 42 percent when 2 
years prior it had been actually legal to discriminate against. 
So, we have not moved that needle. I know it is something that 
the Biden Administration takes very seriously, and I appreciate 
your letting me go over time just to say that.
    Ms. Lee. Thank you, Madam Chair.
    Mrs. McClain. Thank you. Without objection, Representative 
Garcia from California is waived onto the Subcommittee for the 
purpose of questioning the witnesses today at today's 
Subcommittee hearing.
    Mr. Garcia. Thank you very much, Madam Chair. I appreciate 
you and appreciate the witnesses. I wanted just to thank this 
opportunity for joining the Subcommittee.
    Mrs. McClain. Go ahead. Go ahead. You are good.
    [Laughter.]
    Mr. Garcia. Should I continue? OK. Well, I will start over. 
First of all, thank you to our witnesses for being here. A 
really important topic, and I am grateful to be waived on to 
the Subcommittee for today.
    I served as Mayor of Long Beach for 8 years prior to just 
joining the Congress last year, and so issues around housing, 
commercial sector viability, kind of real estate markets, and 
how we are ensuring that the most vulnerable are supported, I 
think are all important issues and all have been important to 
me. Downtowns, we know, are vital economic engines. It is where 
the workforce oftentimes lives. It is where oftentimes you can 
find housing that is currently being built. There is good 
density policy typically in downtowns, all things which lead 
usually to a good, strong, vibrant community. We also know that 
we are facing major challenges, especially post-COVID, as it 
relates to our downtowns.
    Now, downtown commercial vacancy rates, we know, are much 
higher after the pandemic. This has been discussed. According 
to estimates, we know that values of office buildings have also 
fallen pretty dramatically during this time, and really, the 
pandemic really had, I think, obviously, a huge part in this. 
Now, the industry often relies on short-term loans, which we 
know are now more expensive than ever to refinance. As much as 
$1.5 trillion in commercial real estate loans are set to mature 
this year and the next, and U.S. regional banks will provide a 
bulk of these loans, putting them especially at risk.
    So, just last year, I wrote to the Treasury over this issue 
and to evaluate whether stress in the commercial sector posed a 
systemic risk to regional banks. I asked the Treasury Secretary 
to do more, to respond, and to advise Congress on what to do, 
especially as it relates to downtowns.
    I would like to ask for unanimous consent to introduce that 
letter into the record.
    Mrs. McClain. Without objection.
    Mr. Garcia. Thank you.
    Commercial vacancies also create, we know, additional 
problems. As has been discussed by my colleagues today, cities 
face declining tax revenue. Nearby small businesses like 
restaurants, shops, dry cleaning places, places where you can 
maybe pick up flowers or groceries, all suffer when we have 
vacancy rates, and we are not building enough housing. We know 
that living nearby office buildings has also been a challenge 
as we see these vacancy rates across the country, but it is 
crucial that we also look at the opportunities.
    We have a massive shortage demand. We have a massive need 
for additional tenant support across this country. We know that 
demand is high, but we also know that the rent is really high, 
so people are forced to spend so much of their income on rent 
and just to survive. They cannot save, invest, and certainly 
cannot afford to spend oftentimes on other services that also 
help build cities. The whole economy pays a price, and we know 
this is not just a local issue.
    The shortage of affordable housing costs us all 
approximately $2 trillion a year due to lower wages and 
productivity, and it is a travesty also that in the wealthiest, 
most powerful country in history, we have over 650,000 of our 
fellow Americans that are homeless, that are unhoused, and this 
is especially true in my home state of California.
    And I want to thank those of you that really promote 
density. We have to get away in this country from thinking 
``density'' is a bad word. Density is the future. It is how we 
build more housing. We have to ensure that we are densifying 
cities, we are densifying suburbs, that we are creating and 
removing as much regulation to build as much housing of all 
types as possible, with, of course, focusing on affordable at 
any opportunity that we can build, including, I believe, 
policies that force, in certain areas, inclusionary zoning, 
which I think can be a positive tool for downtowns especially.
    I also want to note that the Administration has recognized 
this opportunity. They released, of course, its guidebook to 
available Federal resources to commercial and residential 
conversions. Mr. DeBoer, I know you wrote back to the 
Administration once the guidebook was released. You had some 
praise for the creativity but also saw some obstacles within 
the guidebook as well, and I agree with some of those 
challenges that you noted. In your letter, you had mentioned 
the RRIF Program, the Railroad Rehab Improvement Financing 
Program. I also wrote to Secretary Buttigieg as well. I will 
enter that into the record.
    Mrs. McClain. Without objection.
    Mr. Garcia. A lot of the money is not getting out of the 
door, and so that is a huge issue. And so, before I close, I 
just wanted to give you a second to respond. There are 
resources right now in our Federal agencies, but why is the 
money not getting out the door? Is it an issue of the 
application process, or what can we do in Congress to help 
ensure that that happens faster?
    Mr. DeBoer. I would just echo what you said. The 
application process is quite lengthy. These programs are not 
well coordinated. You mentioned Transportation has a 
significant amount of grant money under the TIFIA loans, RRIF 
loans, and so forth. The process is lengthy. NEPA, by the way, 
the National Environmental Protection Act, there is a long 
process to get through that. Perhaps you could waive NEPA on 
conversions, that would speed the process. Conversions are, as 
Mr. Turner said, environmentally friendly, and so I would do 
that, sir. Thank you.
    Mr. Garcia. Well, thank you very much. Just to close, I 
will just say I know, while oftentimes unpopular, I do think 
there is a Federal purpose and a role for the Federal 
Government as it relates to zoning across the country. We 
should densify all of America. Thank you.
    Mr. DeBoer. By the way, the previous President started an 
effort to incentivize local governments to speed up their 
permitting and their processing, which has also been followed 
up a little bit by the Biden Administration. So, there is an 
effort, whether it is through block grant proposals or other 
things, to incentivize local governments to reduce the weight 
given to NIMBYs and so on and so forth.
    Mr. Garcia. Thank you.
    Mrs. McClain. Thank you. The Chair now recognizes Ms. 
Pressley for 5 minutes.
    Ms. Pressley. Thank you, Madam Chair. Across the country, 
downtown areas were hit hard by the pandemic and are still 
recovering. Boston is no exception with foot traffic still only 
about half of it what it was before the pandemic. However, 
areas dedicated to culture, art and retail services are showing 
signs of improvement, in large part due to the role of small 
businesses. Mr. Turner, how do small businesses contribute to 
the economic success and sense of community that are unique to 
downtown areas?
    Mr. Turner. Thank you. Representative, I think they are 
critical. I mean, one of the reasons that conversions to 
housing of office space should work and should be attractive to 
a large or some percentage of the population is that they have 
these sort of cultural amenities, that they have restaurants, 
that they have those type of things available, very different 
perhaps, than living far out. So, yes, I mean, this has hurt a 
number of small businesses. You can walk not far from here and 
see a number of empty what were retail bays. And, you know, so 
replacing or fixing that by having people who live in a place 
rather than people who work in a place where that is the best 
use of it, I believe, would help small business tremendously.
    Ms. Pressley. Thank you. Mr. Turner, what barriers do small 
businesses face when attempting to access commercial real 
estate in downtown areas?
    Mr. Turner. Well, let me preface, my expertise here is 
housing. I think that you do need a headcount, if you will, 
right? I mean, there has to be a tipping point where 
conversions, be it conversions, office space, or attractions, 
are sufficient to bring the number of people to, say, a 
restaurant or something. So, it is a tipping point issue, I 
believe.
    Ms. Pressley. Thank you. Well, you know, Boston actually 
has been really innovative in our efforts to support small 
businesses, offering grants and wraparound services through, it 
is a new program called SPACE, Supporting Pandemic-Affected 
Community Enterprises, and incentivizes small business owners 
to set up shop in vacant storefronts. So, these efforts have 
been particularly impactful for our BIPOC businessowners, who, 
even before the pandemic, were already underrepresented in the 
downtown area. Mr. Turner, I am very passionate about the 
merits of mixed-use development in housing, and could you just 
speak to how that supports our housing affordability goals, 
also smart growth, transit arena development that is also mixed 
use, how that supports not only our affordable housing goals 
and our housing goals writ large, but also how we can support 
small businesses? Can you speak to that model?
    Mr. Turner. Absolutely, and I appreciate that question. I 
think too often when we talk about conversion of office 
buildings, that we think of the largest glass building that, 
you know, is very high priced, filled with attorneys, and can 
we make that into housing, you know, like, empty it out and 
make it into housing. And I do not think that that is really 
what we are talking about mainly in conversion. I think that 
the best model is the one you just described, where you may 
leave, if it is a very large building, a portion of that 
building for commercial uses. And then, you know, we have a mix 
of both incomes of those moving in, subsidizing those who 
cannot afford it, perhaps not those who can afford it, but it 
is going to be more attractive to them, right? Back to your 
small business question, it is going to be more attractive, and 
you are going to be more likely to have success with these 
projects where you are not just getting a place to live, but 
you have many amenities around it. So, I agree with you.
    Ms. Pressley. Wonderful. Thank you. And again, just to lift 
up this innovative model in the city of Boston to support our 
small businesses. In Boston, small businesses have already 
received nearly $3 million in SPACE grants, 75 percent of which 
are minority owned and more than 60 percent are women owned. I 
really do think this should be a national model that is backed 
by Federal investment. By uplifting our small business owners 
and strategically investing in affordable housing, inclusive 
development, accessible spaces, we can ensure that downtowns 
leverage commercial real estate to emerge from this pandemic 
better than before. Thank you, and I yield.
    Mrs. McClain. Thank you. I now recognize myself for 5 
minutes.
    I appreciate your honesty and your candor today. It seems 
to be coming clear to me that we are at a crossroads with the 
commercial real estate market right now. What I am looking for 
is how do we plan now and what steps do we need to take now to 
make sure we have sustainability and we do not end up in a 
crisis, right? My concern is, and these are just the facts, 
inflation has steadily climbed over the past 2 years, and in 
response, the Feds have raised interest rates over 550 basis 
points. There is consistent data that shows vacancies are 
rising, delinquencies are climbing, and there was a recent 
spike in foreclosures last month. Those are, maybe not 
alarming, but they are definitely pause for us to look at in 
areas of concerns, right? I do not think we are there, but if 
we do not address these issues on a proactive basis, I think we 
are going to wake up and think, oh my gosh, now we are in a 
crisis. Let us avoid that.
    What I am trying to get a gauge on is what is your level of 
concern right now in this real estate market?
    Mr. Weidell. Is that for everyone?
    Mrs. McClain. Yes, and try and keep it brief if you can.
    Mr. Weidell. Sure. I will summarize. We were able to have a 
meeting with the NBA and Chairman Powell about a month and a 
half ago, and we kind of voiced these concerns and they took 
their measured approach to this. And I know he came away with a 
statement claiming, at least at the bank level, that this is 
manageable, right? The banking system is manageable, and 
given----
    Mrs. McClain. Did he give you any indication of why? Did 
you talk about liquidity, the new changes of liquidity that the 
banks are required to have?
    Mr. Weidell. Boy, I cannot speak to his thinking, but I can 
speak to the fact that this is a known risk. Once we had the 
great financial crisis, they were very in tune with commercial 
real estate and commercial real estate exposure. So, this is 
something that has been quantifiable to them and has been 
measured, and they analyze, and they stress the reserves, and, 
consequently, it is not an unknown. It is not something out of 
left field.
    Mrs. McClain. With all due respect, right up until the time 
that it is a crisis. So, I understand. Mr. DeBoer?
    Mr. DeBoer. The level of concern, I guess I would say, is 
high. High. These mortgages need to be extended and 
restructured. The banking system right now is not encouraged to 
do that necessarily, and there should be some way to 
incentivize banks to get back into lending, by and large. 
Construction lending is almost nonexistent right now. So, I 
guess I would urge that regulators start to acknowledge that 
not all commercial real estate is the same. The office market 
is where the main problems are, and instructing institutions to 
lower their concentration in commercial real estate may mean 
that they are not making loans to perfectly creditworthy 
borrowers in another asset class.
    Mrs. McClain. So, there needs to be some changes in the 
restructuring of loans, underwriting perhaps at the banks. Is 
that what you are saying?
    Mr. DeBoer. No. I think in supervisory guidance, there 
should be more flexibility not only in not criticizing banks 
for working with borrowers, but there should be more 
flexibility when they say reduce your concentration in real 
estate. And, you know, office loans are not an enormous part of 
bank lending. Commercial real estate is an enormous part of 
local and regional banking.
    Mrs. McClain. You got about $2 trillion coming due, though.
    Mr. DeBoer. Yes, but not in office, OK? So, I just think 
there needs to be a better distinction and not a monolithic 
treatment of commercial real estate.
    Mrs. McClain. OK.
    Mr. DeBoer. There should be incentives to treat 
restructured loans. Where equity has gone in, those should be 
now classified as performing loans, so almost a new loan.
    Mrs. McClain. OK. Thank you. We have heard concerns that 
proposed capital standards coming out of the Federal Reserves 
are punitive to the real estate industry, and I would like to 
know if you can comment on this. Is the U.S. banking system 
vulnerable due to its commercial real estate exposure?
    Mr. Weidell. Well, again, I think that is along the same 
lines of the last question. We cannot speak to that. The 
analysis that we have done with other lenders, particularly 
with the life insurance lenders and the other sectors, are that 
their portfolios are somewhat diversified and balanced, and 
they have adequate reserve capacity. You know, the banking 
system has different oversight, as you just spoke to it. I 
would say the fact that loans mature is a normal course of 
business.
    Mrs. McClain. But under these conditions?
    Mr. Weidell. Right, and there is capacity in the system to 
refinance those loans. It is the willingness and the ability to 
do it with the capital structure they have that is kind of 
important.
    Mrs. McClain. And the regulations and the constraints 
perhaps.
    Mr. Weidell. And to Mr. DeBoer's comment, yes, if a loan 
has been paid down with some equity infusion, it should be 
reclassified as something that is performing and be willing to 
loan.
    Mrs. McClain. Thank you. I now yield to Ranking Member 
Porter for 5 minutes.
    Ms. Porter. Thank you very much. What factors, Mr. Weidell, 
do banks consider when deciding whether or not, or I will say 
lenders broadly, not just banks. What factors do they consider 
when deciding whether or not to give a borrower more time to 
pay a commercial mortgage?
    Mr. Weidell. OK. That varies significantly, and it probably 
varies significantly on their capital source and their 
oversight.
    Ms. Porter. Let me limit it to office.
    Mr. Weidell. OK. But, again, you know, it depends on the 
lender. Does the lender have the ability and capacity to extend 
the loan? That is kind of the first criteria, right? If it is a 
securitized mortgage with Wall Street, they cannot simply do 
that.
    Ms. Porter. OK. Great. Let us actually pause there. I just 
looked at helpful testimony, and you are right, whoever said 
it, that banks' biggest exposure in commercial real estate is 
not office, but it is the biggest chunk of the commercial 
mortgage-backed security market. Am I correct? I looked at the 
chart. It is red. I am pretty sure this is what you gave me. 
So, how do we work those out?
    Mr. Weidell. Not my area of expertise, but they go to a 
special servicer, and those special servicers are very busy, 
and they consult with the owner, and they consult with the 
bondholders, and, effectively, there is a process there for 
determining just what you said. Do we have an ability to extend 
this loan and not take repayment with the bondholders in 
exchange with something else of the owner?
    Ms. Porter. But is there enough flexibility in the terms of 
most of those commercial mortgage-backed security agreements to 
allow that kind of negotiation because this was a huge problem 
in RMBs, as you recall. Is it going to be better or different 
here?
    Mr. Weidell. I think there is somebody in the back of the 
room I just met who has better experience with that who could 
explain it. I know they are busy. It seems as if the system 
thus far is working, you know, and in the meantime, the CMBS 
market is issuing new debt to help its way out of this cycle.
    Ms. Porter. Well, respectfully, I think issuing new debt to 
help its way out is what it always does. Whether it works or 
not, is a little bit of a different story. I think that is what 
Wall Street does, and it is a good thing, but I do not know 
that we can look to that as necessarily a positive sign. And I 
guess I am mostly worried about, this hearing has been really 
wide ranging, and I think one of the things I have taken from 
it is that we ought to have some more hearings. Because I have 
not been fully satisfied with what we have said about the 
office situation, and particularly with regard to the CMBS and 
the life insurance companies, who have very, very different 
regulatory relationships than banks, and I think we need to dig 
into that a little bit more.
    I mean, part of what I am concerned about is, and this goes 
to what the Chairwoman was saying, is that this kind of mowing 
and waiting, I will call it, like the owner of the property, he 
is mowing the grass, and he is waiting for the market to turn, 
and kind of pretend and extend mindset is going to hit its 
limits at some point. How long do you think we can sustain kind 
of extensions in office space the way we have been?
    Mr. Weidell. Again, I do not want to be avoiding the 
question directly, but it is very circumstantial. I know 
certain life insurance companies have pretty much budgeted a 5-
year program for this, saying that we do not expect a recovery 
in this space to occur this year or next, and anything we 
structure, we want to give 5 years to. So, they are looking at 
it in an extended way.
    Ms. Porter. OK. Let me ask Mr. DeBoer. Commercial real 
estate has gone up a lot in the last decade, 2014, 2022, in the 
last 8, 10 years, 90 percent, and that is not multifamily. That 
is the more traditional commercial real estate. Given that it 
has gone up so much, did these companies fail to pay down? I 
mean, in other words, it is one thing when your property value 
is declining, and you have very limited options. I understand 
it is more expensive to refinance today, I understand that the 
income on the properties is lower than it is today, but your 
property is worth a lot more than it was. Have they continually 
levered up to where the loan-to-value ratio has continued to be 
high?
    Mr. DeBoer. No, I think your point----
    Ms. Porter. Could you turn your microphone on? Yes. Thank 
you.
    Mr. DeBoer. I think your point is a very good point, but 
not everyone bought in 2012, and so the vintage, I think, was 
referenced earlier. If someone bought in 2012, 2013, low 
interest rates, they have seen a substantial increase in their 
value. They have seen equity created, OK, but that is not 
necessarily true for the 2019-2020 buyer. There again, when you 
asked about what someone would look at on extending a loan, 
what is the vintage of the property? What is the financial 
strength of that borrower? Do they have capital to put in to 
justify extending that loan? That is the best I can do on that. 
But your point is obviously perfectly correct, but, again, with 
rates going up 550 basis points or whatever you have, you have 
a tremendous impact on value and a destruction of equity at the 
same time that you are requiring new equity to go in to 
refinance, at the same time, you need new equity to amenitize 
that building----
    Ms. Porter. You chew up a lot of that added value with all 
of those things put together.
    Mr. DeBoer. Yes. Right. I mean----
    Ms. Porter. Do you mind? I know I am over time, but do you 
mind?
    Mrs. McClain. Yes.
    Ms. Porter. Otherwise, I am going to ask for another round, 
so you might as well just let me keep going.
    I want to talk about HUD. I know that the Chairwoman had 
this on her mind as well. I think this is your testimony Mr. 
Weidell, that you said something along the lines of HUD is 
quickly becoming the most expensive, difficult--one of you said 
this, and I know it was not Mr. Turner--that HUD is quickly 
becoming one of the most difficult, expensive places to do 
multifamily, and the volume at HUD for multifamily is down 75 
percent in the last two fiscal years. Mrs. McClain and I both 
were like, tell us more. Why, and what can we do about that 
because that seems counter to everything that we have said 
about supply.
    Mr. Weidell. Well, thank you for noticing that, and that is 
what we think as well. We are all talking about building more 
for affordable housing, and here is an opportunity to do it, 
and it is not getting done.
    Ms. Porter. Well, it is going the wrong direction even.
    Mr. Weidell. Correct.
    And as a practitioner, I have not done a lot of HUD 
business because it is generally the lender of last resort at 
this point. The process is way too long. The requirements are 
way too great. They evolve, they get added during the process, 
and particularly with the rise in interest rates, it just made 
a lot of projects unfeasible that may have been put into the 
pipeline 2 years ago, and by the time they got into the HUD 
pipeline now, with all of these requirements, they do not work.
    Ms. Porter. So, I just want to make sure I am understanding 
this. So, it is not that there has been any huge, wild change 
in the requirements. You may think there are too many. Someone 
else may think there is not enough. Let us just posit they have 
basically stayed the same, but what you are saying is now that 
interest rates are higher, you are paying more for the money to 
do the project. You do not have as much leftover to absorb all 
of the costs of the loan itself.
    Mr. Weidell. There are new ones, I am being reminded, and I 
know there were a couple that came out just last week that we 
are really not in favor of. But these things, what happens is 
obviously during good times, you could kind of overcome some of 
these obstacles, but
    Ms. Porter. Well, if money is cheap, that helps.
    Mr. Weidell. When money is cheap, it helps, and you can get 
through all of this. When money got expensive, expensive, then 
all of these things really mattered, and that is where we are, 
and it is a great time, really, to examine what is necessary in 
this process and what is not necessary. And, you know, one of 
the contentions here is there is a high insurance premium that 
borrowers are paying, and HUD has performed exceptionally well.
    Ms. Porter. Yes.
    Mr. Weidell. There have been very few losses. It has been 
good for the taxpayer and the Treasury.
    Ms. Porter. Well, we have seen mortgage insurance premiums 
come down on single family, and I think it is time to consider, 
at least, whether we can do something similarly on multifamily, 
particularly when we have a lot of people within the 
Administration talking about density. Like, multifamily is 
dense compared to single family, so that seems like a sensible 
thing.
    And I guess the last thing I just want to close on, and I 
appreciate your indulgence, is I am so frustrated with 
Congress. I could end this so many ways, I just want to say. I 
am so frustrated with Congress for not taking up the Affordable 
Housing Credit Improvement Act. I just do not get it. There are 
221 Members signed onto this bill. Half are Democrats. Half are 
Republicans. You know what I call that? A goddamn miracle. So, 
I just do not understand why we cannot get this moving, and I 
really would implore, like, the wonderful, talented people that 
work with MBA and other organizations to really turn up the 
heat on Republican leadership, just because it controls the 
Floor, to get this bill on the Floor because we just do not see 
this kind of good agreement on commonsense stuff. And to have 
the business community behind it at the same time we have the 
low-income housing for all, do-gooder community behind it, I 
mean, it is a miracle. And I just would love to see this get 
over the finish line before the end of this Congress. Thank you 
so much.
    Mrs. McClain. Thank you. In closing, I want to thank our 
witnesses once again for your testimony today. It was a very 
good conversation. I think it was truthful, it was honest, it 
was candid, but I do agree with the Ranking Member. I think 
there is a lot more to talk about, and we just have scratched 
the surface today. So, I know she has talked twice, but I am 
going to give her an opportunity to do her closing remarks as 
well.
    Ms. Porter. I just want to close on one observation, which 
is when we talk about commercial real estate, particularly 
office, and we are talking about life insurance companies and 
mortgage-backed securities, I think it is really easy to lose 
that there is a human element in office space default. I think 
when we are talking about residential, it is easy to see the 
foreclosure, it is easy to see the family becoming homeless, 
but offices employ some of the most underappreciated, hardest-
working, low-income Americans who are janitors and cleaning 
staff and security guards, and they are all going to be victims 
of any kind of office property collapse or big downturn. And 
so, I just want to end with humanizing a little bit.
    I am probably one of the last people in Congress that you 
will hear fighting just for Wall Street to make one more 
dollar, and so I just want to make clear that is not all that 
is at stake here. It is the vibrancy of local communities. It 
is whether or not they are occupied, and crime goes down. It is 
whether those people have places to go to work. And so, I just 
want to recognize that there are lots of partners here, 
including those in organized labor and others who really need 
to see the office market stabilize. And if it is going to 
change, then it changes in a smooth and gradual way, so we 
avoid those job losses.
    Mrs. McClain. I ask unanimous consent to enter into the 
record CREF-30, dated April 30 of 2024; SISC, April 30, 2024; 
and a letter from Muriel Bowser dated April 29 of 2024.
    And without objection, so ordered.
    I now recognize myself for my closing statements.
    Today's hearing, I think, was a necessary step toward 
monitoring the health of the commercial real estate market. So 
many times, what I see, is we have hearings after the fact. We 
are not proactive. We do not talk about what we can do to avoid 
a consequence or a crisis. We just want to come up and 
pontificate and lay blame after the crisis has occurred, and we 
have seen that time and time and time again. What I would like 
to do is more of what we are doing today, and I appreciate your 
thoughts, your inputs, and the comments really on both sides of 
the aisle, is we have some issues. And we can talk about who is 
at fault and who is at blame.
    But, look, we have COVID. That happened. We have interest 
rates that are higher. That is a fact. We have vacancies that 
are up. We have delinquencies that are up. I mean, in my 
opinion, the telework may have been a great answer to the 
problem during the pandemic. But we have a ton of office space, 
especially downtown D.C., and people are not working. People 
are not going into the office to work. And some of my 
colleagues said, oh, well, we just think they are lazy. I do 
not think that is the case at all. People are logical. I mean, 
if I do not have to workout and I can eat McDonald's and stay a 
supermodel, I would do that. That is just not the case, right? 
We have to look at these events, and we have to be able to 
project a policy's effect.
    Office vacancies matter, interest rates, getting people 
back to work matter, and they matter for this simple fact: when 
people are back to work--and just read the letter--when people 
are back to work, there are more coffee shops, there are more 
restaurants that are open, there are more dry cleaners, there 
are more small businesses, and small business is what was the 
heart and soul that built America. And without small businesses 
and people working at those small businesses, we do not have 
tax revenue, and it is our economic systems that give us our 
social programs, and that is what is hampering D.C. right now. 
No one is back to work. Office space is empty. Interest rates 
are up. I mean, project a policy's effect.
    What my greater concern is, is what do we do with the 
amount of paper that is coming due and these loans that are 
coming due in 2027, roughly $2 trillion of them, so we do not 
wake up and say, oh my gosh, we are at crisis, and we ask the 
American people, because whether it is a subsidy or a bailout, 
that falls on the backs of the American taxpayer, we do not 
have to go back to the American taxpayer like we have done so 
many times in the past and say, we need you to bail us out. Let 
us work on commonsense legislation.
    What I have heard, we have got some good ideas today. Let 
us eliminate some of this regulation, make it easier and less 
burdensome for both businesses and lending institutions to 
refinance some of these loans, to reclassify some of these 
loans. And I think, Mr. DeBoer, you said something very 
interesting, is let us take a look. Instead of a one-size-fits-
all approach, maybe we need to change some classifications. So, 
what I am most proud of with this hearing today, is we actually 
talked about some real solutions, so we avoid a problem.
    So, with that, I thank you all for being here. I thank my 
Ranking Member, and a little administrative business.
    With that, and without objection, all Members have 5 
legislative days within which to submit materials and 
additional written questions for the witnesses, which will be 
forwarded to the witnesses.
    If there is no other further business, without objection, 
this Subcommittee stands adjourned. Thank you.
    [Whereupon, at 3:55 p.m., the Subcommittee was adjourned.]

                                 [all]