BOMA International's Chair and Chief Elected Officer Richard D. Purtell, RPA, recently testified before Congress on the growing commercial real estate credit crunch and the General Services Administration (GSA), with a specific focus on the challenges of leasing and building during an economic crisis. Purtell represented BOMA International and the Apartment and Office Building Association (AOBA) of Metropolitan Washington, D.C., before a hearing of the House Subcommittee on Economic Development, Public Buildings and Emergency Management of the Committee on Transportation and Infrastructure.
Purtell explained to Chairman Eleanor Holmes Norton and members of the subcommittee that the U.S. property market is facing its worst liquidity challenge since the Great Depression. "With virtually no liquidity, commercial borrowers face a growing challenge of refinancing maturing debt and the threat of rising foreclosures and delinquencies," Purtell said during the testimony. "We are faced with the dual challenge of developing strategies to stop the downward spiral and restoring confidence in markets."
Purtell stressed the time to act is now, emphasizing the necessity of enacting measures that will enable financial institutions to effectively restructure their balance sheets, to take toxic assets off banks' books and to start lending again on solidly underwritten transactions.
Speaking specifically to problems within the construction sector, which has been hit especially hard by the credit crisis, Purtell congratulated Congress for allocating funds to GSA to implement energy-efficiency retrofits in federal buildings. Projects supported by the stimulus funds include solar roof installations, lighting system upgrades, advanced metering, green roofs and exterior envelope retrofits.
The government's overuse of short-term lease extensions and the growing problems associated with it was another issue Purtell brought before the subcommittee. He explained that the practice of short-term extensions, or leasebacks, were costly for both the federal government and the landlord. The government has to pay a large penalty in these arrangements, and the landlord has difficulty securing financing as potential lenders treat the space as vacant in the absence of a lease. Purtell encouraged the subcommittee to consider ways to help streamline GSA's leasing practices.
This is the second time BOMA has been asked to testify before the House Subcommittee on this issue. Last July, BOMA International was one of the first real estate organizations to testify before Congress on the effects of the credit crunch on commercial real estate.