Battle for Congress to Shape CRE Finance Policy in Washington 

As the presidential race between Kamala Harris and Donald Trump heats up in the lead-up to Election Day, the commercial real estate industry is closely tracking who will control Capitol Hill and how future policies might be shaped at the federal level.

David McCarthy, head of of legislative affairs at the Commercial Real Estate Finance Council (CREFC), said the party that controls Congress next year will play a large role in crafting legislation important to CRE professionals, from taxes to housing policy. The Republicans are at risk of losing their narrow majority in the U.S. House of Representatives but are also in a strong position to assume control of the U.S. Senate, based on polling in key national races, which would give the GOP control in approving presidential nominees for Cabinet posts. 

The biggest factor hinging on the outcome of the congressional races may be in Ohio, where Sen. Sherrod Brown, a Democrat who chairs the Senate Committee on Banking, Housing, and Urban Affairs, is seeking re-election but locked in a tight battle against Cleveland businessman Bernie Moreno, his Republican opponent.

A Brown defeat might lead to Republican control of the Senate. It would also result in either moderate Sen. Mark Warner of Virginia or the more liberal Sen.  Elizabeth Warren of Massachusetts becoming the Democrats’ ranking member on the committee. McCarthy said Warren, who has been an outspoken critic of Wall Street, would represent a dramatic shift for the committee, which crafts key policies affecting CRE lending.

“I think you’d see a very different outcome with Democrats in the Senate with her being a ranking member on Senate Banking,” McCarthy said. 

In the event of a Republican takeover in the Senate, South Carolina Sen. Tim Scott, the committee’s ranking Republican, would be poised to ascend to chairman. McCarthy said a Trump win could also mean Scott gets selected for a Cabinet post, but that potential Republican chairmen, such as Thom Tillis of North Carolina and Mike Rounds of South Dakota, would not represent the “sea change” that would occur with Democrats under Sen. Warren. 

McCarthy expects narrow majorities to remain in place no matter which party controls Congress, which would likely mean a more centrist approach to CRE issues. Yet he noted that even a slim majority could be enough to result in major changes to tax policies similar to what the GOP executed in the 2017 Tax Cuts and Jobs Act and what Democrats accomplished with the Inflation Reduction Act of 2022. 

The future of multifamily policies at Fannie Mae and Freddie Mac will hinge largely on the winner of the presidential election and control of the Senate at a time when both government-sponsored enterprises are preparing to implement tighter underwriting requirements aimed at rooting out mortgage fraud.

When Trump was in office from 2017 to 2021, his appointed Federal Housing Finance Agency (FHFA) Director Mark Calabria sought a quick end to government conservatorship of Fannie and Freddie. The policy then took a dramatic turn under President Biden’s FHFA Director Sandra Thompson, who wants to merely exit conservatorship when the GSEs are ready and is committed to achieving their affordable housing goals. Any FHFA director requires confirmation by the Senate. 

“Calabria was very focused on exiting the GSEs and Trump has stated that that is a priority for him, so you would have the alignment between an FHFA director and presumably a Treasury secretary who kind of needs to be a willing partner in that if you’re going to exit them from an administrative standpoint,” McCarthy said. “But then also on the other side from a Democratic standpoint there’s this newfound power that the GSEs are a tool of housing policy, not just of liquidity, and we’ve seen that in flirting with rent control and some of the consumer or the renter protections that were released earlier this year.”

One issue of central importance to CRE that could hinge depending on the November election results are new banking rules proposed by the Federal Reserve that would raise capital requirements for banks. The proposal, known as Basel III, would require banks to hold 9 percent more in capital in aggregate, down from the 19 percent originally conceived.  

While banks are pleased that the capital requirements were reduced in the latest proposal, there is still plenty of trepidation in the CRE finance industry about how the plan may affect lending if adopted, according to Sairah Burki, head of regulatory affairs and sustainability at CREFC.

“It continues to be a little bit of a question mark,” said Burki, noting how support for the measure at the federal level could change based on results of the presidential and congressional elections. “It could still be up in the air a little bit depending on the politics of next year.”

Burki noted that more stringent renter and tenant protections Fannie and Freddie are exploring will also likely hinge on the presidential election, given that any changes would be facilitated by the FHFA. She said a Harris administration would likely mean the GSEs’ review of these policy changes would advance, while it would likely be frozen under Trump.

The future of how regulations are imposed on CRE would also vary widely depending on who assumes the presidency, with Trump vowing to loosen many regulations much like he did during his previous term in office. McCarthy said CREFC has advocated for avoiding “shadow rulemaking,” where new interpretations of old laws are handed down by the Securities and Exchange Commission that lead to confusion among many in the CRE market.

“If people are asking me what I want, it’s better regulation,” McCarthy said. “You don’t have to eliminate something, but just make it better.”

Andrew Coen can be reached at acoen@commercialobserver.com