A dozen commercial real estate industry associations, including ICSC, have sent two letters to the U.S. Department of the Treasury, requesting a guarantee for highly rated, asset-backed securities. ICSC president and CEO Michael P. Kercheval balked at the term “bailout” for the proposal, noting that it would help protect not only the health of retail property owners, but also the retailers the centers house.
Retail Traffic: Why do you feel the industry has a case for a bailout?
Michael Kercheval: It is not a request for a bailout; it is a proposal we believe will prevent a bailout. The problem here has to do with very well-secured, performing commercial mortgages on shopping centers that are maturing in 2009 and 2010. They are secured by properties with good cash flow and tenants, except there is nobody out there to refinance the loans when they mature. If there is nobody out there to refinance that mortgage, the loan is technically in default and the bank can theoretically take over the property. What this letter is proposing is that the highest quality mortgages be guaranteed by the federal government so that banks would start refinancing good loans again.
RT: What will the aid do for the retail sector specifically?
Kercheval: The reason this is relevant for the retail industry is the entire continuum of credit and how it impacts our industry. At one end, you have the shoppers who are relying on credit to make purchases. That credit has dried up. The manufacturers of goods rely heavily on credit. That credit has dried up. The retailers have another credit need, so they can buy the goods. That credit has dried up. And next, the owners of the shopping centers have borrowed money and that credit has dried up. I believe the first step in unclogging this pipeline of credit is guaranteeing the lowest risk, highest quality part of the continuum of credit, which is commercial mortgages.
RT: What will happen if the commercial real estate industry fails to receive assistance from the government?
Kercheval: That's our big concern. We don't think that it will be like the heart attack that's threatened to kill the auto industry; but rather a slow insidious cancer with bits and pieces of the industry dying off. Then you have a distraction from management. You could see a decline in the quality and service of the centers, and then retailers begin to suffer and go under. The other thing we think about too is these shopping centers and retailers employ thousands and thousands of people and so this will result in further job losses in the retail sector.
RT: Have you gotten any indication from the government as to whether the proposal will go through?
Kercheval: We have had conversations with the Treasury Department, with legislators and with the Obama transition team. Everyone we've spoken to has reacted positively, saying “We haven't thought about this; it makes sense. We need to consider it within the context of the entire package.” Part of the issue is that the first dollars released under TARP have already been committed. A lot that has worked in our favor too is that Washington has been receptive to the private sector trying to come up with solutions to its own situation.
RT: When do you expect to receive a decision from the Treasury Department?
Kercheval: What we've been told is that a decision could be made early this year. We haven't heard anything negative yet.