Officers Chair Bryce Blair AvalonBay Communities, Inc. President and CEO Steven A. Wechsler First Vice Chair Donald C. Wood Federal Realty Investment Trust Second Vice Chair W. Edward Walter Host Hotels & Resorts, Inc. Treasurer Ronald L. Havner, Jr. Public Storage 2011 NAREIT Executive Board Debra A. Cafaro August 1, 2011 Ventas, Inc. Richard J. Campo Camden Property Trust Richard B. Clark Via email Brookfield Properties Corporation Michael A. J. Farrell Annaly Capital Management Michael D. Fascitelli Ms. Elizabeth M. Murphy Vornado Realty Trust William P. Hankowsky Secretary Liberty Property Trust Rick R. Holley Securities and Exchange Commission Plum Creek Timber Company, Inc. Constance B. Moore File Number S7-14-11 BRE Properties, Inc. David J. Neithercut 100 F Street, NE Equity Residential Walter C. Rakowich Washington, DC 20549-1090 ProLogis Robert S. Taubman Taubman Centers, Inc. Office of the Comptroller of the Currency (OCC) 2011 NAREIT Board of Governors Andrew M. Alexander Docket Number OCC-2010-0002 Weingarten Realty Investors David M. Brain 250 E Street, SW Entertainment Properties Trust Christopher H. Cole Mail Stop 2-3 Cole Real Estate Investments James F. Flaherty, III Washington, DC 20219 HCP, Inc. Michael F. Foust Digital Realty Trust, Inc. Edward J. Fritsch Ms. Jennifer J. Johnson Highwoods Properties, Inc. Lawrence L. Gellerstedt, III Secretary Cousins Properties Incorporated Jonathan D. Gray Board of Governors of the Federal Reserve System Blackstone Real Estate Advisors Randall M. Griffin Docket Number R-1411 Corporate Office Properties Trust Philip L. Hawkins 20th Street and Constitution Avenue, NW DCT Industrial Trust, Inc. Thomas P. Heneghan Washington, DC 20551 Equity Lifestyle Properties David B. Henry Kimco Realty Corporation Andrew F. Jacobs Capstead Mortgage Corporation Mr. Robert E. Feldman Thomas H. Lowder Colonial Properties Trust Executive Secretary Peter S. Lowy The Westfield Group Attention: Comments/RIN 3064-AD74 Craig Macnab National Retail Properties, Inc. Federal Deposit Insurance Corporation Joel S. Marcus Alexandria Real Estate Equities, Inc. 550 17th Street, NW Dennis D. Oklak Duke Realty Corporation Washington, DC 20429 Jeffrey S. Olson Equity One, Inc. Edward J. Pettinella Home Properties, Inc. Alfred M. Pollard Steven G. Rogers Parkway Properties, Inc. General Counsel Joseph D. Russell, Jr. PS Business Parks, Inc. Attention: Comments/RIN 2590-AA43 David P. Stockert Post Properties, Inc. Federal Housing Finance Agency, Fourth Floor Jay Sugarman iStar Financial Inc. 1700 G Street, NW Gerard H. Sweeney Brandywine Realty Trust Washington, DC 20552 Steven B. Tanger Tanger Factory Outlet Centers, Inc. Lee M. Thomas Rayonier, Inc. Thomas W. Toomey UDR, Inc. Mark E. Zalatoris Inland Real Estate Corporation Mortimer B. Zuckerman Boston Properties, Inc. 1875 I Street, NW, Suite 600, Washington, DC 20006-5413 Phone 202-739-9400 Fax 202-739-9401 REIT.com August 1, 2011 Page 2 Regulations Division Office of General Counsel Department of Housing and Urban Development Docket Number HUD-2011-0056 451 7th Street SW – Room 10276 Washington DC 20410-0500 Re: Proposed Rule – Credit Risk Retention Dear Ladies and Gentlemen: This comment letter is in response to the above proposed rule (the “Proposed Rule”)1 in which the Board of Governors of the Federal Reserve System, the Federal Deposit of Insurance Corporation, the Office of the Comptroller of the Currency, the Securities and Exchange Commission, and in the case of the securitization of any “residential mortgage asset,” together with the Department of Housing and Urban Development and the Federal Housing Finance Agency (collectively, the “Agencies”), jointly solicit comments on proposed rules to implement the credit risk retention requirements of Section 15G of the Securities Exchange Act of 1934 (15 U.S.C. § 78o-11), as added by Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Section 941”). NAREIT, the National Association of Real Estate Investment Trusts, is the worldwide representative voice for real estate investment trusts (REITs) and publicly traded real estate companies with an interest in U.S. real estate and capital markets. NAREIT’s members are REITs and other real estate businesses throughout the world that own, operate and finance commercial and residential real estate. NAREIT’s REIT members play an important role in helping to provide liquidity and transparency to the real estate market. Our members operating as Equity REITs own, lease and most often operate real estate, and thus are consumers of real estate debt finance. Our members operating as Mortgage REITs finance housing and commercial real estate, by originating mortgages or by purchasing whole loans or mortgage backed securities in the secondary market. Together, NAREIT’s members provide perspective as market participants on both sides of the real estate debt finance equation – i.e., both as borrowers and as lenders – who are equally interested in an effective, efficient and stable securitization market for real estate debt. The securitization market is a critical component of real estate finance, and as such is a critical component of our members’ businesses. We commend the Agencies for their effort in working cooperatively and within a tight timeframe to jointly develop proposed regulations implementing Section 941. However, we are seriously concerned by the Proposed Rule’s unsupported and complete exclusion of loans to REITs from its definition of those commercial real estate (CRE) loans that may comprise a securitization under which the securitizer may be eligible for zero percentage risk retention, even if such loans would otherwise satisfy the underwriting criteria contained in the Proposed Rule. 1 76 Fed. Reg. 24090 (Apr. 29, 2011). NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS August 1, 2011 Page 3 Under the Proposed Rule, the same high quality, secured loan used to finance a commercial or multifamily property would receive different treatment based solely on whether the borrower – or potentially, the borrower’s owner or owners – elects to be taxed as a REIT. The Proposed Rule makes this distinction, notwithstanding the simple fact that in either case the lender would have no recourse directly to the borrower, and the lender’s recourse to the collateral would not change. Since a number of REITs are among the most creditworthy and moderately leveraged owners and operators of commercial real estate in the marketplace today, and are therefore exactly the types of borrowers that prudent lenders and the securitization market should seek as potential customers, the proposed blanket disqualification of a loan to a REIT from the definition of a qualifying commercial real estate loan is puzzling, surprising, inappropriate, counterintuitive and certainly not supported by the facts. In short, we believe that the blanket exclusion of a loan to a REIT from the definition of a qualifying commercial real estate loan, as mandated by the Proposed Rule, is a fundamentally flawed approach to regulation in this area. In addition, we believe that there is no basis in the statute or legislative history for wholesale discrimination against loans to REITs in this context. Significantly, the Agencies have not shown, nor do we believe they can show, any empirical data that would demonstrate that a CRE loan that satisfies the proposed underwriting criteria would present a greater credit risk simply because the borrower is a REIT, as opposed to any other type of borrower. To discriminatorily exclude from qualification CRE loans to REIT borrowers when the loans otherwise satisfy the proposed underwriting criteria would also be highly counterproductive in the ongoing nation-wide effort to address lingering weakness in commercial real estate markets due to the Great Financial Crisis and the Great Recession. As the final rule is developed, we urge you to remove this inappropriate distinction for which there is no statutory, economic, or other rational basis. Background Overview Section 941 mandates that regulations be issued that: i) require a securitizer generally to retain not less than 5% of the credit risk of any asset that the securitizer, through the issuance of an asset-backed security (ABS), transfers, sells or conveys to a third party; and, ii) prohibit a securitizer from directly or indirectly hedging or otherwise transferring the required credit risk.2 Importantly, Section 941 exempts certain types of securitizations from these risk retention requirements and authorizes the Agencies to exempt or establish a lower risk retention requirement for other types of securitizations. In addition to a complete exemption for any asset transferred, sold or conveyed through the issuance of ABS if all of the assets that collateralize the ABS are qualified residential mortgages, Section 941 states that the Agencies must permit a securitizer to retain less than 5% of the credit risk of commercial mortgages that are transferred, 2 See 15 U.S.C. § 78o-11(b), (c)(1)(A) and (c)(1)(B)(ii). NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS August 1, 2011 Page 4 sold, or conveyed through the issuance of ABS by the securitizer if the loans meet underwriting standards developed by the Federal banking agencies.3 The Proposed Rule endeavors to address this Congressional instruction in § __.194 of the proposal, setting out proposed underwriting standards for “qualifying commercial real estate (CRE) loans.” Compliance with these high standards would eliminate the