Banks and Commercial Real Estate: An Unhealthy Combination

As you know, the NATIONAL ASSOCIATION OF REALTORS® has been fighting hard against a proposal by the Federal Reserve Board and the U.S. Treasury Department that would allow big bank conglomerates into real estate. What hasn’t often been emphasized is that the proposal would encompass leasing, commercial real estate brokerage, and property management. Allowing banks into commercial real estate would have devastating consequences. Here’s why.

Big banks dominate the commercial real estate lending landscape. For banks to get into leasing, commercial real estate brokerage, and property management would be the worst kind of mixing of commerce and finance, clearly prohibited by Congress. And for good reason: That’s the kind of activity that brought down the savings and loan industry in the late 1980s and has crippled the banking industry in Japan.

Allowing big banking conglomerates into our industry would harm commercial real estate markets in several ways.

For one thing, conflicts of interest would develop between financial holding companies and their commercial real estate subsidiaries, and a rash of safety and soundness issues would eventually follow.

No regulatory framework and no required amount of disclosure would be enough to prevent those problems from having a deep negative impact on commercial real estate.

In addition, competition would be reduced as banks gobbled up real estate companies. We’re not alone in believing so. The National Association of Home Builders told a House panel last year about apartment management, “The involvement of banking organizations in real estate management would create an unfair competitive environment for real estate management firms not affiliated with banks . . . and would unfairly alter the competitive marketplace and unnecessarily increase costs for consumers.”

Support for our position is strong in Congress, where we’re seeking legislation that would forbid banks from crossing the line into the real estate business. Nearly 200 cosponsors have signed onto the bill.

That’s great news. But the fight isn’t over. It won’t be over until we’ve won. Remember: It’s our responsibility as REALTORS® to be “The Voice for Real Estate”—commercial as well as residential—and we’re doing it.