Before the campaign in Idaho's 1st Congressional District had spiraled into a contest over who was the more anti-government, anti-Democratic, anti-Mexican candidate, Congressman Walt Minnick was crusading for the commercial real estate industry, proposing relief that, he says, could prevent a crisis leading to a double-dip recession. Although he does acknowledge that there are risks to small banks and supports proposals like Minnick's, Paul Merski, chief economist of the Independent Community Bankers of America, says some of the statistics of possible losses are "sensationalized," according to The Hill. Others have noted that commercial property prices have stabilized, although well below their 2007 peak, and describe the market as "choppy," but few are sounding crisis alarms.
So why is Congressman Minnick so concerned about the commercial real estate industry? Why would this Blue Dog congressman, who wears his anti-government credentials like a medal, be advocating government intervention now? Could the legislation he has been working on for nearly a year have been written to benefit a specific developer and is that developer a campaign contributor? Or is Minnick using his influence to benefit his son, a Denver-based commercial real estate investment manager?
For answers, let's back up a year.
In August of 2009 Congressman Minnick gave an interview to Scott Lanman of the well-known financial and business news source, Bloomberg. Lanman was reporting on the troubled status of the commercial real estate industry and wrote:
One developer based in U.S. Representative Walt Minnick’s district is in a bind because a lower appraisal means he can’t renew the full amount of a $10 million, three-year loan he took out for a recent project, the first-term Democrat from Idaho said in an interview last week. The person may be forced into bankruptcy, said Minnick, 66, without identifying the developer.
Note that $10 million amount, then fast forward ten months to June 16, 2010 and the floor of the U.S. House of Representatives. Congressman Minnick is introducing his amendment to HR 5297, the Small Business Jobs and Credit Act of 2010. The bill is designed to help free-up credit markets for small businesses, in part, through the creation of the Small Business Lending Fund which would provide incentives for smaller banks to make new small business loans.
A small business is broadly thought of as one having less than 500 employees or annual receipts less than $7 million, but the Small Business Administration size standards vary widely by industry. The SBA currently offers several loan guarantee programs to qualifying small businesses, the most common are 7 (a) and 504 loans with maximum loan sizes of $2 million. The Small Business Jobs and Credit Act would permanently increase those loan maximums to $5 million and, through the Small Business Lending Fund, give incentives to community banks based on the amount of its small business lending.
As Minnick described it on the floor that day, his amendment "adds commercial real estate to the category of assets that can be covered by small business loan guarantees and increases the amount of those assets up to $10 million."
He went on:
This allows a category of assets that is now being held by small business men throughout the country, a category that is very large that needs to be refinanced because commercial real estate loans are short term and banks simply do not have the capacity in the current market to finance and process all of the commercial loans that need to be reprocessed over the next 3 to 5 years. By making these smaller loans that our community banks have made to strip shopping centers, to restaurants, to small business, making them more liquid by applying a Federal guarantee, they will be able to sell these loans in the market. The bank will get cash and be able to make another commercial loan.
Minnick's amendment allows commercial real estate loans of up to $10 million to be considered small business loans--double what would be the maximum amount of any other small business loan under this bill--and it passed on a voice vote.
Is it just a coincidence that $10 million happens to be the amount of the loan Minnick told Bloomberg his constituent needed to avoid bankruptcy? Maybe, but it won't be the last time we hear about that $10 million amount.
Jump forward another month to late July of this year. Congressman Minnick is gaining some national attention for legislation he introduced in the House Financial Services Committee to "revitalize" the commercial real estate industry. He says his legislation "could stabilize the commercial real estate market and free overextended small banks to lend to small businesses in their communities," according to the Idaho Statesman.
Minnick's proposal allows community banks to take their portfolio of good commercial real estate loans and sell them to so-called big money-center banks. The bigger banks package the loans as investments. If they're rated high enough, the U.S. Treasury will back them.
If to you that sounds roughly like the sort of thing that started the whole financial crisis, you're not alone. Even Minnick acknowledges that it does, although he says this would differ from the mortgage crisis in that the small banks who are the originators would be the first to lose if they fail. And he insists that his plan is not a bailout. "I don’t think we are putting any taxpayer money at risk. We are not injecting any taxpayer money into any financial institution," Minnick told The Hill in July.
Coincidently or not, shortly after his bill was introduced in the House Financial Services Committee, citing "job growth" and "private property rights" as key factors in their decision, the Idaho Association of REALTORS "enthusiastically" endorsed Minnick's reelection bid.
His bill was introduced July 22 and received a full committee hearing July 29. According to The Hill:
Minnick is leading an effort with lawmakers from both parties to push legislation creating a Treasury-run program that would provide between $15 billion and $25 billion in guarantees for commercial real estate investments. The guarantees are meant to boost liquidity and confidence. [...] Minnick’s proposal aims primarily to help banks with $10 billion or less in assets that issue loans of $10 million or less.
Once again Minnick's legislation to help the commercial real estate industry includes loans up to $10 million--coincidentally the same amount that this developer needed?
So who is this real estate developer that Congressman Minnick seems determined to help avoid bankruptcy? We don't know and Minnick doesn't say and therefore we also don't know whether or not this developer is also a campaign contributor. We do know that, according to the Center for Responsive Politics, through June 30, 2010 Minnick has received $29,020 from the real estate industry this campaign cycle, including $14,520 in individual contributions. The FEC database lists these individual contributors who reside in Idaho and have contributed at least $1,000 this cycle:
- $3,000 - DeWayne Bills, retired real estate developer from Nampa
- $2,400 - John K. French, retired real estate investor from Ketchum
- $1,000 - Elliott Mark, real estate manager from Eagle
- $1,300 - Winston H. Moore, real estate developer from Boise, also a member of the Minnick campaign committee
- $2,400 - Ron Sali, real estate developer from Eagle
Walt Minnick also has a more personal connection to the commercial real estate industry. His son, Adam Minnick, is a Senior Vice President at Amstar, a privately held Denver-based commercial real estate investment manager/developer with more than $1.65 billion in assets under management, according to the company website. Like his father, Adam has an MBA from Harvard Business School and he has been in the commercial real estate industry for over eleven years. Prior to joining Amstar in 2005, Adam managed commercial real estate portfolios for the London office of Goldman Sachs and was an analyst in the real estate division of Paine Webber.
Does this personal connection to the industry have any influence in the legislation introduced by Minnick? Is this why Minnick has been interested in "revitalizing" the industry? Would Minnick be less inclined to advocate for government intervention in the commercial real estate industry if his son weren't involved?
All interesting questions, and unfortunately questions for which we may never have answers.