April 26, 2017 - Real Estate Roundtable Supports Bipartisan Legislation to Clarify the Basel Rule and Aid Economic Growth

 Bipartisan Legislation is Key Step to Address Basel III Banking Standards’ Negative Impact on Commercial Real Estate Acquisition, Development, or Construction Lending 
 

 - .pdf of this news release -    - Roundtable Weekly Policy Digest Archive -  
    April 26, 2017 Media Contacts: (202) 639-8400
 Scott Sherwood or Abigail Grenadier

(WASHINGTON D.C.) — Bipartisan legislation (H.R. 2148) introduced today by Rep. Robert Pittenger (R-NC) and Rep. David Scott (D-GA) would help clarify and reform the Basel III High Volatility Commercial Real Estate (HVCRE) Rule, which is negatively affecting certain commercial real estate loans and impairing economic growth. The bill is supported by The Real Estate Roundtable and a coalition of national real estate organizations¹. 

Jeff DeBoer x200 Podium hands together IMG_5913

 Real Estate Roundtable President and Chief Executive Officer Jeffrey DeBoer said, "The Roundtable and our coalition partners support regulatory agencies’ efforts to promote economically responsible CRE lending, and the Pittenger-Scott bill will help guide the agencies in clarifying and reforming the HVCRE Rule, while encouraging sound lending practices, spurring economic growth and creating jobs in local communities."

Real Estate Roundtable President and Chief Executive Officer Jeffrey D. DeBoer said, “Congressmen Pittenger and Scott are to be commended for recognizing the negative economic impact that the HVCRE Rule is having on acquisition, development and construction lending and for taking steps to introduce legislation intended to correct these problems. The Roundtable and our coalition partners support regulatory agencies’ efforts to promote economically responsible CRE lending, and the Pittenger-Scott bill will help guide the agencies in clarifying and reforming the HVCRE Rule, while encouraging sound lending practices, spurring economic growth and creating jobs in local communities.” 

By amending the Federal Deposit Insurance Act to clarify capital requirements for certain acquisition, development, or construction loans (ADC), the legislation would address concerns regarding the HVCRE Rule.

As currently written, the Rule is overly broad and is applied to many stabilized loans without construction risk, unduly burdening stabilized loans with capital charges after the construction risk has passed. Many banks, including small community financial institutions, have been deterred from making this type of loan – which can represent up to 50 percent of a small bank loan portfolio. 

Since introduction of the HVCRE rules in January 2015, necessary clarification for key elements of the rule have not been provided by regulators despite ongoing requests.  Without modifications, the consequences of the HVCRE rule could have an adverse economic impact on commercial real estate lending, local economies and job creation. Without a response from the regulatory community, the proposed legislation is intended to address the problem.

Among the clarifications in the legislation are the following:  

  • Once the development/construction risk period has passed, and the project is cash flowing, it would allow borrowers to use internally generated cash outside the project, rather than forcing them to refinance the loan (possibly away from the original lender).
     
  • Clarify that loans made to do general upgrades and other improvements on existing properties with rental income do not trigger the capital penalty. 

  • Allows banks to establish borrower land value as equity into projects as established by certain safeguards, such as a fully-compliant appraisal and thorough bank review. 

  • Excludes from application and compliance any loans made before January 1, 2015.

As the House Financial Services Committee considers legislation in the 115th Congress to address the HVCRE rule, The Roundtable and its industry partners will continue to encourage policies that permits stable capital formation and balanced lending in a sensible financial regulatory framework.

 ¹ Building Owners and Managers Association International, CCIM Institute, Commercial Real Estate Finance Council, Institute of Real Estate Management, International Council of Shopping Centers, Mortgage Bankers Association, National Apartment Association, National Association of Home Builders, NAIOP Commercial Real Estate Development Association, National Association of Real Estate Investment Trusts, National Association of Realtors and National Multifamily Housing Council.

About The Real Estate Roundtable
The Real Estate Roundtable brings together leaders of the nation’s publicly-held and privately owned real estate ownership, development, lending and management firms with the leaders of national real estate tradeassociations to jointly address key national policy issues relating to real estate and the overall economy. Collectively, Roundtable members' portfolios contain over 12 billion square feet of office, retail and industrial properties valued at more than $1 trillion; over 1.5 million apartment units; and in excess of 2.5 million hotel rooms.  Participating trade associations represent more than 1.5 million people involved in virtually every aspect of the real estate business.

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