House Passes Important Measure Affecting CRE Loans

Since 2015, federal regulations have been making it more expensive to make certain real estate loans. Banks have been required to set aside 50 percent more capital when dealing with what are called “High Volatility Commercial Real Estate Loans” (HVCREs). That’s quite a jump from the 12 percent they were formerly required to place in reserve. If federal policy makes it more expensive to loan money, there will be fewer loans, and that leads to less economic activity.

Last week, the House Financial Services Committee approved H.R. 2148. Introduced by Reps. Robert Pittenger (R-NC) and David Scott (D-GA), it’s known as the Clarifying Commercial Real Estate Loans bill. The vote was 59-1.

NAIOP and its real estate allies worked with Rep. Pittenger to shape the bill, which would address some of the problems inherent with the designation by banking regulators of acquisition, development and construction loans as HVCRE loans.

The measure would include the assessed value of the property as “real property,” even if that value comes from cash used to acquire it. It would exempt loans made before Jan. 1, 2015. And it would allow a construction loan to be reclassified as a non-HVCRE ACD loan if the construction is finished and the borrower has enough cash flow “to support the debt service and expenses of the real property.”

The committee notes that, “The bill also provides an off-ramp from HVCRE designation when a loan matures and qualifies for underwriting standards for permanent financing. The bill also exempts loans made prior to January 1, 2015, when the Basel III rule took effect.”

While it isn’t yet clear whether the measure can pass the Senate, it sends a strong message to regulators that lawmakers are focused on making it easier, not harder, to loan money to high-quality commercial real estate projects.