Capital and Credit Availability

Congress must ensure capital and credit markets meet the current and future needs of the commercial real estate industry. Strong oversight is needed to ensure that the actions of various financial regulators do not unfairly discriminate against the commercial real estate industry, or have unintended negative consequences on the availability of credit for real estate development.

Download NAIOP's position on Capital and Credit Availability 

The
Issue

  • The market of U.S. commercial and multifamily real estate investors, lenders and borrowers is valued at more than $6 trillion and is supported by $3.8 trillion of commercial real estate debt. Commercial banks constitute the nation’s largest source of commercial real estate financing.
  • More than $1 trillion of this debt will mature over the next few years. Without sufficient credit capacity for refinancing this large volume of maturities, and flexibility to finance additional construction lending, the ability of commercial banks to respond to the needs of the commercial real estate industry could be severely curtailed.
  • Revised capital standards promulgated by the Basel Committee on Bank Supervision (Basel III), and subsequent regulations issued by U.S. financial regulators, could reduce the capital that is available from banks for commercial real estate development.
  • A new designation of High Volatility Commercial Real Estate (HVCRE) loans, for acquisition, development and construction loans (ADC loans), requires banks to set aside more capital in their reserves for such lending.
  • Banks must now hold 50 percent higher capital reserves against these HVCRE loans as compared to other business loans, making them more expensive for banks to keep in their portfolio, and creating a disincentive for banks to lend to commercial real estate development.
  • The HVCRE designation should be revised or clarified. Appreciated land value, for example, is not recognized for purposes of determining whether a loan should be designated as HVCRE. In addition, once designated as an HVCRE loan, a bank must maintain higher capital reserves against the loan, despite any positive changes to the underlying economics of the financed project.
  • The Clarifying Commercial Real Estate Loans Act (H.R. 2148), which addresses some problems with the HVCRE designation, passed the House of Representatives in November 2017. The Senate should pass similar legislation.

Status

Information to come.

NAIOP
Viewpoint

Congress must ensure capital and credit markets meet the current and future needs of the commercial real estate industry. Strong oversight is needed to ensure that the actions of various financial regulators do not unfairly discriminate against the commercial real estate industry, or have unintended negative consequences on the availability of credit for real estate development.

Talking
Points

  • Adequate credit and capital for commercial real estate is a critical component of strong economic growth. Policymakers should ensure that commercial lending institutions are able to meet the future needs of commercial real estate investors and entrepreneurs.
  • The High Volatility Commercial Real Estate (HVCRE) designation currently in use for much construction lending should be clarified and revised to remove elements that are not reasonable or appropriate for modern commercial real estate markets.
  • Congress should exercise proper oversight over financial regulatory agencies to ensure that their guidance to lenders does not result in unfair discrimination or unintended harm to commercial real estate lending.

Resources

Contact

Aquiles Suarez
Vice President for Government Affairs
703-904-7100, ext. 115