Increased regulatory capital requirements for high-volatility commercial real estate loans could disrupt the overall availability of development credit to the real estate sector, members of Congress said this week in a letter to the financial regulatory agencies. The House Republicans criticized the “overly broad and complex” HVCRE definition and expressed concern that the requirements would reduce the credit capacity for the CRE industry, increase costs and drive borrowers to the shadow banking sector.
“While we understand the need for banks to hold capital commensurate with risk, we have concerns with the newly imposed HVCRE loan rules and how they disproportionally affect commercial real estate acquisition, development and construction lending by smaller banks,” wrote the lawmakers, led by Rep. Robert Pittenger (R-N.C.). “These rules artificially bundle certain CRE loans into an overly broad HVCRE category. This designation, and the subsequent confusion created by its implementations, has deterred many banks from making this type of loan.”
The members pointed out that approximately $1 billion in outstanding CRE debt is maturing daily through 2018 and warned that a sudden contraction of bank credit could cause property values to decline and pose a threat to banks that have high HVCRE concentrations. They added that the commercial real estate industry is a key driver of the U.S. economy — accounting for more than 20 percent of the GDP — and that an inadequate credit capacity would put jobs and tax revenue at risk.