This CLE webinar will discuss Basel III requirements for High Volatility Commercial Real Estate (HVCRE) loans and the HVCRE exemption criteria, as well as bank regulator guidance on a number of issues regarding borrower contributed capital, maximum LTV ratio and conversion to permanent financing. The program will also discuss how lenders are revising covenants in loan documentation in response to the HVCRE rules and the uncertainties facing borrowers.
Basel III standards have resulted in an increase in the cost of lending (and, as a consequence, borrowing) with respect to certain loans financing real estate acquisition, development and construction (ADC loans), as banks are required to retain more capital to address the risk-weighting given to such loans. To avoid higher risk weightings and capital retention requirements as a result of HVCRE classification, loans must fall into at least one of several exceptions to the general rule that all ADC loans constitute HVCRE loans.
In response to questions to banking regulators from the U.S. Mortgage Bankers Association, regulators issued a set of FAQs providing guidance on outstanding questions regarding the definition and treatment, for purposes of the HVCRE exception criteria, of borrower’s contributed capital, maximum LTV ratio, and conversion to permanent financing. This guidance has, however, created as many additional questions as it has answered.
As a result, lenders and borrowers have been left to attempt to establish guidelines for best practices to avoid inadvertent HVCRE treatment without a clear set of criteria for evaluating whether a given loan is, in fact, an ADC loan that is subject to application of the HVCRE rules and, if so, whether it is exempted from HVCRE treatment.
In response to the foregoing, lenders have reacted in disparate ways to revise covenants in loan documentation and both lenders and borrowers continue to face uncertainties over financing issues, including the impact of mezzanine debt, preferred equity and true cash flow.
Listen as our authoritative panel of real estate finance attorneys guides you through the capital retention rules for HVCRE loans and the HVCRE exemption criteria. The panel will address guidance provided by bank regulators on issues pertaining to borrower contributed capital, maximum LTV ratio and conversion to permanent financing. The panel will also review how lenders are revising covenants in loan documentation in response to the HVCRE loan rules and the uncertainties facing borrowers.