Recent Leveraged Real Estate Loan Regulations Topic of Jonathan Thalheimer’s Presentation to Dallas Bar Real Property Section

Financial regulations and capital adequacy requirements for leveraged real estate loans have created enormous implications for lenders and developers. MCS partner Jonathan Thalheimer recently provided an overview of the post Dodd-Frank and Basel III regulatory landscape for members of the Dallas Bar Association Real Property Section, offering an overview of how the commercial real estate sector is being affected by new High Volatility Commercial Real Estate Loans (HVCRE) leveraged loan regulations.

In “High Volatility Commercial Real Estate Loans: New Federal Rules and their Impact on Loan Availability,” Mr. Thalheimer, a frequent speaker on the latest trends in commercial real estate finance, describes how lenders and developers have experienced a seismic shift since the Basel III recommendations were implemented in January 2015, requiring banks and certain other lenders to maintain minimum capital and leverage requirements, including heightened regulations on a category of leveraged loans known as High Volatility Commercial Real Estate Loans.
While designed to decrease risk of institutional and systemic failure, Mr. Thalheimer notes that these regulatory capital rules are a “blunt instrument to achieve these goals.”

Jonathan Thalheimer

“While it may seem intuitively obvious that an increase in capital requirements with the concomitant systemic deleveraging would help to achieve stability, it is questionable whether, in the case of HVCRE lending, the focus on a particular asset category will have the desired effect of stabilizing banks or the system. Of one thing we can be certain: These rules will have a number of unintended consequences with respect to bank safety, availability of credit, and systemic risk. Whatever efficacy these rules may ultimately have, their interpretation is unclear and banks will be seeking guidance for some time to come. This uncertainty will lead to some interesting times for the construction industry, which will have to grapple with an increased reluctance of regulated financial institutions to make construction loans.”

The presentation, “High Volatility Commercial Real Estate Loans: New Federal Rules and their Impact on Loan Availability,” is available here.