The law signed in 2018 requires banking regulators to revise some elements of the HVCRE designation that unfairly targeted commercial construction lending. For example, the law:
- Allows commercial borrowers to use the appreciated value of contributed land. This recognizes that many developers purchase land when it is less expensive and hold it for months or years before beginning to build on it. Under the prior rule, lenders were forced to value land based on what had been paid for it, ignoring any appreciation.
- Limits the application of the HVCRE classification in the case of loans made to acquire existing property with rental income. These loans will no longer carry higher capital requirements, as they did under prior law.
- Allows banks to remove the HVCRE designation prior to the end of the loan once capital requirements are met. This will help operators who’ve seen the value of their property appreciate – and who have achieved high rates of occupancy and a steady cash flow – to the point that their loan no longer requires HVCRE designation.
Congress must ensure that capital markets and financial institutions are able to address the current and future credit needs of the commercial real estate industry. Strong oversight is needed to ensure that the actions of various financial regulators do not have an unintended cumulative impact on lending to the industry.
Vice President for Government Affairs
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