HVCRE Update – Regulatory and Legislative Developments Relating to Capital Requirements for Acquisition, Development and Construction Loans

    View Authors December 2017

    On October 27, 2017, the US federal banking agencies published in the Federal Register a notice of proposed rulemaking (NPR) that would modify the Basel III capital rules for “non-advanced approach” banking organizations (banks, savings associations and depository institution holding companies with less than US$250 billion in consolidated assets and less than US$10 billion in foreign exposures), and would make technical and clarifying changes to the rules applicable to all institutions and their holding companies.

    One of the more significant proposals made in the NPR would change the capital treatment afforded acquisition, construction and development loans, including lowering the risk-weight for these loans from 150% to 130%. These loans are referred to in the regulation as “High Volatility Commercial Real Estate” exposures, or HVCRE.

    In early November, the House of Representatives passed H.R. 2148, the Clarifying Commercial Real Estate Loans Act, that would modify the existing regulatory treatment of HVCRE loans without changing the 150% risk-weight.

    We have prepared an overview chart comparing the provisions in H.R. 2148, the NPR and the current regulation at a high level.