Newspaper article THE JOURNAL RECORD

Capital Concerns: Banks' Uncertainty over Reserve Could Raise Commercial Real Estate Loan Prices

Newspaper article THE JOURNAL RECORD

Capital Concerns: Banks' Uncertainty over Reserve Could Raise Commercial Real Estate Loan Prices

Article excerpt

TULSA - A new regulation may raise costs on some commercial real estate loans, according to executives speaking at an NAIOP Tulsa breakfast meeting Wednesday.

New minimum risk base requirements under 2013 revisions to Section 171 of the Dodd-Frank Wall Street Reform and Consumer Protection Act's Collins Amendment force lenders to reserve 100 percent of capital for certain commercial real estate loans, said Blake Will, market manager for Great Southern Bank's Tulsa loan office.

It rises to 150 percent for high-volatility commercial real estate loans, he told the NAIOP audience at Tulsa's Marriott Southern Hills Hotel.

Borrowers also were required to provide a minimum 15 percent in equity for each deal on Day One, Will said. This equity could involve cash readily marketable, additional collateral or improvements made to the property before the financing agreement was reached.

Originally the Springfield, Missouri, bank understood that the base requirements applied to bank holding companies with $10 billion or more in assets, Will said. A Congressional Research Records report issued one year ago said holding companies with $15 billion or more in assets had a three-year phase-out period starting January 2013, while those smaller than $15 billion had a 10-year period. Lenders below the $500 million level were not expected to be affected by the amendment.

But Will said that as the regulations kicked in, changing interpretations and a lack of federal guidance led the $4 billion Great Southern to proactively adopt the rules. That burden was heightened because the regulations applied to past and present loans, Will said. This required Great Southern to verify it met capital requirements on each affected loan in its portfolio.

"That takes away a lot of capital from banks," he said. "Eventually it will drive pricing up, which none of us really wants. In order for the banks to offset the capital they have to reserve, we have to increase the price of the loan."

Will expressed optimism the burden may lighten as regulators clarify guidelines. …

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