National + Finance | November 13, 2017

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House Passes Bill Clarifying HVCRE Rule

The U.S. House of Representatives passed legislation designed to clarify confusion caused by the high-volatility commercial real estate, or HVCRE, loan classification. The HVCRE rule increased the risk weighting of a loan held on a bank’s balance sheet by 50%, so banks are required to hold capital totaling 12% against such loans, up from 8% for most commercial mortgages. But the rule wasn’t clear what would cause a loan to be classified as HVCRE.

Loans would typically be classified as an HVCRE loan if it had a loan-to-value ratio (LTV) of more than 80%, and if its sponsor had put up less than 15% of the collateral’s equity, based on the project’s completed value. The result was different interpretations and applications of the rule in the syndication business, as well as causing some banks to shy away from deals if they included a redevelopment or construction component.

Clarification language includes:

HVCRE loans are a “credit facility secured by land or improved real property that … finances or has financed the acquisition, development or construction of real property.”
An HVCRE loan funds the acquisition, development or improvements to a property to make it into “income-producing real property, and is dependent upon future income or sales proceeds from, or refinancing of, such real property for the repayment of such credit facility.”
An HVCRE exemption for loans used to acquire or finance income-producing properties, or improvements to such properties.
A borrower’s equity contribution would be based on a recent appraisal, as opposed to its purchase price.
A loan that’s classified as HVCRE can now be converted to a non-HVCRE loan when construction is complete and property-level cash flow exceeds that needed to service the loan.

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About Dennis Kaiser

Dennis Kaiser is Vice President of Content and Public Relations for Connect Commercial Real Estate. Dennis is a communications leader with more than 30 years of experience including as a journalist and in corporate and agency marketing communications roles. He is responsible for Connect’s client content operations and is involved in a range of initiatives ranging from content strategy, message development, copywriting, media relations, social media and content marketing services. In his most recent corporate communications roles, he led a regional public relations effort across Southern California for CBRE, played a key marketing role on JLL’s national retail team, and was responsible for directing the global public relations effort at ValleyCrest, the nation’s largest commercial landscape services company. In addition to his vast commercial real estate experience, Dennis has worked on communications and launch strategies for a number of residential projects such as Disney’s Celebration in Florida, Ritter Ranch in Palmdale California (7,200 homes, 22,000 acres), WaterColor in Florida and PremierGarage in Phoenix. Dennis’s agency background included firms such as Idea Hall and Macy + Associates. He has earned an outstanding reputation with organization leaders as a trusted advisor, strategic program implementer, consensus builder and exceptional collaborator. Dennis has developed and managed national communications programs for Fortune 500 companies to start-ups, both public and private. He’s successfully worked with journalists across the globe representing clients involved in major-breaking news stories, product launches, media tours, and company news announcements. Dennis has been involved in a host of charitable and community organizations including the American Cancer Society, Easter Seals, BoyScouts, Chrysalis Foundation, Freedom For Life, HOLA, L.A.’s BEST, Reach Out and Read, Super Bowl Host Committee, and Thunderbirds Charities.

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