NAR worried about new rules for commercial lending 

WASHINGTON – Dec. 11, 2006 – The National Association of Realtors® (NAR) says that the new rules issued last week concerning bank lending for commercial real estate projects, designed to help prevent imprudent commercial real estate lending, could force banks – particularly smaller, regional banks, including some in Florida – to stop funding some commercial loans even if they make financial sense.

“NAR recognizes the important role bank regulators play in protecting the soundness of the nation's economy,” says NAR President Pat Vredevoogd Combs. “However, we’re concerned that today's actions may be more harmful to the commercial real estate industry then helpful. The commercial real estate industry remains strong and vital,” said Combs.

During the first 10 months of 2006, a record transaction volume of $213.3 billion in commercial real estate transactions occurred on property valued at $5 million or more. Vacancy rates remained lower then previous years and, in some cases, are still dropping. And most importantly, investors continue to invest in the commercial market. NAR’s commercial outlook in September reported that all indicators reflect an ongoing, strong commercial real estate market.

“We hope the regulators will reevaluate these guidelines and also modify the Federal Reserve's

Basel 1A policies,” says Combs. “These actions could result in slowing or even a decline in the commercial real estate sector.” The Basel Accords are internationally agreed-upon regulatory principles by which the central banks of the 10 largest economies determine their regulatory capital reserves.  

Different classes of commercial real estate lending have different performance characteristics, since not all commercial real estate is the same. Financial institutions should be able to effectively manage risk by creating commercial real estate portfolios that are diverse, noted NAR in testimony earlier this year.

“We feel that the regulators have still not recognized distinctions in classes of commercial real estate – particularly as it pertains to

Basel 1A. This could have the unintended consequence of driving down property values in all classes of commercial real estate,” says Combs. “NAR and our members remain concerned that the implementation of these regulatory initiatives will negatively impact the market resulting in higher financing costs and declining property values. It is our hope that a closer look will be taken before any harm can be inflicted.”

© 2006 FLORIDA ASSOCIATION OF REALTORS®

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