High-Volatility Commercial Real Estate Loans: Guidance for Developers and Lenders on HVCRE Rules and Loan Covenants

Navigating Borrower Contributed Capital Rules, Maximum LTV Ratio, Conversion to Permanent Financing and More

Recording of a 90-minute CLE webinar with Q&A

Conducted on Wednesday, June 14, 2017

Recorded event now available

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Program Materials

This CLE webinar will discuss Basel III requirements for high-volatility commercial real estate (HVCRE) loans and the HVCRE exemption criteria, as well as bank regulator guidance on a number of issues regarding borrower contributed capital, maximum LTV ratio and conversion to permanent financing. The program will also discuss how lenders are revising covenants in loan documentation in response to the HVCRE rules and the uncertainties facing borrowers.


Basel III standards have resulted in an increase in the cost of lending (and, as a consequence, borrowing) with respect to certain loans financing real estate acquisition, development and construction (ADC loans), as banks are required to retain more capital to address the risk weighting given to such loans.

To avoid higher risk weightings and capital retention requirements as a result of HVCRE classification, loans must fall into at least one of several exceptions to the general rule that all ADC loans constitute HVCRE loans.

In response to questions to banking regulators from the U.S. Mortgage Bankers Association, in 2015 regulators issued a set of FAQs providing guidance on how they would consider factors such as borrower’s contributed capital, maximum LTV ratio, and conversion to permanent financing in determining when an ADC loan is subject to application of the HVCRE rules or is exempted from HVCRE treatment. This guidance remains relevant to lenders and borrowers in structuring ADC loans, but it leaves additional questions unanswered.

Lenders and borrowers have attempted to establish best structuring practices and loan documentation to avoid inadvertent HVCRE treatment, but continue to face uncertainties over financing issues, including the impact of mezzanine debt, preferred equity and true cash flow.

Listen as our authoritative panel of real estate finance attorneys guides you through the capital retention rules for HVCRE loans and the HVCRE exemption criteria. The panel will address guidance provided by bank regulators on issues pertaining to borrower contributed capital, maximum LTV ratio and conversion to permanent financing. The panel will also review how lenders are revising covenants in loan documentation in response to the HVCRE loan rules and the uncertainties facing borrowers.



  1. Basel III rules
    1. Definition of an HVCRE loan
    2. Exemption criteria
    3. Impact on real estate and construction lending landscape
  2. Outstanding issues addressed by bank regulator FAQs
    1. Contributing additional capital to an existing HVCRE loan
    2. Grandfathering of existing ADC loans
    3. Cash contributed by second mortgage on property
    4. “As stabilized” value
    5. Land contributed to a new development
    6. Soft costs as contributed capital
    7. Subsequent appraisal/valuation resulting in LTV no longer exceeding maximum LTV ration
    8. Contributed capital remaining in the project
  3. Impact of mezzanine debt
  4. Typical loan covenants addressing HVCRE rules
  5. Borrower concerns


The panel will review these and other key issues:

  • Can the borrower contribute additional capital to an existing HVCRE loan after funds have been advanced to exclude the loan from the definition of HVCRE?
  • Can the “as stabilized” value be used to determine whether the loan is an HVCRE exposure?
  • Are soft costs part of the borrower’s contributed capital as development expenses?
  • If land purchased with cash is subsequently contributed to a new development, does it count as contributed capital?


Joseph Philip Forte
Joseph Philip Forte

Kelley Drye & Warren

Mr. Forte has substantial experience in commercial real estate capital markets and finance, with a particular...  |  Read More

William G. Lashbrook
William G. Lashbrook
Senior Vice President
PNC Bank

Mr. Lashbrook led the PNC Real Estate team to meet the Basel III and Advanced Capital Management reporting...  |  Read More

Matthew (Matt) Galligan
Matthew (Matt) Galligan

President, Real Estate Finance

Mr. Galligan’s group provides stabilized, value-add and construction loans between $20 million and $50 million to...  |  Read More

Gregg Gerken
Gregg Gerken
Head of U.S. Commercial Real Estate
TD Bank

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