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Graaskamp on the Road, Discussing Real Estate Banking Reform in Chicago

by Graaskamp Staff Monday, April 18, 2016

Tim RiddioughOn a warm spring Friday in mid-April, Graaskamp Center board members and staff convened with over 50 WREAA members, sponsor representatives from Barack Ferrazzano Kirschbaum & Nagelberg LLP, and other friends of the program to receive updates from the Graaskamp Center and to hear Bill Lashbrook, Senior Vice President, Real Estate Banking, PNC Bank, speak on real estate banking reform.

The event began with Center updates from Academic Director Timothy Riddiough. Riddiough touted the Wisconsin real estate program’s strong enrollment, over 300 BBA, MBA, and GREM students in total, its full event schedule, and its maintained ranking as the top public real estate program in the nation. Riddiough concluded his remarks with an expression of gratitude to the Wisconsin Real Estate Alumni Association (WREAA) for their co-sponsorship of the event as well as the law firm of Barack Ferrazzano Kirschbaum & Nagelberg LLP for their financial support.

Bill LashbrookAfter brief remarks from Howard Nagelberg, Senior Partner at Barack Ferrazzano Kirschbaum & Nagelberg LLP, and Michael Brennan, Irgens Executive Director of the Graaskamp Center, Lashbrook provided a detailed overview of High Volatility Commercial Real Estate (HVCRE) in the context of Basal III risk-based capital rules. Bank industry professionals would agree that CRE development lending is amongst the most risky type of lending. In the U.S., since the late 1980s, banking regulators and even Congress have created regulations and passed laws impacting bank CRE lending. In the past year, regulation requiring a capital penalty of a 150% risk weight (or 12% capital) for certain types of CRE development lending (HVCRE) became operative across the U.S. banking system. Released in October 2013 by the three U.S. regulators under the guise of international Basel Banking rules, the rule and the sole clarifying FAQ document issued March 31, 2015, have caused confusion by banks in interpretation, leading to pricing uncertainty and other costs to developers. Lashbrook discussed how this is resulting in higher costs to developers, altered economics, and the inability to benefit from long held land via development lending. He also went into some detail on what the banking industry is doing and what the larger real estate industry can do to recast these regulations to ensure uniform interpretation, match the bank capital, and developer cost, to the risk and maintain a competitive, liquid market for development loans.  

Lashbrook concluded his talk with some thought-provoking Q&A as well as several shared testimonials around the room from folks dealing directly with HVCRE policy. The general consensus, as Lashbrook concisely put it, is “this is not working.”

The Graaskamp Center would like to thank WREAA, Barack Ferrazzano Kirschbaum & Nagelberg LLP, Bill Lashbrook, and all of the attendees for making this another successful event. 

GOTR Chicago 2016