Wayne Heicklen, Co-Chair of Pryor Cashman's Real Estate Group, recently spoke with Real Estate Finance & Investment about how changes to the rules governing High Volatility Commercial Real Estate (HVCRE) will impact non-bank lenders in the construction financing sector.
According to REFI, despite efforts by legislators to clarify construction lending rules for banks, alternative lenders are expected to continue to lead the commercial real estate construction market in 2018.
Due in part to the costs imposed on banks by HVCRE, banks have generally restricted construction financing - post-financial crisis - to low-leverage projects. But some industry insiders speculate that once HVCRE is clarified, non-bank lenders will begin to see increased competition from banks.
In the interim, banks have adapted their strategies to fit the current regulatory framework; instead of originating construction loans, more banks are buying off the A-note participation in HVCRE-compliant deals originated by non-bank lenders. "Banks may not have the capacity or desire to originate," Heicklen said, "but they're pleased to take the A-notes, so they're still participating."
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