{"id":1004745772,"date":"2025-02-05T11:28:18","date_gmt":"2025-02-05T19:28:18","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004745772"},"modified":"2025-02-10T08:00:10","modified_gmt":"2025-02-10T16:00:10","slug":"what-deregulation-could-mean-for-cre-bank-lending","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/what-deregulation-could-mean-for-cre-bank-lending\/","title":{"rendered":"What Deregulation Could Mean for CRE Bank Lending"},"content":{"rendered":"
\n
\"Old<\/a>
Image by lbusca<\/a>\/iStockphoto.com<\/figcaption><\/figure><\/div>\n\n\n

Last week, President Trump issued an executive order to Federal agencies to cut 10 regulations for every new one they institute. This regulation-light approach could have some positive implications for commercial real estate bank lending, which has fallen off considerably in recent years.<\/p>\n\n\n\n

For example, big banks, those with assets of $100 billion or more, may get a reprieve from the new capital reserve requirements of the Basel III Endgame, a sweeping set of rules<\/a> proposed by the Federal Reserve, the Office of the Comptroller of the Currency and the FDIC.<\/p>\n\n\n\n

Under Basel III Endgame, which is scheduled to begin in less than six months, common equity, tier 1 capital for affected bank holding companies will increase by an aggregate 16 percent, according to the Brookings Institute<\/a>. <\/p>\n\n\n\n

Meanwhile, it will raise the cost of bank capital to borrowers by roughly 20 percent, according to James Millon, president of U.S. debt & structured finance for CBRE.<\/p>\n\n\n\n

\n\n\n\n

READ ALSO:<\/strong> The Trump Effect on Tariffs, Taxes and T-bills<\/a><\/p>\n\n\n\n

\n\n\n\n

The case against Basel III<\/h2>\n\n\n\n

Basel III is an international alliance that was formed in 2009 to prevent another financial meltdown like the GFC. Basel III Endgame, also known as \u201cBasel IV,\u201d is intended to be the final set of rules, and it is focused on capital reserve requirements. Some member countries are already implementing their Endgame rules while others are in various stages of formulating them. <\/p>\n\n\n

\n
\"\"<\/a>
Sairah Burki, CREFC Managing Director
& Head of Regulatory Affairs and Sustainability<\/figcaption><\/figure><\/div>\n\n\n

But are the rules necessary for the U.S.? \u201cMany larger money-center banks have been under close regulatory scrutiny since the GFC, with many undergoing quarterly stress tests and audits by regulators,\u201d Millon said, noting banks have easily passed those stress tests.<\/p>\n\n\n\n

With the new U.S. administration\u2019s deregulation promises, bankers and commercial real estate interests are hopeful that Basel III Endgame will not be finalized in its current, proposed form.<\/p>\n\n\n\n

\u201cThere are signals that it might be reproposed in a form that is capital neutral,\u201d said Sairah Burki, CREFC managing director & head of regulatory affairs and sustainability.<\/p>\n\n\n\n

Burki noted that Representative French Hill (R-Ark), the new chair of the House Financial Services Committee, has already indicated a willingness to withdraw and repropose it, integrating changes in banking regulations with other regulatory priorities.<\/p>\n\n\n\n

Millon suggested, however, that some industry experts hold the view that the new administration will maintain the current regulatory framework for governing regulatory capital.<\/p>\n\n\n\n

Will the U.S. be in step with other countries?<\/h2>\n\n\n\n

While market participants are hopeful that Trump\u2019s deregulatory stance will translate into a softening or reversal of cumbersome and unnecessary regulation, not complying with or making major changes to the Basel Accords could have mixed results, noted Dr. Victor Calanog, who serves on the Economic Advisory Council of the Counselors of Real Estate.<\/p>\n\n\n\n

\u201cOn the one hand, it may mean less regulation for banks and fintech firms, allowing banks to potentially lend more,\u201d he added. \u201cOn the other hand, less regulation may mean the return of higher risk, which these regulations were designed to mitigate.\u201d<\/p>\n\n\n

\n
\"Economic<\/a>
Dr. Victor Calanog
Economic Advisory Council of the Counselors of Real Estate<\/figcaption><\/figure><\/div>\n\n\n

Burki noted that undoing regulations does not happen overnight and typically must go through a notice and response process.<\/p>\n\n\n\n

In the case of Basel III, for example, she said, all three banking regulatory agencies need to agree to new proposals and noted that the Fed\u2019s former vice chair of Supervision Michael Barr, prior to resigning, said that the Fed would not engage in significant rulemaking activity until new leadership is installed at the OCC and FDIC. <\/p>\n\n\n\n

\u201cDeregulation advocates need to encourage the administration and Congress to focus on key priorities, and what specifically needs to be deregulated and how,\u201d suggested David McCarthy, CREFC managing director & head of Legislative Affairs. \u201cDeregulation is not monolithic, even within the CRE finance industry.\u201d<\/p>\n\n\n\n

Some sectors favor certain regulations, whether for safety and soundness reasons, investor protection or regulatory capture. It\u2019s easier to do business if a competitor is more heavily regulated, McCarthy noted.<\/p>\n\n\n\n

\u201cThere are opportunities to pare back burdensome regulation for efficiency and pro-growth at the federal level, and we\u2019re working with Congress and the administration to do that,\u201d he said. \u201cWe also have to be cautious when rolling things back so as not to take away certainty or stability or potentially leave something open to a future, less friendly regulator to tinker with.\u201d<\/p>\n\n\n\n

New Trump policies and Fed rates<\/h2>\n\n\n\n

The big banks had pulled back from the commercial real estate lending market for some time due to limited payoffs, which restricted the amount of capital available to originate new loans. Many opted instead to focus on warehouse lines for institutional funds.<\/p>\n\n\n

\n
\"James<\/a>
James Millon
President of U.S. Debt & Structured Finance for CBRE<\/figcaption><\/figure><\/div>\n\n\n

With improvements in capital markets in the third and fourth quarters of 2024, however, banks experienced quicker-than-expected payoffs and began to originate new loans again.<\/p>\n\n\n\n

Now, Millon said: \u201cThe uncertainty of Basel III created issues in modeling proper ROE (return on equity) and, in some cases, took banks out of the (CRE lending) market completely.\u201d<\/p>\n\n\n\n

Meanwhile, there are a number of new Federal policies taking shape that could further restrict lending, namely tariffs and mass deportation. Trump has already imposed tariffs on Canada, Mexico and China\u2014though he has put the Canadian and Mexican tariffs on hold\u2014and he has vowed to deport immigrant workers who are in the country illegally.<\/p>\n\n\n\n

\u201cIf new trade and labor policies prove restrictive, it will push up inflation, potentially slowing rate cuts or even forcing the Fed to raise rates,\u201d Calanog warned. \u201cLong-term rates like the 10-year U.S. Treasury rose by about 100 basis points even as the Fed cut short-term rates by 100 basis points.\u201d<\/p>\n\n\n\n

Higher interest rates for longer could raise the cost of capital for CRE investment, “dampening deal flow,\u201d Burki said.<\/p>\n\n\n\n

Trump’s low-rate push<\/h2>\n\n\n
\n
\"headshot<\/a>
David McCarthy
CREFC Managing Director & Head of Legislative Affairs<\/figcaption><\/figure><\/div>\n\n\n

The Fed is independent of any branch of government, but Trump is likely to continue messaging it on his monetary policy desires. Following last week\u2019s short-term rate pause, the president said the Fed was signaling weakness in the economy or \u201cplaying politics\u201d by not cutting rates.<\/p>\n\n\n\n

Fed chairman Jerome Powell was appointed by Trump during his first presidential term, but they\u2019ve had a bit of a rocky relationship, Burki said. He cannot legally fire Powell, whose term doesn\u2019t end until next year. Besides, Powell cannot alone lower rates, it takes a vote by the entire board, which will retain a Democratic majority until 2026.<\/p>\n\n\n\n

Until there\u2019s more certainty around how policies are finalized and actually implemented, Calanog noted, \u201cexpect volatility for interest rates, which also likely means volatility in CRE cap rates.\u201d<\/p>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Changes to Basel III Endgame and other rules might loosen purse strings. <\/p>\n","protected":false},"author":3366,"featured_media":1004746063,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21808,21825,21783,51037],"tags":[32789,37207,51896,38763],"class_list":["post-1004745772","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-finance","category-investment","category-trends","tag-cbre","tag-counselors-of-real-estate","tag-crefc","tag-victor-calanog"],"acf":[],"yoast_head":"\nWhat Deregulation Could Mean for CRE Bank Lending - Commercial Property Executive<\/title>\n<meta name=\"description\" content=\"CRE experts weigh in on what the second Trump presidency will mean for commercial real estate bank lending.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/what-deregulation-could-mean-for-cre-bank-lending\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What Deregulation Could Mean for CRE Bank Lending\" \/>\n<meta property=\"og:description\" content=\"CRE experts weigh in on what the second Trump presidency will mean for commercial real estate bank lending.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/what-deregulation-could-mean-for-cre-bank-lending\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2025-02-05T19:28:18+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-02-10T16:00:10+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2025\/02\/Old_Bank_iStock-157572644.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"800\" \/>\n\t<meta property=\"og:image:height\" content=\"600\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Patricia Kirk\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/what-deregulation-could-mean-for-cre-bank-lending\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/what-deregulation-could-mean-for-cre-bank-lending\/\",\"name\":\"What Deregulation Could Mean for CRE Bank Lending - 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