Episode #2: Bank Capital Proposals - What’s Changed and What It Means for CRE Finance

Cyrus, do you want to coalesce all of these changes for us?

Sure.

Yeah.

I mean, I know we've walked through a lot and a lot of it is very, very technical.

And I'll just say sort of in one sentence, I mean, I think the most important through line to draw across all of this is that, you know, risk sensitivity needs to track economic substance, not legal form necessarily.

And I think that sort of is the consistent theme throughout our advocacy, both this round as well as the response to the 2023 proposal.

Great.

So we're giving targeted, specific, but important technical changes and suggestions to the regulators.

Exactly.

So now that we understand capital, all these kind of specific things, what does it mean? What does this mean for us? What are the implications for lending activity, capital allocation, and liquidity in commercial multifamily finance markets?

I think the implications cut both ways.

I'm happy to take the positive side and let Matt follow up with the cautionary tale.

I think, you know, as discussed earlier, you know, you have a more capital efficient treatment for prudently underwritten low leverage commercial real estate exposures.

With that, I think we should see banks lean back into stabilized CRE lending where the risk weights now better reflect their actual loss profile.

And again, sort of alluding to the roadshow that the regulators put on before releasing their proposals, one of their key goals was to bring mortgage lending back into the banking space.

So much of it had moved out of the banking space into the non-banking financial institution universe.

So, you know, I think positively, good expectations.

We should see the banks engaging more on the mortgage lending side, whether it's REZI or CRE.

I'll let Matt be the downer.

Yeah, well, I mean, I certainly hope that that is what those changes do.

But on the more concerning side, maybe because I'm the lawyer, I have to play the pessimist here.

There are other changes in the proposal that could continue to push lending and financing activity of CRE to non-banks in ways the agencies probably didn't intend.

I mean, barely a day goes by that I see some headline of the regulators are looking more closely at private credit and private debt funds and other private lenders.

And even in releasing this proposal, the regulator's talked about wanting to bring banks back into mortgage lending and encourage more of it.

So they certainly, I don't think, intended to push things out of it.