As discussed in a prior blog , Basel III regulations governing high volatility commercial real estate (HVCRE) went into effect. The HVCRE rules require lenders to assign a higher risk weighting to loans for the acquisition, development or construction (ADC) of commercial real estate. The higher risk weighting may be avoided if:

• the loan-to-value ratio (LTV) is equal to or less than 80%,
• the borrower contributes capital to the project in the form of cash or unencumbered readily marketable assets (or has paid development costs out of pocket) of at least 15% of the real estate project’s “as completed” appraised value, and
• the borrower’s 15% is contributed to the project before the lender advances any funds under the loan and remains in the project until the loan is converted to a permanent loan or paid off.