A bank's commercial real estate loans measured against its capital. Federal guidance from 2006 flags 300 percent of total capital, with 50 percent growth in 36 months, for closer review.
Bank examiners look at how much of a bank’s capital is tied to commercial real estate. The 2006 interagency guidance gives them two screens. The second is the one most people mean by CRE concentration: total commercial real estate loans at 300 percent or more of the bank’s total capital, where the balance has also grown 50 percent or more in the prior 36 months. Total capital here means total risk-based capital from the Call Report.
The count covers construction, land development and other land loans, multifamily loans, and loans on nonfarm nonresidential property. Loans on owner-occupied property are left out.
The guidance says it does not set a limit on a bank’s CRE lending, and that the screens are not a safe harbor. A bank above the level is expected to show stronger risk management and capital, not to stop lending.
For a borrower the practical point is appetite. A bank that is high on this measure may be slower on a new investor property loan, may ask for more, or may sell part of the loan to another lender. A bank well under it may have more room. Ask the banker where the bank stands.
How it shows up in the data here
Each bank page shows CRE to capital: construction, multifamily and non-owner-occupied commercial real estate loans held, divided by tier 1 capital plus the allowance, beside the range for similar banks. This is our calculation. It is not the 2006 guidance test, which uses total risk-based capital and adds a growth condition. See banks ranked by investor CRE loans held.
Go further
- Investor CRE lenders: Banks and credit unions that hold investor commercial real estate loans.
- Investor CRE books ranked: Lenders ordered by investor CRE loans held.
- The CRE concentration guidance, explained: Bank regulators watch how much commercial real estate a bank holds against its capital. The guidance sets two screens. It does not set a limit, and it does not count owner-occupied buildings.
- How to pick banks for a deal with public data: Public filings cannot tell you which bank will say yes. They can tell you which banks are large enough, already hold loans like yours and lend where the property is. That is enough to turn four thousand banks into six phone calls.
- How to read a bank call report as a loan searcher: Every bank files a call report each quarter. One schedule in it lists the bank's loans by kind. Read that schedule and you know what the bank holds. You still do not know what it made last quarter.
Related terms
- Construction and land concentration: A bank's construction, land development and other land loans measured against its capital. The 2006 guidance uses 100 percent of total capital as a screen for closer review.
- Total risk-based capital: The sum of a bank's tier 1 and tier 2 capital. The capital rule requires it to be at least 8 percent of the bank's risk-weighted assets.
- Non-owner-occupied commercial real estate: Commercial property where half or more of the loan's repayment comes from rent paid by tenants unrelated to the owner.
- Owner-occupied commercial real estate: Commercial property where the loan is repaid mainly by the business that occupies it, not by rent from unrelated tenants.
- Loan participation: A loan in which other lenders buy shares from the lender that made it, under a written agreement that keeps the first lender in the loan for its whole life.
- Tier 1 capital: A bank's core capital under the capital rule: common equity tier 1 plus additional tier 1. The minimums are 6 percent of risk-weighted assets and a 4 percent leverage ratio.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.