February 10, 2016 15:04 ET

How to Manage Underwriting Standards for HVCRE Loans

Interview With John Sipple, Senior Vice President, Commercial Real Estate, Wealth Management, Wells Fargo Bank, NA

NEW YORK, NY--(Marketwired - February 10, 2016) - With the improving economy in the US, the amount of spending in commercial real estate lending is beginning to increase. But under Basel III, new requirements have been introduced around High Volatility Commercial Real Estate (HVCRE), requiring banks to hold more capital for loans. However, many banks feel the regulation is unclear and controversial, and they are struggling to come to terms with what the new requirements mean for them.

Mr. Sipple, Senior Vice President, Commercial Real Estate, Wealth Management at Wells Fargo Bank, NA recently spoke with GFMI about key topics to be discussed at their Commercial Real Estate Lending for Banks Conference, April 25-27, 2016 in New York, NY.

How is the current real estate environment impacting the underwriting process?

JS: At Wells Fargo, our underwriting standards and processes do not change according to where we are within any given point in an economic cycle. That is the beauty of Wells Fargo's real estate lending philosophy. We keep the same prudent and conservative underwriting practices at all times. We tend to increase our market share during low economic periods when competing lenders pull back as market volatility hampers their growth. 

Why is it important to ensure your underwriting standards are compliant?

JS: Our underwriting discipline is critical to our success. While underwriting standards become more regulated and more restrictive, the result is that we are ensuring the long term success of our brand. This approach will continue to benefit our customers and their businesses.

What effect has Basel III had on the overall lending market?

JS: Basel III has not had any material impact on the overall lending environment as the CRE industry has increased lending activity each year for the last five straight years. However, banks with constrained Common Equity Tier 1 under Basel III either at or near the 7% level will be limited in their ability to provide aggressive lending structures. Remember, the Basel Committee on Lending Supervision has already proposed Basel 4 which will impose more stringent capital requirements and greater oversight. 

Why is HVCRE such a big issue for CRE lenders now?

JS: Just so we are on the same page, HVCRE are defined as A&D and construction facilities where there is less than 15% borrower contributed equity as a percentage of an "as-complete" value. HVCRE is important because it 'draws a line in the sand' for lenders. Highly leveraged transactions are at risk to be the first to experience a default when larger, macroeconomic influences change market conditions which directly impact the viability of a transaction. 

What do you think people will gain from attending this event?

JS: I hope that the attendees gain a greater appreciation for the benefits of prudent lending practices. Ultimately, our borrowers are benefitted. Our conservative approach keeps us lending in all of our product specific CRE lending platforms regardless of where we are during any economic cycle. Additionally, attendees will appreciate getting an inside look at how we view CRE lending from a banker's perspective. 

John Sipple is a Senior Vice President and the Regional Leader for Commercial Real Estate in the Northeast Region for The Private Bank. Based in Summit, NJ, John pursues commercial real estate production in New York, New Jersey, Pennsylvania, Delaware, Connecticut, and Massachusetts. He is responsible for and partners with the region's Private Bankers and Credit Team for sourcing, structuring and approval of commercial real estate transactions.

A commercial real estate and banking professional for 32 years, John began his career in Los Angeles as a real estate consultant for Kenneth Leventhal & Co. John went on to co-found the Hospitality Brokerage Group for Grubb & Ellis out of its Los Angeles headquarters. After relocating to the San Francisco Bay Area in 1991, John was Senior Vice President for Koll-Dove ( a subsidiary of the Koll Company), and was responsible for the firm's note sales and commercial real estate auction business. John started his banking career with ITLA Capital Corp. in San Francisco. John has worked for Wells Fargo since 1997 and has been a member of the bank's Real Estate Group, CMBS Group and Special Situations Group in addition to The Private Bank.

John earned his bachelor's degree in economics from Cornell University and his master's degree from the Cornell University's School of Hotel Administration. John is also a licensed real estate broker in the state of California. In the community, John is a leader in his local Boy Scout troop. 

John will be presenting at the GFMI Commercial Real Estate Lending for Banks Conference, April 25-27 in New York City. This meeting will analyze the key issues with understanding the HVCRE requirements. Delegates will learn the best practices to classify loans as HVCRE and how to manage capital to meet the requirements and avoid the HVCRE classification. Case studies will cover the impact of the Basel III regulations on the overall real estate lending market and strategies to best compete with non-bank lenders in this profitable line of business.

For more information, please click here to download the conference agenda or contact Tyler Kelch, Assistant Marketing Manager, GFMI at 312-894-6310 or

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