I just read an article describing new lending regulations that will change the way lenders evaluate whether to lend on a commercial real estate deal.

You can read the full article by clicking here. The article appears in the weekly news report from CoStar Group, a leading provider of commercial real estate information and news.

In a nutshell, the new guidelines, known as Basel II, will affect commercial real estate borrowing by requiring certain loans to be characterized as high-volatility commercial real estate loans (HVCRE), which will likely lead to higher costs for obtaining credit on certain types of deals.

Adding to the uncertainty is the additional requirement for all banks to adjust their risk profile constantly:

"Thus, loans that may not have been risky when they were made could become risky over time or even more risky in one part of the country compared to another. Economic downturn conditions will be determined based on whether default rates are higher than average based on type of loan or particular market.

"Accordingly, as part of the guidelines, banks will be required to perform regular market analysis. The guidelines say that banks must use current market data to compute current exposures. When a bank uses historical data to estimate model parameters, the bank must use at least three years of data that cover a wide range of economic conditions. In addition, the data must be updated at least quarterly - or more frequently if market conditions warrant.