Commercial Real Estate Loans, The Banking Industry and Covered Bonds

摘要

Banks fund almost 60 percent of commercial real estate loans in the United States. Emerging regulation requires banks to devote more attention to liquidity and long-term, stable sources of capital. European banks have long been able to rely on covered bonds for a source of long-term debt while American banks have looked to the Federal Home Loan Bank System for term debt. Both instruments are often secured by real estate loans as collateral. The analysis projects how covered bond costs in the U.S. would likely compare to advances if legislation is adopted that promotes development of a domestic U.S. covered bond market. Real estate investors should anticipate funding viable projects with higher cost mortgage debt when originated by commercial banks given the implications of Basel III regardless of the successful development of a covered bond market.