CHICAGO—With bank examiners beginning to pay more attention tothe details in lenders' risk management policies,similarly it behooves lenders to pay more attention to the risksthat can arise in the course of commercial real estate lending.“Commercial real estate lending is a significant line of businessin the banking industry,” said Bill Tryon,director of strategic development and principal withPartner Engineering and Science, Inc. “Substantiallosses and even bank failures can occur when risks are not wellunderstood and carefully managed.” These risks may be associatedwith environmental issues, construction challenges, seismicvulnerability or otherwise.

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Tryon made this observation as moderator of a Partner webinar,“Under Pressure: Lender Compliance in the New RegulatoryLandscape.” The hour-long webinar aired Tuesday afternoon onGlobeSt.com and is now available for on-demand replay through Jan.6, 2015.

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As for the new regulatory landscape, it comes courtesy of theSEC, FDIC and Office ofthe Comptroller of the Currency, among other sources. “TheOCC in particular issued revised guidance last year, which providesan increased level of detail concerning the risks of real estatelending,” said Tyron. “There are differences among the agencyrequirements, but there are also similarities which provide generalprinciples that I've always used when writing policies.”

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In fact, the principles underlying the new regulations have beenaround since the 1980s: the need for a lender to have anenvironmental policy; the requirement for the bank's board ofdirectors to approve it; the appointment of an officer to beresponsible for the policy; and compliance with that policy. Allfour still apply.

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And while the regulatory agencies expect compliance with theirown policies, they don't expect a one-size-fits-all approach. “Theyrecognized that each bank is unique, and provided a framework formanaging risk, but they stopped short of requiring a single policyfor all lenders,” Tryon said.

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Tryon sounded out two veterans of risk management: JamesKing, VP and environmental risk manager with the realestate risk group at Fifth Third Bank; andDev Strischek, SVP and senior credit policyofficer for corporate risk management with SunTrust BanksInc. The two charted the history, the present and thefuture of risk management. Strischeck noted, for example, that withregard to construction risk policy, regulators are looking moreclosely at whether banks are doing what their own policies saythey'll do, commenting that “It's all about execution.” Healso opined that with an uptick in earthquakes—some supposedlylinked to hydraulic fractioning—seismic risk is likely to be on theradar screens of regulators at FDIC and OCC.

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And even as risk management policies differ among lenders, therisks themselves differ among loans. “In some ways, you can makethe argument that environmental risk is higher on small loans, atleast on a relative basis,” said King. Click here to view replays of the webinar,which includes access to a Partner / Globe Street white paper onconstruction trends and risk management.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.