"We take a different approach," says Jim Costello, senioreconomist at TWR. "Instead of looking at what's going on in oneaspect of the marketplace, we look at what would impact thelenders. We look at the fundamental market risks."

In a recent FDIC report, 13 cities--including Atlanta,Charlotte, Dallas, Denver and Fort Worth--were listed as markets atrisk. Eight of those markets have high rates of construction ofcommercial real estate across multiple property types. According toCostello, the FDIC is looking at construction and not demand. "Theyare trying to prevent a real estate market crash but there is ahigh correlation between markets that grow fast and markets thatbuild fast. They are technically right but lenders need an economicview."

Economic forecasting is a touchy subject for regulators but,says Costello, he hopes TWR's report encourages a rethinking of theappropriate way to gauge risk. "Regulators are going to say, lookat the FDIC findings, and lenders are going to have to justifythings they shouldn't have to."