Charles Antonucci isn't happy about the new commercial real estate lending guidelines his bank is going to have to follow.

“We feel that these guidelines really hurt us because we specialize in real estate,” says Antonucci, president and CEO of the Park Avenue Bank, a New York-based bank that focuses on real estate loans of between $500,000 and $5 million. About 85 percent of the bank's $400 million assets are real estate. “We're going to be forced to diversify into non-real estate areas,” Antonucci says.

In December 2006, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corp. (FDIC) issued guidelines on sound risk management practices for concentrations in commercial real estate lending. While these guidelines are not considered rules or regulations, banks must follow them nonetheless.

In particular, the agencies pointed to small- to medium-sized banks. Over the past 20 years, the average ratio of commercial real estate loans to capital was 2:1; today, that ratio has increased to 3:1, according to the Federal Reserve. For example, Park Avenue Bank has a loan to capital ratio of more than 7:1.

Many small and mid-sized banks are exceeding those concentrations and will have to adjust, says John Burford, senior vice president and investment portfolio manager with the International Bank of Miami, which has a loan to capital ratio of 3:1.

“The agencies are trying to warn banks not to provide loans with risky terms,” Burford says. “The way to overcome any concerns is to be high and tight with your underwriting.” The bank is seeking to increase its origination volume in 2007 despite its ratio.