FDIC Federal Register Citations

Commercial Bank

From: Andrew P. Shafley

Sent: Tuesday, February 14, 2006 3:04 PM

To: Comments

Subject: 2006-01 - Commercial Real Estate Lending, Sound Risk Mgt Practices--01/13/06

In response to the proposed guidance on Commercial Real Estate Lending:

I generally agree with the proposal and the thresholds relative to capital suggested. However, I do strongly suggest that the exception from the CRE definition for "owner-occupied" properties be fully developed before a final rule is promulgated.

I am specifically concerned with the definition of "owner-occupied". I agree with the agencies that "owner-occupied" commercial properties do not tend to exhibit the same risk profile as other types of CRE. However, the definition of "owner-occupied" is key to achieving the spirit of this proposed guidance.

There are a number of small to medium sized businesses that lease property from the principal owner of the the business or from another entity (such as a Limited Liability Company) with identical or similar ownership to the operating company. A narrow definition of "owner - occupied" could exclude these types of businesses, even though they would exhibit the same risk profile as a company that "owned" their premises. My suggestion would be to have a simple way to deal with these types of properties (i.e. if the "operating company" guarantees the debt on the building, the loan qualifies as "owner - occupied".

Another consideration is for mixed use buildings, where part of the building is leased to non-affiliated third parties and part is "owner - occupied". A percentage test for this type of should be part of the final guidance in order to remove the subectivity from the issue. Again, a simple test would be preferable (i.e. if more than 50% of the building is leased to third parties it would not qualify as "owner-occupied".

Thank you for the opportunity to comment.

Andrew P. Shafley
SVP & Senior Loan Officer
Commercial Bank
301 N. State St. P.O. Box 638 Alma, MI 48801