Credit is the lifeblood of capitalism. Credit is also the lifeblood of commercial real estate (CRE). In the wonder years of 2006 and 2007, credit for CRE was cheap and easy to come by. Underwriting standards dropped dramatically. I remember saying in 2006 that real estate investors and lenders were no longer doing “due diligence” but just “diligence.”

Then the loans started to go bad. The horde of bank regulators followed. Next came new regulatory guidelines from the Office of the Comptroller of the Currency (OCC) regarding CRE loans. Then commercial real estate lending came to a standstill. For most of the past three years, it is safe to say that banks have made virtually no commercial real estate loans. The OCC guidelines strongly encouraged this behavior in our national banks. The FDIC and state regulators adopted similar stances.

There are two relevant OCC guidelines that have put a limit on CRE lending for every bank in the country.

Guideline number one. The total amount of CRE lending cannot exceed 300 percent of tangible common equity. This means that if I put $100 of equity in my bank, I can make up to $300 in CRE loans. What happens if I’m over that limit? What happens if I have $600 in CRE loans outstanding? For one thing, I certainly won’t be making any new real estate loans. In addition, when some of my existing loans mature, I’m not going to renew those loans. My bank regulators are going to be watching me like hawks. When this happens the OCC clicks “dislike” on my bank’s Facebook page.

Guideline number two. The total amount of loans for acquisition, development and construction (ADC) of real estate cannot exceed 100 percent of tangible common equity. These ADC loans are what developers use for capital to create new subdivisions. ADC loans are also used by homebuilders to finance their new homes. When the bank is over the 100 percent limit on ADC loans, developers and homebuilders cannot get financing. And even worse, when their loans mature, they may not be able to refinance to extend their loan.

In 2009 and 2010, many Texas banks were over the lending limits for CRE and ADC loans. There was effectively no lending capacity for residential land developers, home builders, commercial real estate investors or developers.

Well, that was then, and this is now. I called one of my buddies, Dan Bass at FBR Capital in Houston to ask him if he could share some information with me. If you want to buy a bank in Texas, Dan is the go-to guy. Dan knows about Texas banks like Henry Longhurst knew about golf. I asked him to tell me whether Texas banks had lending capacity for commercial real estate investment, land development and home building. The news is very encouraging.

FBR reports there are 587 banks in Texas. Here are two pieces of great news for the Texas commercial real estate market in 2012 and the future.

• Only 11 banks in the state are now over the 300 percent CRE threshold.
• Only 41 banks are over the 100 percent threshold for ADC loans.

Theoretically, there is now credit capacity in Texas banks for real estate loans again. That is an incredibly positive trend for home building, residential development, commercial real estate investors and developers.

But hold your horses before you dust off your suit and go calling on a banker for a real estate loan. Bank regulators are still not very keen on real estate lending of any kind. Many of our Texas banks may still be under intense pressure to be VERY conservative about real estate loans.

Texas is a huge state with a rapidly growing population that will need more subdivisions, more houses, more shopping centers, more apartments and more office buildings. Many of these new projects will be financed by bank loans from Texas banks. Lending capacity is returning to our state. There is light at the end of the tunnel, and it’s not a train.

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