Heeding the agencies' request for comment, RER aligned with the Commercial Mortgage Securities Association to craft a letter to the agencies conveying their joint apprehension that some aspects of the rule would increase the cost of owning commercial mortgage-backed securities, and providing property acquisitions, development and construction loans. "Our basic concern is that we believe that the capital charges for CMBS should reflect the risk and liquidity of pool securities relative to the single-asset exposures, just as corporate debt does," RER president and COO Jeffrey D. DeBoer tells GlobeSt.com. "We're engaged in discussions with the Federal Reserve to try to make sure that any final rules in this area are not biased against commercial mortgage-backed securitizations."

In the letter, RER and CMSA back up their concerns about how detrimental certain aspects of the rule could be by citing evidence compiled by CMBS-rating firms implying that rated CMBS classes have a higher performance level than other similarly-rated securities. "Compared to corporate bonds, CMBS assets have proven to default less frequently and have considerably lower incidence of negative rating transitions," says Diana Reid of Beekman Advisors LLC, one of the rating firms.

While changes to Basel II could be made to accommodate expressed concerns, the rule is still on schedule to be implemented in 2006. "I would describe our discussions right now as very helpful, and there are a variety of current activities within the CMBS market regarding how these securities are serviced and so forth that the Federal Reserve was not completely aware of," DeBoer adds. "We intend to provide them with additional performance information to help them determine the riskiness of CMBS versus commercial-whole loans."