What happens if a bank hits its CRE concentration limit mid-deal?

How sponsors monitor and mitigate concentration risk

Regulatory CRE concentration thresholds: federal banking regulators identify banks with construction loans above 100% of total risk-based capital, or total CRE loans above 300% of total risk-based capital, as having heightened CRE concentration risk and warranting enhanced supervisory attention. Banks approaching or above these thresholds face supervisory pressure to slow CRE originations.

FDIC Quarterly Banking Profile data: shows aggregate CRE loan growth and individual bank CRE concentration. Banks with rapid CRE growth combined with high concentration are at higher risk of pulling back during a deal.

Mid-deal warning signs: lender slow-walking the credit-committee meeting, requests for additional reserves or recourse beyond the term sheet, sudden focus on collateral protection metrics, requests to restructure the deal, or extended silence after diligence completion.

Sponsor mitigation: maintain at least one credible non-bank alternate (debt fund, life co, agency for multifamily) through commitment-letter signing. Read the bank's most recent regulatory call report to assess concentration risk before signing the term sheet.

Deal-level mitigation: structure smaller initial draw with future-funding tranches; accept slightly lower leverage in exchange for execution certainty; explore whether the bank has appetite to participate the deal to other banks (reducing its concentration exposure).

If a lender withdraws, establish the reason, update the financing materials and contact credible alternatives. Confirm their review and closing schedules; replacement financing may require new diligence.