Banks Look To Shed CRE Loans, Even If That Means Selling At A Discount

U.S. banks are planning to divest some of their commercial real estate loans — or are already doing so — to reduce their exposure to CRE, even if that means selling loans that are current at a discount, The Financial Times reports.

“The fact that banks want to sell loans is coming up in a lot of conversations,” CoStar analyst Chad Littell told the FT.

Last month, PacWest Bancorp agreed to sell a $2.6B portfolio of construction loans to investor Kennedy-Wilson Holdings. The sale included 74 loans, or more than half of the $4.6B in construction loans the company had on its books at the end of the first quarter.

Kennedy-Wilson Holdings said it was purchasing the loans at a $300M discount.

The FT also reported that HSBC Bank USA is in the process of selling off “hundreds of millions of dollars” of CRE loans, potentially at a discount, citing anonymous sources familiar with the bank's plans.

The move to ratchet down their exposure to real estate loans comes after an increase in such holdings since this time last year. Some 576 U.S. banks have “exceeded regulatory guidance on CRE loan concentration by the end of the first quarter, an increase of 30.3% compared with a year earlier,” S&P Global Market Intelligence said, as cited by Fortune.

As of Q1, New Jersey-based Valley National Bank, with $64.3B in total assets, was the largest to exceed CRE guidance.

Regulators are paying attention to the stress placed on banks by their CRE exposure as well.

“Commercial real estate portfolios, particularly loans backed by office properties, face challenges should demand for office space remain weak and property values continue to soften,” Federal Deposit Insurance Corp. Chairman Martin Gruenberg said in a speech last week. “These will be matters of ongoing supervisory attention by the FDIC.”

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