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Texas Bank With Heavy CRE Exposure Gets $228M Investor Infusion

A Texas-based regional bank with substantial exposure to commercial real estate is receiving a $228M financial injection from a group of investors headlined by Fortress Investment Group.

A First Foundation location in Las Vegas

First Foundation Bank, a Dallas financial institution, is being shored up by a group of investors, including Fortress, Canyon Partners, Strategic Value Bank Partners and North Reef Capital. The group agreed to buy common and preferred shares, giving it 49% of the bank after the deal closes, The Wall Street Journal reported. Existing shareholders will retain 51% ownership. 

Real estate loans made up about 72% of First Foundation's total loans in the first quarter, according to the WSJ. The cash infusion is designed to give First Foundation time to sell off certain loans. 

The bank has a high concentration of multifamily loans, including on properties in California subject to state rent regulations that took effect in 2020. Nearly three-quarters of the bank’s loans are concentrated in California, according to the WSJ. 

The injection comes as banks are under increasing scrutiny over their CRE loans. Early last month, ratings agency Moody's placed six regional U.S. banks under review for a ratings downgrade on their debt because of their substantial exposure to commercial real estate loans. 

The percentage of nonperforming CRE loans in U.S. banks' portfolios doubled to 0.81% at the end of 2023, up from 0.4% in 2022, according to the International Monetary Fund's semiannual global financial stability report.