- Washington Federal Bank sold billions in unpaid CRE loans to Bank of America to lower its exposure.
- The Federal Reserve hones in on regional bank risks tied to distressed CRE sectors.
- The CRE industry faces a potential multifamily distress cycle, anticipating increased regulatory scrutiny.
Deal of The Day
Washington Federal Bank (WAFD), seeking to reduce its CRE exposure, sold off $3.2B in multifamily loans to Bank of America (BAC) for $2.9B, as reported on Globest.
After finalizing the purchase of the 2K unpaid multifamily loans, Bank of America will also enter into several structured deals and potential loan sales with Pacific Investment Management Co. (ALIZY), per regulatory filings. Whether the bank intends to flip the loans directly to Pimco remains to be seen.
Hawkish Fed, Looming Distress
The Federal Reserve’s focus on regional bank liabilities tied to troubled CRE loans, particularly in the multifamily and office sectors, continues to underscore sector-wide distress. Tumbling multifamily transaction rates plummeted 50% YoY by the end of 2023, highlighting the sector’s vulnerability.
Unsurprisingly, CEOs like Barry Sternlicht of Starwood (STWD) anticipate a looming distress cycle, citing a delicate balance sheet crisis as the Fed continues to grapple with a $700B load from low-rate originations, hinting at refinancing challenges for smaller borrowers.
Why It Matters
The fallout of the $2.9B deal extends beyond individual institutions like Bank of America and Washington Federal Bank. As more and more loans begin to default at or before maturity, regional bank real estate asset management strategies and regulatory compliance will remain under scrutiny.
