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BofA Buys $2.9B in Multifamily Loans From Washington Federal

Washington Federal Bank is selling billions in unpaid multifamily loans to Bank of America to reduce its CRE exposure.

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Good morning. Washington Federal Bank is selling billions in unpaid multifamily loans to Bank of America to reduce its CRE exposure. Plus, retail space availability has fallen to historic lows this year.

Today’s issue is brought to you by FNRP—grow your wealth with grocery-anchored, multifamily, and industrial commercial real estate.

Market Snapshot

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*Data as of 5/20/2024 market close.

REGIONAL RISK

Washington Federal Bank Sells $3.2B in Multifamily Loans to Bank of America

Washington Federal Bank (WAFD) is offloading 2K multifamily loans with an unpaid principal balance of $3.2B to Bank of America (BAC) for $2.9B.

Why it happened: The sale aims to reduce Washington Federal's exposure to the CRE sector, as detailed in a filing by its parent company, WaFd. Bank of America's acquisition of the loans for $2.9B is likely to be purely opportunistic rather than due to any long-term interest in the debt.

Structured transaction: Upon completing the acquisition, Bank of America intends to engage in a structured transaction or loan sale with one or more funds managed by Pacific Investment Management  Co. (ALIZY). This points to a potential secondary market activity for these multifamily loans post-acquisition, although Bank of America didn’t disclose details.

Between the lines: "Multifamily properties are now under intense scrutiny," stated Barry Sternlicht, CEO of Starwood Capital Group, at the recent Milken Institute conference. He warned of a "balance sheet crisis" among regional banks, which hold approximately $700 billion in real estate loans issued in a low-interest-rate environment.

➥ THE TAKEAWAY

Balancing the portfolio: According to Bloomberg, WaFD surpassed two key thresholds last September, which triggered increased federal regulatory scrutiny: commercial real estate loan portfolios exceeding three times their capital and CRE loan portfolios growing by at least 50% over the past three years. The sale highlights the growing pressure on regional banks to manage their exposure to high-risk commercial real estate loans.

TOGETHER WITH FNRP

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*Cash Distributions and any specific returns are not guaranteed. NOTE: Past performance and past distributions to investors may not be indicative of future results. An investment in real estate is speculative and subject to risk and as such there can be neither any assurance as to the final results of any such specific investment nor can there be any assurance that any investment strategy into securities offered by FNRP will achieve specific investment goals. Securities are only available to verified accredited investors who can bear the loss of their investment. 


✍️ Editor’s Picks

  • The Fort podcast: Don Tepman, known as 'StripMallGuy' on X and LinkedIn, discusses his real estate fund specializing in US strip centers, what makes a successful strip mall acquisition, and more.

  • Better metrics: To better gauge the health of supply chains, the NY Fed is launching new “Supply Availability Indexes” that will measure disruption spread, availability, and inflationary pressures.

  • Bigger banks: Independent Bank, a McKinney-based bank with roots in the 1980s, will be acquired by a Florida bank, creating a combined entity with $65 billion in total assets, significantly impacting the Dallas-Fort Worth banking market.

  • The greenback: The US dollar's earlier rally has reversed, with the currency now on track for its first down month of 2024, as investors anticipate that easing inflation will prompt the Federal Reserve to cut interest rates.

  • Cashing out: Two PE firms that acquired Cushman & Wakefield and helped it become one of the world's top three commercial real estate services firms are now planning to exit their investment.

🏘️ MULTIFAMILY

  • Developer delight: Florida Gov. Ron DeSantis signed amendments to the Live Local Act, offering increased tax breaks and reduced parking for affordable housing projects.

  • Block-by-block brilliance: San Francisco landlord Neveo Mosser predicts the rest of 2024 will be a year of opportunity for MF amid market disruptions from institutional capital influx.

  • WeHo living: Vitruvian Development Group is planning a 27-unit West Hollywood apartment complex with ground-floor shops, affordable housing, and parking.

  • Georgia on my mind: Viking Capital bought Dawson Forest, a 268-unit community in Dawsonville, GA, for $52M. Nearly 70% of the units are scheduled for capital improvements.

  • Bright spot: Resia secured a $71 million construction loan for a 420-unit apartment complex in Golden Glades, highlighting South Florida's resilience amid the nationwide financing slump.

🏭 Industrial

  • Western warehouse wave: Amazon has signed a new lease for nearly 1.2 million square feet of Class A industrial space in Southern California's Inland Empire with CapRock Partners, marking its third million-square-foot lease this year.

  • Dynamite data centers: North America's leasing rates hit a record high of 84.3% in 1Q24, with preleased construction at a healthy 83%.

  • Major lease: W. P. Carey has secured the largest industrial lease in Chicago for 2024, a 1.6 million-square-foot lease at 701 Central Ave. in University Park.

🏬 RETAIL

  • Recycling property: The closed Macy's (M) store at Bayfair Center in San Leandro will become a 260KSF R&D hub in a 400KSF innovation center.

  • Dying breed: Darden Restaurants’ (DRI) Red Lobster chain finally files for Chapter 11 bankruptcy with $1B debt and $2B in revenue and plans to close 50–100 restaurants in the near future.

  • Retail revival: US retail store closings are up by 24% YoY to 3,234, while openings are down 4% to 3,749, with the nationwide retail vacancy rate at 4.1%.

🏢 OFFICE

  • Silicon beach shakeout: Playa Vista's office market, once booming with tech giants like Google (GOOGL) and Walmart (WMT), now faces a 30.4% vacancy rate.

  • Refinancing resilience: Columbia Property Trust (CXP) secured a loan extension on $1.7B in debt for a 5.5MSF portfolio, reducing its value to $1.6B.

  • Follow the lawyers: RXR faces a $315M pre-foreclosure lawsuit from MassMutual (MCI) for defaulting on a loan secured by 340 Madison Avenue.

  • Here to stay: JBG Smith is ready to spend $40M renovating its outdated offices at 2011 Crystal Drive at National Lending in Arlington, an interesting move given its pivot towards multifamily.

🏨 HOSPITALITY

  • Buyout bonanza: A private equity firm and Pyramid Global Hospitality bought the 39-acre Arizona Biltmore hotel and resort in Phoenix for $705M.

  • Coney Casino: Manhattan's Thor Equities reveals its bid for the coveted NYC casino license, part of trio up for grabs next year, with a bold plan to restore Coney Island to its former glory.

  • Portfolio perseverance: Landsec's net assets dropped by £625M to around £6.4B, with a 6.9% decline in the firm’s central London portfolio value.

  • Skyscraper saga: Serbia approved a $500M luxury development led by Jared Kushner's Affinity Partners on a former defense ministry site.

📈 CHART OF THE DAY

This year’s ICSC Las Vegas revealed that retail space availability was top of mind among attendees, according to CoStar. In fact, retail space availability has fallen to historic lows this year, just a hairsbreadth above 4.5%, down for nearly 10 years straight (with a slight reprieve in the pandemic years) from 7.5% in 2014.


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