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HomeStreet Bank, a Seattle-based lender, is making a significant move to shore up its financial position by selling nearly $990 million of its multifamily commercial real estate loans to Bank of America (BofA).
This strategic decision, announced Friday, aims to propel the bank back to profitability and alleviate the burden of expensive funding sources.
A deal driven by necessity
BofA has agreed to acquire the loan portfolio for approximately $906 million, reflecting a slight discount of about 8% on the loans’ face value.
According to HomeStreet, this discount accounts for “the current interest rate environment and that the loans being sold are primarily lower yielding.”
This transaction marks a critical step for HomeStreet as it endeavors to recover from four consecutive quarters of adjusted losses, and may also ease concerns after regulators blocked its planned merger with FirstSun Capital Bancorp.
The news sent shares of the bank soaring nearly 6% in early trading.
“Entering into this agreement … is the first step in implementing a new strategic plan, which we expect to result in a return to profitability for the bank and on a consolidated basis early next year,” stated HomeStreet CEO Mark Mason, as reported by Reuters.
The proceeds from the sale will be strategically utilized to repay debt taken from the Federal Home Loan Bank, as well as to reduce costly brokered deposits.
These brokered deposits, which carry higher interest rates than core deposits, have been a significant drain on the bank’s resources.
Navigating the commercial real estate landscape
The decision to offload these multifamily commercial real estate loans highlights the challenges that regional banks face in the current economic climate.
These loans, particularly those tied to apartment buildings with more than four units, have come under pressure as higher interest rates have strained borrowers’ ability to repay.
However, large banks like BofA, with their higher capital levels, adequate deposits, and smaller exposure to CRE loans, have been better positioned to withstand such market fluctuations.
Moreover, the market anticipates some relief as the Federal Reserve is expected to cut interest rates, which should ease the pressure on these loans.
A transaction on the horizon
The sale, expected to close before the end of December, will not involve a complete severing of ties.
HomeStreet will continue to service the loans, maintaining a connection to these assets despite the change in ownership.
This move represents a significant strategic shift for HomeStreet as it seeks to regain its footing and establish a more sustainable financial future, and could mark the start of a recovery.
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