Washington Federal Bank to Sell 2,000 Commercial Real Estate Loans to Bank of America

Washington Federal Bank, a wholly owned subsidiary of WaFd, has disclosed its agreement to sell some commercial multi-family real estate loans to Bank of America for about $2.9 billion.

WaFd said in a Friday (May 17) filing with the Securities and Exchange Commission (SEC) that the deal involves 2,000 commercial multi-family real estate loans with a current aggregate unpaid principal balance of $3.2 billion.

This move comes at a time when the commercial real estate sector has been troubled, and the deal helps Washington Federal Bank reduce its exposure to that market, Reuters reported Friday.

The commercial real estate sector has been challenged by both higher borrowing costs and lower occupancy rates, causing concern among investors and regulators, according to the report.

The sector was one of three potential issues around financial stability highlighted by Federal Reserve Governor Lisa Cook in a speech delivered May 8.

The commercial real estate sector continues to feel the effects of the pandemic and changes in the way many people live, shop and work, Cook said. The values of multi-family properties in particular have dropped over the past year.

“All told, I view CRE [commercial real estate] risks currently as sizable but manageable, and I will be paying close attention to the sector in the short and medium run,” Cook said.

In February, JPMorgan Chase CEO Jamie Dimon told CNBC that because many property owners are already handling the current level of stress, and the challenges of lower valuations and higher interest rates are already known, only “pockets” of the commercial real estate sector will experience problems, so long as the country avoids a recession.

However, if rates go up and there is a recession, there will be more problems in the sector — and some banks will have a bigger problem in commercial real estate than others, Dimon added.

In April, Newmark CEO Barry Gosin told the Financial Times (FT) that banks are facing a $2 trillion “wall” of property debt and must reduce their exposure to commercial real estate as that debt comes due over the next three years.

“Banks will be under pressure,” Gosin said.

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