Commercial real estate lending

The added capital will help the New Jersey-based regional bank reduce its commercial real estate footprint faster and give it wiggle room to grow elsewhere, analysts said.

The bank, which is rebranding to Flagstar Financial, still expects to meet 2027 earnings goals, despite reduced profit projections for the next couple of years.

The bank cut its dividend, raised capital, hired multiple top executives and vowed to reduce its commercial real estate concentration after a bruising first half of 2024.

The Arkansas bank said CRE is no longer its principal growth driver, yet it is still the bank's most prominent business and a big part of its robust lending activity.

The Buffalo, New York-based bank said its commercial real estate portfolio continued to shrink, but this was more than offset by business and consumer lending.

There is a tendency to assume that banks carrying a large commercial real estate loan portfolio need to diversify. But that ignores the fact that many of those institutions have much deeper knowledge of the market than their critics.

The regional bank has already seen a large reduction in "criticized" loans, and it expects that trend to pick up as lower borrowing costs alleviate the pain in the commercial real estate sector.

The stock prices of banks that have large exposure to commercial real estate loans surged after comments from Federal Reserve Chair Jerome Powell. His remarks could be a sign that relief is coming on both sides of those banks' balance sheets.

First Foundation in Dallas recently got a $228 million capital injection led by Fortress Investment Group. Now it's announced plans to pivot away from its heavy focus on multifamily loans, which lost value as interest rates rose.

Bank OZK is the latest commercial real estate-heavy bank to announce plans to diversify its business. CEO George Gleason emphasized that he's confident in the bank's loan portfolio, but said he thinks misperceptions are dragging down the stock price.