Garnet Capital Advisors Blog

EXCERPT:

In the past, lenders would typically only sell distressed commercial credits. Yet with heightened regulations and scrutiny on concentration risk, some bank lenders are selling performing CRE loans in order to decrease their CRE concentrations. Secondary market sales have become more routine and have helped make the sale of CRE loans more acceptable.


Commercial real estate loans are more routinely being sold in secondary markets, which has become more acceptable as of late.

The concentration of CRE assets on lenders' books is changing, largely as a result of increased regulatory pressure on CRE lending.

In the past, financial institutions would sell off distressed loans and credit assets in an effort to improve the balance sheet. However, with heightened regulations putting a focus on risk, some lenders are beginning to sell off performing CRE loans to diversify their portfolio.

CRE lending has long been important business in the banking industry, and CRE practices play a key role in the growth of bank profits as well as the overall U.S. economy. However, without adequate risk management, banks are vulnerable to significant losses.

During times of peaks and declines in the real estate market, lenders with heavy concentrations of CRE loans can undergo a great deal of difficulty. While lenders cannot control the cyclical nature of the real estate market, they can stick to prudent lending practices and remain compliant with regulations in order to mitigate the risks of high concentrations of CRE lending.

While financial institutions sell non-performing loans to rid their loan portfolios of unwanted assets and subsequently improve their book values, they have been increasingly selling performing CRE loans. In addition to increased regulatory scrutiny being a large reason for such sell-offs, there are other potential reasons for selling performing CRE loans, including deploying capital more strategically, lowering concentration exposure, and distributing surplus loan origination capacity.


Increased regulations are putting lenders in a position to scale back their CRE loan concentrations.

Selling loans for strategic purposes has become a more widely practiced and accepted activity. Banks previously have been concerned that the industry would view the selling of performing loan assets as a sign of weakness. Such reputational barriers can restrict a certain amount of access to the secondary market.

Secondary market sales have increasingly become a key component of many lenders' commercial mortgage lending tactics, which has made the selling of CRE loans more acceptable and even more commonplace. In fact, selling whole CRE loans can be more beneficial than loans that are generated for sale to commercial mortgage platforms.

As of December 24, risk retention requirements according to regulations based on the Dodd-Frank Act come into effect for banks that sell CRE loan assets to firms that play a key role in the commercial mortgage-backed securities (CMBS) realm.

Loan Sale Advisors - Getting Deals Closed in a Profitable and Compliant Manner

When it comes to the successful sale of CRE assets, razor-sharp pricing and strategic sale execution are key components. At Garnet Capital, our loan sale advisory team provides lenders with accurate valuations and access to valuable networks with qualified buyers. This critical combination provides loan sellers with the assurance that their loan portfolios will trade at anticipated pricing levels.

Garnet Capital deals close during the projected time frame and at projected price points. All information is gathered and verified before any transaction starts in order to ensure that seller clients are in the market at the right price with their assets, and buyers appreciate this in-depth process and are therefore more willing to close a deal with Garnet.

Register for our online portfolio auction system to find out more about the loan sale advisors services at Garnet Capital.