First Foundation plunges as 'unexpected' fundraise puts real estate loans in focus (updated)

First Foundation

03/07/2024 12:20

(Adds detail on First Foundation's loan portfolio in paragraphs
4-5, other details in paragraphs 10-12)
       July 3 (Reuters) - First Foundation  FFWM.N  shares
slumped 28% in premarket trading on Wednesday after the
Texas-based lender with a huge portfolio of multifamily real
estate loans disclosed a $228 million "unexpected" capital
raise.
    Banks' exposure to commercial real estate (CRE) loans has
rattled investors as higher-for-longer interest rates and low
occupancy due to a shift in work patterns have fanned fears of
defaults. 
    Worries about multifamily loans also crushed New York
Community Bancorp's  NYCB.N  shares, which have lost nearly
two-thirds of their value so far this year.  
    Loans secured by multifamily properties - apartment
buildings with more than four units - accounted for nearly 52%
of First Foundation's $10.1 billion portfolio as of March 31.
    It was among lenders with the biggest CRE footprints last
year, though it has pledged to reduce its multifamily
concentration over time. 
    The capital injection was led by Fortress Investment Group,
with backing from Canyon Partners, distressed debt investor
Strategic Value Bank Partners and financials-focused North Reef
Capital, among others. 
    Raymond James downgraded the First Foundation's stock to
"market perform" from "strong buy" and said the deal was
"unexpected".
    "We fundamentally did not believe the bank needed to raise
additional capital. With limited details on the plans for the
new capital and the roadmap going forward, we are forced to move
to the sidelines for now," the brokerage wrote in a note.
    Raymond James, however, said, "the worst case scenario has
now been taken off the table" because of the increased liquidity
from the deal.
    Brokerage D.A. Davidson upgraded the stock, saying the deal
would help the bank to be flexible with its balance sheet.
    First Foundation said the capital would help it shrink its
multifamily exposure, increase its allowance for credit losses
and sharpen its focus on commercial and industrial loans.
    The bank's shares have lost nearly a third of their value so
far this year.  
    

 (Reporting by Niket Nishant in Bengaluru; Editing by Shilpi
Majumdar)
 ((Niket.Nishant@thomsonreuters.com;))