By Valley National Bancorp, the holding company behind Valley National Bank, has sold a $925 million pool of commercial real estate mortgage loans to Brookfield Asset Management. This strategic move is part of the bank’s ongoing efforts to reduce exposure to the commercial real estate sector.
- Loan Pool Size: The $925 million portfolio of commercial real estate loans was sold to Brookfield at a 1% discount to value.
- Servicing Responsibilities: Valley National Bank will retain servicing responsibilities for the loans post-sale, ensuring continuity for the customers involved.
- Immaterial Loss Expected: The sale is expected to result in a negligible net loss for Valley National Bank in the fourth quarter of 2024.
As of September 30, 2024, $823 million of the loan pool had already been identified and earmarked for sale as part of Valley’s strategy to manage its commercial real estate exposure.
Strategic Goals and Market Response
Valley National’s CEO, Ira Robbins, commented that the transaction helps to accelerate the company’s progress toward its balance sheet management goals. By divesting from commercial real estate loans, Valley National Bank aims to reduce risk and focus on other areas of growth, all while retaining its servicing responsibilities.
The bank’s stock price closed at $10.48 per share on December 4, slightly up from the previous year’s price of $9.29. Despite the sale, the bank remains well-capitalised with $62 billion in assets under management and a presence across multiple U.S. states, including New Jersey, New York, Florida, Alabama, California, and Illinois.
Brookfield Asset Management’s Strategic Move
Brookfield Asset Management, a global leader in alternative asset management with approximately $1 trillion in assets, is rapidly expanding its foothold in commercial real estate. The company has a diverse portfolio spanning real estate, private equity, infrastructure, renewable power, and credit sectors. With a recent move of its corporate headquarters from Toronto to New York, Brookfield is positioning itself to play a significant role in the U.S. market.
Bill Powell, Managing Partner at Brookfield, highlighted that this acquisition fits into the firm’s strategy to act as an alternative lender, offering flexible and creative capital solutions to the real estate market. Brookfield’s stock price closed at $57.49 per share, marking a 68% increase from the previous year’s value of $34.24.
Financial Context and Market Impact
This sale is notable for both companies as they continue to adapt to changing market dynamics, especially in the face of uncertainties surrounding the commercial real estate market. The bank’s decision to offload a significant portion of its real estate loan portfolio signals caution regarding potential risks in the sector, while Brookfield’s acquisition demonstrates its continued appetite for high-quality assets amid growing demand for flexible real estate financing solutions.
Both companies are expected to leverage this transaction to meet their long-term strategic objectives. For Valley, the sale helps de-risk the balance sheet, while Brookfield can capitalise on what it sees as a valuable addition to its diverse portfolio.