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Managing CRE Loan Risks Through Portfolio Sales

Commercial real estate foreclosures in March were up 117% over last year, and thanks in part to higher-for-longer interest rates many borrowers and lenders now find themselves looking for a way out of the sector, especially office real estate. 

For banks, one possible exit strategy is the portfolio sale of CRE loans. This approach allows banks to divest from non-strategic, underperforming loan assets in bulk, thus minimizing potential losses and freeing up capital. 

According to a recent how-to article by Jason Alpert in The RMA Journal, the core aspects of implementing a successful portfolio sale include: 

  • Strategic Team Assembly: The success of a portfolio sale hinges on forming a multidisciplinary team that includes experts in banking workouts, legal affairs, compliance, and loan operations. 
  • Data Collection and Advisory: Accurate data gathering and analysis are critical. Engaging a third-party loan sale advisor enhances the structuring and marketing of the portfolio. 
  • Efficient Sale Process: By pooling similar loans, banks can attract more buyers, ensuring competitive bidding and better prices, thereby shortening the sales timeline. 
  • Risk and Financial Analysis: Critical to the decision-making process is a thorough risk assessment and financial analysis, including net present value (NPV) calculations, to determine the most beneficial outcomes for the bank and its shareholders. 

As banks gear up to execute portfolio sales, the operational blueprint involves extensive planning, regulatory compliance, and precise execution over a 60- to 180-day period. This meticulous approach is not just about reducing current exposures but also about positioning the bank for greater financial stability and growth. 

Strategic divestment through portfolio sales is not merely a defensive maneuver against potential losses—it can be a proactive step toward optimizing asset performance in the face of CRE market volatility. 

Read Alpert’s complete article here.