Valley National Bank Offloads $1B in CRE Loans to Brookfield

As reported in GlobeSt, Valley National Bank defied widespread concerns about the declining value of commercial real estate loans by selling nearly $1B worth of performing loans to Brookfield Asset Management (BN) at only a 1% discount from their par value.

Deal Details

Federal Reserve Vice Chair for Supervision Michael Barr recently highlighted rising delinquency rates in specific segments of CRE, including office and multifamily loans. 

According to CoStar, however, Valley’s portfolio has maintained strong performance, with a delinquency rate of less than 1%, well below the national average of 1.37%.

“The sale of this performing commercial real estate loan pool has helped to accelerate progress towards our strategic balance sheet goals,” said Valley National CEO Ira Robbins.

Why So Small?

The slim markdown reflects Brookfield’s willingness to pay close to full value for high-quality assets, possibly influenced by the need to deploy capital quickly. Funds raised to capitalize on “distressed” assets can face mounting pressure from investors if the money sits idle too long.

According to Nathan Stovall, director of financial institutions research at S&P Global Market Intelligence, the CRE loan market has not seen the expected flood of distressed assets, with typical discounts for such sales in the 5–10% range.

The scarcity of discounted portfolios makes modestly marked-down assets more competitive.

Demand Outpaces Concerns

The minimal markdown reflects an investment market eager to acquire performing loans. Jared Shaw, bank equity research analyst at Barclays Capital, noted the trend:

“We have seen surprising strength regarding [CRE loan] sales. Banks have been able to sell portfolios with limited discounts, reducing exposure while improving risk profiles and market perceptions.”

Brookfield Managing Partner Bill Powell described the acquisition as “strategic” for both parties, highlighting Brookfield’s capacity to offer “creative, flexible capital solutions.”

The Bigger Picture

The sale also highlights a growing trend of banks leveraging private equity to reduce risk while maintaining capital efficiency. 

By retaining servicing rights, Valley National Bank continues to earn revenue from the loans even after offloading them, much like banks selling residential mortgages to government-backed entities like Fannie Mae (FNMA) or Freddie Mac (FMCC).

The deal underscores how traditional banks and private equity funds collaborate in a shifting financial landscape. Brookfield is among the firms adapting its approach to secure assets before the best opportunities disappear.

With this strategy, Valley National Bank and Brookfield Asset Management position themselves advantageously in the evolving CRE market.

What’s Next?

The sale is part of Valley National’s broader effort to lower its CRE capital concentration ratio to 375% by 2025. The bank has hinted at the possibility of additional sales as it continues to adjust its balance sheet in response to market conditions and regulatory guidance.

Brookfield, meanwhile, positions itself as a leading alternative lender, poised to capitalize on opportunities in the CRE sector. Both companies expressed optimism about further collaborations in the future.

As of mid-2024, Valley National held $31.4B in CRE loans, representing over half of its total assets. This deal underscores the shifting dynamics in the CRE market, with banks reducing risk while institutional investors remain eager to deploy capital in high-quality opportunities.