Landon Capital

First Foundation plunges as 'unexpected' fundraise puts real estate loans in focus.

(Reuters) -First Foundation shares slumped 30% 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 (NYSE: NYCB)’s 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 (NYSE: FFWM)’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.

First Foundation wants to sell some of its multi-family loans but is being cautious to avoid losses from such sales, CEO Scott Kavanaugh said on a call on Wednesday.

Though the low yields from multifamily loans were hurting the bank’s earnings, “there has been no degradation in our credit whatsoever,” he said.

“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,” Raymond James wrote in a note.

The brokerage downgraded the bank’s stock by a notch and said the deal was unexpected but conceded that “the worst-case scenario has now been taken off the table” because of the increased liquidity.