Weekly Real Estate News
Summary
BCB Bancorp entered agreements with six buyers to sell $205.3 million in problem loans and expects a $43.3 million pre-tax third-quarter loss. About $180.7 million of the portfolio consists of commercial and multifamily real estate loans; five of the six sales have closed.
BCB Bancorp is selling approximately $205.3 million in problem loans to six buyers and expects to take a $43.3 million pre-tax loss in the third quarter, a balance-sheet cleanup concentrated heavily in commercial and multifamily real estate.
The Bayonne, New Jersey-based parent of BCB Community Bank entered definitive agreements with six separate purchasers between Sept. 21 and Sept. 24, according to the company’s SEC filings and investor-relations disclosures. Five of the six transactions have closed. BCB expects the final sale to close before the end of the third quarter.
The real-estate exposure accounts for most of what is being moved off the bank’s books. The portfolios contain approximately $180.7 million in commercial and multifamily real estate loans, $14.8 million in commercial-and-industrial loans and $9.8 million in construction loans, measured by unpaid principal balance as of June 30.
That means roughly 88% of the $205.3 million being sold is tied to commercial and multifamily real estate. Most of the loans are rated criticized or classified under BCB’s internal risk system. The bank said none of its business-express loans are included.
The $43.3 million estimated loss will be recorded in the third quarter, BCB said. Comparing that loss with the portfolio’s unpaid principal balance produces a figure of about 21%, but that is not the same as a disclosed sale discount: unpaid principal balance and the loans’ carrying value are different measures, and the company did not characterize the transaction that way.
BCB had already warned investors about the portfolio
The sales follow a warning from BCB earlier this month that it was marketing a large block of problem credits and expected a third-quarter loss.
On Sept. 15, when the company announced a common-stock offering and third-quarter financial update, it said the portfolio then being marketed totaled approximately $210 million in unpaid principal balance. At that point, the bank identified about $183.4 million in commercial and multifamily real estate loans, $16.7 million in commercial-and-industrial loans and $9.8 million in construction loans.
BCB said most of those credits carried internal risk ratings of either 6, or Special Mention, or 7, or Substandard. The bank had received nonbinding indications of interest covering the entire portfolio.
The definitive transactions announced Friday cover a slightly smaller pool: $205.3 million rather than the approximately $210 million originally marketed. Commercial and multifamily exposure fell from $183.4 million in the marketed portfolio to $180.7 million in the signed sales, while commercial-and-industrial exposure declined from $16.7 million to $14.8 million. Construction exposure remained at $9.8 million.
A deliberate move to remove legacy credit risk
Thomas M. O’Brien, president and CEO of BCB Bancorp and BCB Community Bank, described the transactions as part of an aggressive effort to address legacy credit problems after reassessing the bank’s risk ratings.
“We believe these sales meaningfully de-risk our balance sheet and remove a significant source of uncertainty,” O’Brien said in the company’s announcement.
BCB has also been raising capital. The company launched a public common-stock offering on Sept. 15 while simultaneously telling investors it expected a third-quarter net loss tied in part to the problem-loan strategy. The offering subsequently closed with the underwriter exercising its option for additional shares.
The timing is relevant to BCB’s broader balance-sheet restructuring, but the company’s disclosures do not establish that the equity offering was undertaken specifically to absorb the $43.3 million loss from these particular loan sales.
Hilltop Securities served as financial adviser to BCB on the loan transactions, while Arnold & Porter Kaye Scholer served as legal counsel. Each of the six sale agreements is independent, and completion of one was not conditioned on completion of another.
BCB Community Bank operates 22 branches in New Jersey and four in New York. For the commercial real estate market, the sale provides a concrete look at how one regional lender is dealing with criticized and classified property debt: rather than continuing to hold the bulk of the identified portfolio, BCB has moved to sell it and recognize the loss now.
