Shares of First Foundation Inc. (NYSE:FFWM), a Texas-based regional bank facing commercial real-estate risks, dropped significantly on Wednesday after it received some badly needed help from a group of investors led by Fortress Investment Group.

The stock closed at $6.58 a share on Tuesday but fell 24.7% to $4.95 by mid-day on Wednesday.

Fortress, Canyon Partners, Strategic Value Bank Partners, North Reef Capital and other investors agreed to buy $228 million in common and preferred shares at $4.10 each from the Dallas bank, which has about $14 billion in assets, according to the firms, the Wall Street Journal reported.

Fortress will invest $115 million in First Foundation as part of the deal, while Canyon Partners will invest $46 million. Strategic Value and North Reef Capital plan to invest $22 million each. Fortress will own 24.9% of the bank after the deal closes, while other investors will own as much as 10%.

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The infusion is intended to give First Foundation some time to sell off certain loans, according to people close to the matter.

The commercial real-estate market has suffered as a result of higher interest rates and the rise of remote work leading to widespread declines in property values. That has increasingly threatened to leave banks with big losses, especially smaller institutions that hold higher concentrations of loans in that sector.

Higher rates have also caused the amount of interest that banks must pay up to depositors to rise, causing the value of fixed-rate securities they hold to fall.

That pressure has pushed some regional banks to find ways to raise cash, and more banks are expected to execute similar deals to boost their finances, industry executives say, according to the Journal.

Federal Reserve Chair Jerome Powell has said there will likely be more failures related to commercial real estate but that there is no risk to the broader financial system, the Journal reported.

Brighter Outlook

D.A. Davidson & Co. raised its outlook on First Foundation following the announced capital raise, upgrading the stock from Neutral to Buy and raising the price target from $6.57 to $9.

"While near term profitability remains under pressure, we view the raise as a clearing event, allowing the company the capacity to sell loans, reducing concentration levels and earnings pressure, and build its [allowance for credit losses], while maintaining solid capital levels," analyst Gary Tenner said in a note on Wednesday. "Announced $228M equity investment provides balance sheet flexibility and capital boost."

ETF Price Action

Retail bank exchange-traded funds also fell by Wednesday's mid-day trading.

SPDR S&P Regional Banking ETF (NYSE:KRE) slipped 1.29%, Direxion Daily Regional Banks Bull 3X Shares ETF (NYSE:DPST) fell 3.89% and iShares U.S. Regional Banks ETF (NYSE:IAT) declined 0.95%.

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