The U.S. Federal Deposit Insurance Corporation (FDIC) has embarked on a significant endeavor to find buyers for a substantial $33 billion commercial real estate (CRE) loan portfolio formerly owned by Signature Bank, a New York-based lender that experienced a tumultuous closure in March. This portfolio primarily consists of multi-family properties primarily situated in New York City. The FDIC’s decision to put these assets on the market has garnered attention, particularly due to the unique characteristics of this loan portfolio, including a substantial concentration of rent-stabilized properties, according to a report by Reuters.
Signature Bank’s journey to closure was marked by an exodus of depositors seeking safer financial institutions. This tumultuous episode unfolded in the spring of 2023, leading to the FDIC’s intervention and eventual decision to put the bank’s substantial CRE loan portfolio up for sale. To mitigate the fallout, New York Community Bancorp (NYCB.N) stepped in, agreeing to acquire most of the bank’s deposits, certain loan portfolios, and all 40 of Signature’s former branches. However, the sizable CRE portfolio remained a challenge, necessitating the FDIC’s move.
What sets Signature Bank’s CRE portfolio apart is its significant exposure to rent-stabilized or controlled properties. Matt Pestronk, president and co-founder of Post Brothers, a Philadelphia-based real estate developer, notes in the report that even in today’s challenging market conditions, the presence of these properties makes the FDIC sale unique and potentially attractive to investors. Pestronk states, “The FDIC sale is somewhat unique as it has a large concentration of rent-stabilized properties as collateral for the loans. Even in this environment, there are buyers of rent-stabilized buildings and lenders who make loans on them because if the underlying properties are valued at cap rates near today’s interest rates, they would be very safe investments to own as a loan or as real estate in the case the loans are not performing.”
Given its legal obligation to preserve existing affordable housing for lower-income individuals, the FDIC has a distinct plan for the rent-stabilized properties within the CRE portfolio. The agency intends to establish joint ventures in which the FDIC will retain a majority equity interest. Winning bidders for these ventures will assume the responsibility of managing and servicing the loans. However, they must adhere to specific requirements aimed at preserving the loans and safeguarding the underlying collateral. This approach reflects a commitment to balancing the interests of investors with the broader social responsibility of maintaining affordable housing in a high-demand market like New York City.
The FDIC is not pursuing this endeavor in isolation. New York City and State housing authorities, along with community groups, are actively engaged in providing input and guidance as the FDIC begins marketing the CRE loan portfolio. The agency anticipates completing the sale of the entire portfolio by the end of 2023, marking a significant milestone in its ongoing efforts to address the fallout from Signature Bank’s closure.