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Signature Bank’s Loans Have Sold. What Comes Next Will Be The Market's True Test

When the Federal Deposit Insurance Corp. sold equity stakes in loan portfolios previously owned by Signature Bank, many players hoped that the winning bids would offer some insight into how valuations have shifted in New York City.

But the final sale prices don’t offer concrete indications as to how asset values have changed since the start of the pandemic, brokers and experts told Bisnow. The result is prolonged discomfort for owners hoping to refinance or sell their buildings and extended periods of due diligence by lenders amid ongoing questions of what properties are actually worth.

“It's just this unknown of how this is going to all shake out,” said Matt Cosentino, a partner at Brooklyn brokerage TerraCRG. “Until we get some more clarity, I think this is going to continue the state of anxiety.”


Market insiders said they are more closely watching as a price signal what happens when the winning bidders start to break up the portfolios and sell or foreclose on individual assets. 

“I'm interested in seeing what the buyers — not the FDIC’s retained portions, but the institutional managers — are then going to plan to sell off,” Altus Group Director of Research Omar Eltorai told Bisnow. “They're going to start carving up those portfolios.”

The seven-week bidding process, filled with swirling rumors over winning bids and threats of legal action, ended just before the holidays when the FDIC revealed the winning bids of its auctions for Signature’s loan pools.

One portfolio went to a joint venture led by Blackstone and the Canada Pension Plan Investment Board, putting up $1.2B for a 20% stake in the $17B loan pool covering offices, retail and market-rate apartments in the New York metro area.

Community Preservation Corp., along with another nonprofit and Related Fund Management, won a 5% stake in a second loan portfolio worth $5.8B, the loans widely considered the closest to toxic assets. Their bid was $171M, amounting to approximately 59 cents on the dollar.

A 20% equity stake in the final chunk of the failed bank's loans, worth $9B total, went to Santander Bank for $1.1B. The whole loan portfolio is backed by rent-stabilized and rent-controlled housing, with Santander’s purchase broken down into three pools.

“I think it probably was higher than what I expected to see,” David Schechtman, a senior executive managing director at Meridian Capital, said of the winning bids. “I don't think they're outlandish.”

If a bid was 70 cents on the dollar, he said, that bid covers both properties that are worth more than 70 cents on the dollar and properties that are worth less. As a result, the winners stand to turn a profit within a few years, Schechtman said.

“Let's take the thin veil off of it: Nobody was bidding on these with altruistic purposes,” he said. “Whoever's bidding on this is looking to buy these loans at a number and then make money off of it.”

The former Signature Bank branch on Madison Avenue in Manhattan.

Investors had spent since at least September hoping that the auctions would clarify property values, reducing some of the risk for investors.

“I think [the Signature Bank loan sales] will be an important price signal, and we will see more loan sale activity,” Nishant Nadella, managing director at 3650 REIT, said at a Bisnow event in September. “Unlike the GFC — where it was just the liquidity crisis, and good assets were being thrown away — today is an asset reset.”

But lenders, investors and brokers haven't found the long-awaited pricing signals amid auction results.

“I don't think it was the bellwether on values in our New York City market that many expected it to be, at least so far,” said Victor Sozio, one of the founding partners at Ariel Property Advisors. “It really hasn't played out in a way that is in any way indicative of where values are in New York City.”

The mix of asset types covered — with some pools covering office, retail and free-market multifamily in one go, and others covering rent-stabilized or rent-controlled properties — obfuscates the values, Cosentino said.

“Unfortunately, the pools were so large that it's really hard to make much of them, and they’re so varied,” he said. “It's very hard to know what value was placed on those assets, and it probably is going to be a lot more interesting on the second sale, when they sell these things again or when assets start being foreclosed on.”

The sales from the auction are unlikely to prompt a surge in lending and selling activity — and were never likely to with interest rates still elevated, said Eric Orenstein, Rosenberg & Estis member attorney.

Additionally, changes to rental laws under the Housing Stability and Tenant Protection Act of 2019 created financial problems for rent-stabilized owners that still need to be resolved by the loan note sales, he said. CPC and the FDIC set aside a $550M fund to assist borrowers in their pool of loans, The Real Deal reported.

Avison Young's Scott Singer, Invesco's Yorick Starr, Cortland's Jan LaChapelle, Altus Group's Omar Eltorai and Lev's Donald Pavlov

“These sales are distressed sales, so they're not real, true market-value sales,” Orenstein said. “I don't see the FDIC sales of the Signature loans — especially as we're talking about New York City loans — as any harbinger of how things are now going to shake out, because I think the problem is so much deeper than that.” 

Cosentino said the market will likely remain in wait-and-see territory over the next few months. Some owners are underwater and trying to give assets back to lenders that don’t want to own them — which is a dynamic that might continue over the coming months, he said.

“I think the hope is that when these Signature loans get sold a second time, it'll reset the market,” he said. “Hopefully, they'll be able to do some workouts and help and get these loans to be at a more performing level.”

Properties will likely fall into three buckets, Altus Group's Eltorai said: performing, nonperforming and those that still have the potential to perform. The double-digit discount on initial values is a signal to the market, he said, but descriptions of the loans as “toxic waste” may have been an overstatement. 

“The bidders were large institutional managers that were able to do diligence, and ultimately, they're putting capital towards it,” he said. “Those are clear price signals that the bottom hasn't fallen out of appetite for CRE and CRE debt.”