Panic Gives Way To An Uneasy Calm In New York Real Estate After Signature Collapse
It wasn't just another manic Monday for New York's commercial real estate professionals, many of whom spent the beginning of their week worrying about the fate of their loans after the city's third-largest CRE lender collapsed Sunday night.
But as the week wore on, deals kept going and a sense of normality returned, even as shockwaves rolled through the markets.
“I don’t know about calm … but just the domain that I'm in, middle markets, things will trade regardless,” Stephanie Botchway, an investment sales broker at Ripco, said Thursday morning during networking at a Bisnow event in Long Island City.
Next to her, CoStar Sales Director Jamie Limberg said the last 48 hours had made a world of difference toward reassuring the market that the sky wasn’t falling.
“I landed here on Tuesday, and everybody's freaking out. Everyone canceled their meetings,” she said. “Now it's like, ‘No, it's OK.’”
There is no doubt Signature Bank, which was taken over by the Federal Deposit Insurance Corp. and reopened Monday as Signature Bridge Bank, was a pillar of the city’s real estate landscape. The bank had a $35.2B commercial real estate portfolio, $25.5B of which was on loans properties in New York City, according to a Trepp analysis. It makes up 12% of the bank commercial real estate lending market in the city, by Trepp’s estimates.
It issued $13.3B across more than 800 loans since January 2020, behind only Wells Fargo and JPMorgan Chase in terms of dollar volume and No. 1 in terms of deal volume. Signature’s failure was partially fueled by commercial real estate investors, skittish watching the collapse of Silicon Valley Bank play out Thursday and Friday, pulled their deposits out of Signature by the billions over the weekend, The Wall Street Journal reported.
“The bank will continue to take care of its clients, providing a full suite of loan, deposit, and banking services,” Signature Bridge Bank leaders said in an email Tuesday.
That may be so — but the fog of uncertainty is yet to clear, Adler & Stachenfeld Managing Partner Terri Adler said in an interview.
“Once the government stepped in and said, 'Depositors don't have to worry,' everybody that had their money in those banks calmed down. What's happening now is we're having conversations … [asking] 'Who are we talking to about these deals that they own or in the pipeline and who are they getting sold to? And are they going to honor the obligation under the various loans or other positions they hold?'" Adler said.
No longer is the worry about money disappearing, she added, but rather about how Signature could behave as a counterparty.
“I think the government, if I had to guess, is going to act fairly quickly. I don't think they can allow the uncertainty. You've got the market wildly swinging … There's so much volatility, uncertainty about the next interest rate raise,” she said. “All of that breeds anxiety. So I think on something like Signature, they will have to act quickly.”
The FDIC is now offering Signature Bridge Bank for sale, and bidders need to have an offer on the table by the end of the week, Reuters reported. The FDIC is looking to sell both SVB and Signature in their entirety, although parts of the companies could be offered for sale if that doesn't work out.
“As long as the depositors are OK, that will, I think, lead to a certain level of calmness within the industry,” said Bob Knakal, the head of New York Private Capital Group at JLL.
Knakal told Bisnow that Signature Bridge assured three of his clients that had loans with Signature that commitments that had been agreed to would be met.
“We had a client with a construction loan that was 90% funded, they were concerned about getting the other 10% and they were told that there would be no problem getting that 10%,” he said. “Those are very positive things. You know, I have some clients that have loans with Signature and they're concerned and I say, ‘Don't be concerned, make your loan payments, you don't have anything to worry about.’”
The bigger worry now is about the long-term impact. Signature, like many of the regional banks real estate investors regularly do business with, is considered a “relationship” bank — the type of outfit that has a person on the other end of the phone.
“A lot of the angst, I think, borrowers have is ‘I did this one with Signature, what's going to happen, you know, because if its loans get sold off to a third party, who am I dealing with?’” said Eric Orenstein, a leader of the transactional group at Rosenberg & Estis.
Much of his week has been spent advising his clients on what to do about cash deposits managed by Signature, and considering what — if anything — to do with the letters of credit the bank provided many office and retail tenants for their leases.
He was quick to point out, however, that the collapses shouldn’t damage broader faith in regional banks.
“People have to really step back and say, ‘Yeah, Signature had an issue. Yes, Silicon Valley Bank had an issue. Yes, there's one or two other banks that have been named on a watchlist.’ But that doesn't mean every regional bank is in the same position,” he said. “People just need to be careful and calculated and what they're doing and then educated as to what's going on and why things are going on.”
On Thursday, shares in First Republic tanked 20%, and rose swiftly on the news it is considering a sale. Shortly after markets closed, 11 banks deposited $30B into First Republic in an effort to shore up its liquidity and prevent further contagion, the WSJ reported.
Concerns the panic would spread globally began to emerge when shares in Credit Suisse plunged, forcing Swiss National Bank to offer more than $50B as a vote of confidence, though it said the events in the U.S. don't “pose a direct risk of contagion” to Switzerland, according to the Associated Press.
Smaller banks face less regulation than the larger ones, and Orenstein said loosening of restrictions under the prior administration is a major cause of demise of both SVB and Signature. Federal lawmakers have already introduced legislation to bring back those restrictions.
“It’s just an example of, Yes, nobody wants regulation, but sometimes you need it because this isn't good for anybody,” Orenstein said.
After regulators stepped in, there are now questions swirling around whether they will force the rollout of a tougher set of regulations for banks like Signature. That may be a good thing, Adler said, because companies like Signature are so valuable to the banking ecosystem.
"The liquidity requirements didn't cut it. There'll be some adjustments to try to restore whatever faith people need in those regional banks, because regional banks are very important for people for industries like real estate," she said, adding she believes the events of the last week could encourage more people to take stock of their banking practices.
“A good and healthy thing that's happening is that everybody is looking at their bank and saying, ‘Wait, I have all my money at XYZ bank. Maybe I need to have two accounts,'" Adler said. "People will now have multiple accounts, they'll be more conscious of where their money's held.”
Still, hopes began blooming this week that the Federal Reserve may temper its rate increases, and real estate players were quick to point out that moments of uncertainty create new opportunities.
JLL co-head of New York City Capital Markets Michael Gigliotti said he has closed at least one financing deal this week with an insurance company, which wasn't affected at all by the events of the last week.
"These two banks failing, it's not reflective of a systemic financial system risk … [it was] short-term money being invested in long-term money. That was a big mistake,” Gigliotti said. “Rates are going up and up and up and up for, you know, over a year now, and this thing could actually cause them to go down , so there's a chance that it turns out to be a good thing for the rest of the people that didn't make these mistakes.”
For some, the swift, sudden nature of two bank collapses may only help drive forward a stagnant market.
"People have been hesitant to sell their assets … on the sidelines waiting and saying, 'Oh, interest rates are going to go down,'" said Botchway, the Ripco broker. "Something like this happens, it's like, 'OK, no more waiting, it's time for us to sell.'"