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Related, Blackstone-Led Groups Emerge As Likely Buyers For Signature Bank's Real Estate Loans

Blackstone and Related Fund Management are on the verge of acquiring a majority of the $33B real estate loan portfolio formerly owned by the failed Signature Bank in a deal that will illustrate how much property values have changed in some segments of the market.

The Signature Bank branch on Madison Avenue in Manhattan.

Roughly half of the loans are associated with rent-stabilized residential properties in New York City. The Federal Deposit Insurance Corp., as mandated by law, is reportedly offering a 5% stake in the assets to ensure it can preserve the properties' affordability.

A venture of two nonprofits and Related Fund Management has the leading bid, which is less than 70 cents of the loans' face value, for the rent-stabilized loans, The Wall Street Journal reports, citing sources familiar with the deal. A winning bidder could be announced as early as Monday, according to the WSJ.

The discount reflects the fact that values for New York’s stock of rent-regulated apartments have declined as the sector has been stressed by market and regulatory forces.

The squeeze on stabilized properties began as tenants couldn't pay their rent during the early stages of the pandemic. At the same time, maintenance costs, insurance prices and property taxes increased. In 2019, New York state enacted the Housing Stability and Tenant Protection Act, which meant that landlords generally couldn’t raise rents to cover costs.

Investment giant Blackstone, along with Rialto Capital, is on the verge of acquiring the other half of the Signature loan portfolio, totaling $17B. That set of loans is backed by office, industrial, retail and nonstabilized residential properties, Bloomberg reports.

The deal isn't final yet, with regulators still working out the details. Until the ink is dry, another bidder could come away victorious. 

Bids for those loans were due earlier this month and were expected to come in at 15% to 40% lower than the loans' original face value.

The discounted bids for both parts of the portfolio, as well as a shortage of interest, are indicative of the struggles facing much of the commercial property market. The level to which the loans are discounted will offer new insight into how much values have fallen, the WSJ reported.