The fallout of the implosion of one of the biggest real estate lenders in the city is shining a light on some of the pain present in a huge swath of New York's multifamily market.

A week after the Federal Deposit Insurance Corp. took control of Signature Bank, New York Community Bancorp subsidiary Flagstar Bank agreed to buy $38.4B of the assets controlled by Signature’s receiver. But the deal doesn’t include Signature’s $35.8B commercial real estate loan portfolio or the $19.5B in multifamily loans it owns, NYCB said Monday.

Nearly half of the bank’s real estate loans were tied to multifamily rent-stabilized assets, according to a Maverick Real Estate Partners analysis. Those types of properties have seen their values drop by between 25% and 60%, Maverick said, hit by sharpened rent regulations in 2019 and the soaring investment rate environment.

That means that the FDIC now owns $11B that “from an investor point of view, these are dead assets, Whalen Global Advisors Chairman Christopher Whalen told Bloomberg this week, calling them “toxic waste.”

JPMorgan Chase Managing Director of Originations Brooke Richartz said Tuesday morning at Bisnow's New York Multifamily Development and Investment conference that she is certain the loans will find a buyer, rather than languish in receivership for an extended period.

“If you look at who acquired them, they also have a really large real estate book — I'm sure that was part of it. But I'm confident there are plenty of investors in the market that will see something there,” she said at the conference, held at the New York City Bar Association in Midtown. “It shows that, overall, the other banks are out there. They're looking to help each other out.”

Fairstead Development Managing Partner Brett Meringoff agreed Signature's sale, though partial, was a positive step for the industry.

“I think it's a great sign of stability, protection for depositors, creditors and the bank overall,” he said at the event.

Panelists said Tuesday that uncertainty, market volatility and the Federal Reserve’s rate hike campaign in recent months is causing major challenges for investors. This banking crisis is just the latest curveball for the market to absorb at a time of already-reduced lending for commercial real estate.

"We're definitely gonna see more regulation of banks," Meridian Capital Group Senior Managing Director Morris Betesh told the audience. "So if banks were a little loose with lending standards or their capital ratios, they're probably going to be expected to tighten up, which will reduce the availability of capital and the risk that lenders are taking."

Treasury Secretary Janet Yellen said Tuesday the government would help smaller banks if needed, The New York Times reported. Nearly 190 banks could collapse if just 50% of their uninsured deposits were withdrawn by customers, according to a Social Science Research Network report released last week. Some lawmakers are now considering if the $250K insurance cap should be lifted.

Amid the tumult, however, some opportunities are presenting themselves for real estate players.

“Every day this over the past week and a half, we've had some sort of conversations about taking advantage of how the pendulum is going from left to right,” said John Gilmore, a managing director in Walker & Dunlop’s multifamily finance group. “Two weeks ago, we're probably looking at all-in rates that were 50-60 basis points higher. Now we're definitely inside of that.”

Alternative lenders, too, have been looking to take advantage of the banks’ withdrawal from the market. NewPoint Real Estate Capital Senior Managing Director John Motzelat said his firm has started offering fixed-rate bridge loans to borrowers looking to wait until rates come back down to start locking in long-term mortgages.

But while creative alternative loan structures might help borrowers buy time, a deeper issue in the current environment is the effect those interest rates are having on real estate values and transactions.

"There's a lot of equity just sitting on the sidelines,” Walker & Dunlop’s Gilmore said. "[Investors] just trying to assess when the Fed does stop raising rates and where they can find an attractive yield that they can feel good about investing their dollars."

Fairstead’s Meringoff agreed risk factors in underwriting means investors are scrutinizing deals with far more rigor than before.

“We have seen investors in the market-rate equity side or multifamily equity side start to be a lot more selective,” he said. “There's a little bit more of a challenge in the marketplace still that needs to be worked out regarding price discovery.”

Market rate apartment rents have soared in New York since the worst of the pandemic, but so have taxes and costs. Plus, rate volatility is eroding some of those benefits.

“A lot of investors are just revisiting transactions,” Richartz, of JPMorgan, said. “Folks are willing to acquire new properties with negative leverage because they're banking on that upside in New York in the future. But the volatility is making it challenging for a lot of folks to make decisions.”