Insiders Weigh in on Signature Bank’s Troubled Loans

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Good morning. Hope everyone had a nice weekend. If you’re feeling a bit tired today, you’re not alone. Three major holidays overlapped this year – Easter, Ramadan, and Passover – a rare event that typically occurs thrice a century. Plus, the Masters took place, making it once-in-a-millennium!

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Industry Insiders Weigh in on Signature Bank’s Troubled Real Estate Loans

New York Community Bank’s (NYCB) decision not to buy Signature Bank’s commercial real estate loans has set off alarm bells for the city’s landlords.

The aftermath: When the FDIC chose Newmark to sell Signature’s real estate loans to another buyer, several questions arose, such as the quality of these loans, potential buyers, and the impact of the sale on the rent-stabilized market. The Real Deal reached out to investors, attorneys, and workout experts to gain insights on the matter. Here’s what they found out:

How bad is bad? Signature Bank’s rent-stabilized loan book has been plagued by a variety of issues, including ties to notorious players accused of tenant harassment, loans issued to bad actors, a shallow buyer pool for distressed assets, and the 2019 rent law which made it difficult to raise rents on stabilized units and drove down property values by up to 65 percent, leading to a potential chunk of properties being at risk of delinquency and default if refinanced at today’s higher interest rates.

Who’s buying, anyway? New York Community Bank was considered as a possible buyer for Signature Bank’s loan book, but no official comment has been made. Industry insiders doubt that institutional players will buy the loans due to their risky nature. It is expected that private lenders such as debt funds or private equity firms will purchase the loans, possibly from multiple sources. This could limit restructuring options for distressed borrowers, as bidders are uncertain about how low to go.

➥ THE TAKEAWAY

The Uncle Sam question: The sale of Signature Bank’s loan book may face government oversight, as the FDIC seeks input from state and local governments to preserve affordable housing. U.S. Rep. Ritchie Torres has called for the FDIC to consult with city and state housing officials on the sale. This additional oversight may ensure loans for at-risk buildings land in responsible hands, but for property owners, it could mean prioritizing tenants’ needs over their own.

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