Morgan Stanley Eyes $700M of Signature’s Distressed CRE Loans

Morgan Stanley (MS) may soon acquire $700M of Signature Bank’s distressed CRE loans. The portfolio was originally held by a consortium that included Blackstone (BX) Canada Pension Plan Investment Board and Rialto Capital.

Setting The Scene

In 2023, Signature Bank was among three banks, including Silicon Valley Bank and First Republic Bank, closed by the Federal Deposit Insurance Corporation (FDIC). The closures were triggered by the banks’ failure to hedge against rising interest rates, which led to significant devaluations in their bond assets. Consequently, the FDIC put Signature Bank’s $33 billion CRE loan portfolio, largely comprising multifamily properties, up for sale.

The First Bid

The group led by Blackstone won a 20% stake in nearly $17 billion of Signature loans in December 2023. Surprisingly, they opted to sell that portion in January, prompting speculation about their motives. Concerns in November 2023 suggested that Signature’s portfolio might sell at 15% to 40% below face value due to market uncertainties and a lack of price discovery.

Large transactions like these often impact broader markets. According to Matt Reidy, director of commercial real estate economics for Moody’s, such sales set prices for existing loans and influence market valuations. Depending on the underlying loans and their performance, the impact varies across different markets.

Why It Matters

For Morgan Stanley, this acquisition could serve as a strategic hedge. The firm positions itself for a rebound in CRE by purchasing these properties at potentially lower prices for future property acquisitions. As Bloomberg noted, transactions like Signature’s loan sales clarify property values and debt worth, influencing market outlook and health.