Limited clarity expected from pending Signature Bank loan portfolio sale
By Samantha Rowan
The pending sale of Signature Bank’s $33.2 billion commercial and multifamily real estate loan portfolio is not expected to provide significant clarity around pricing and valuation to lenders and investors or be a major catalyst to restarting transaction activity, according to market participants who spoke to Real Estate Capital USA this week. The Federal Deposit Insurance Corporation, which took over the failed bank in May, kicked off the bidding process for the New York-based institution’s loan book September 5 via advisory Newmark.
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Adam Leitman Bailey, a New York-based attorney who is the founder of a firm bearing his name, says the impact of the affordable housing loans in the portfolio is part of what makes transaction so complex. “Signature Bank’s problems actually began on June 14, 2019, when the New York State legislature passed the Housing Stability and Tenant Protection Act of 2019,” Bailey says. “Signature was a leader in funding loans on loans on rent regulated housing, a form of government mandated affordable housing, and the legislation prevented all landlords from deregulating apartments from rent-regulated to free market, and it also made it impossible, even when a unit was vacated, to raise the rents more than nominally. “That was the death knell for the owners of these buildings and their ability to pay back these loans.”
Bailey has been working with potential buyers to complete due diligence on these loans and noted there are a variety of performance issues. “Many of the sponsors are ready to hand in the keys but others are not giving up,” he adds. “Some of the properties are under water and some are not.”
Ultimately, expectations are that the portfolio will be sold to one or two large, institutional owners. But the new owners will be facing the same types of issues, Bailey says.
“Once the law was passed, landlords tried to get by on reserves or refinancing when rates were still low. But when rates increased, the game changed. Challenges to the 2019 law failed, the reserves were done and sponsors could not sell their buildings at decent prices.”
Like many of his peers, Bailey is not expecting a significant impact from the sale. “I don’t know how much of an effect it will have,” he adds.