The Federal Deposit Insurance Corp. has started spreading the word that it will take bids on $51 billion in loans held in receivership following the failure of New York-based Signature Bank earlier this year, sales that are expected to test commercial real estate investment demand.
The debt up for sale includes $33.22 billion in commercial real estate loans and $18.5 billion in loans made to private equity firms for use in their investment activity, which could include real estate.
The portfolio listing is expected to provide a sense of interest in property debt during a time of higher interest rates and economic uncertainty. A purchase could result in one of the largest commercial real estate loan sales completed by the FDIC going back to the Great Recession of 2007-09, according to data from the banking agency.
The largest individual commercial real estate loan sale completed by the FDIC since 2008 involved a $448 million portfolio of more than 1,650 loans sold in 2015.
In selling large loan portfolios, the FDIC generally breaks down the total portfolio into smaller pools to attract a wider range of buyers, which accounts for the smaller size of portfolios sold. In addition, sales of portfolios by large banks are less common.
The banking crisis of 2008 resulted in multiple bank failures but few as large as the demise of Signature Bank and Silicon Valley Bank, which had their assets seized by the federal government this past spring.
Of the 523 bank failures since 2008, FDIC figures show only one was larger than the collapse of either Signature Bank or Silicon Valley Bank.
Most of the Signature Bank commercial real estate loans being marketed are tied to multifamily properties primarily located in New York City, according to the FDIC. Such loans have been an active investment target for debt funds and mortgage real estate investment trusts. Debt funds have nearly $41.7 billion in free investment capital to spend, according to Newmark, the real estate firm hired to sell the portfolio.
“The sale process should provide insight into the [commercial real estate] market including current commercial property and loan values, as well as investor appetite,” according to analysts at investment banking firm Keefe, Bruyette & Woods, in a copy of their report emailed to CoStar News. “Considering the portfolio’s size, there's likely only a small group of potential large acquirers.”
Who’s Interested?
When the FDIC sold the assets of Silicon Valley Bank, bidders included primarily commercial banks but also private equity firms such as Angelo Gordon, Apollo Global Management, Lido Advisors, Reverence Capital, Sixth Street Partners and a joint venture between Blackstone Group and Liberty Capital, according to FDIC data. First Citizens Bank & Trust of Raleigh, North Carolina, was the winning bidder.
Other buyers of loans and assets sold in the wake of 2023’s banking turmoil include Ares Management, Kennedy Wilson, Fairfax Financial Holdings and Cain International, all of which acquired loan portfolios from Pacific Western Bancorp. PacWest experienced similar problems as Signature Bank and Silicon Valley Bank before agreeing to a merger with Banc of California.
This past month, Fortress Investment Group bought about $1 billion of New York City office loans from Capital One.
In July, Newmark arranged the sale of an $80 million Webster Bank commercial real estate loan portfolio to three individual buyers, including an unnamed bank and debt fund and Directed Capital, a Florida-based real estate finance firm, according to Newmark.
Newmark declined to comment to CoStar News.
Affordable Housing Focus
The Signature Bank loans will probably go to multiple different buyers as it is being broken up into 14 pools, the largest being geared to buyers in the affordable housing finance segment.
About $15 billion of the Signature Bank loans being sold are secured by multifamily residences that are rent stabilized or rent controlled, a factor that could play into who acquires them.
The FDIC has a statutory obligation, among other factors, to maximize the preservation of the availability and affordability of residential property for low- and moderate-income individuals, according to the FDIC. The agency plans to place the rent-stabilized or rent-controlled loans in one or more joint ventures while retaining a majority equity interest.
For this subset of the portfolio, the FDIC worked with New York City and New York state housing authorities, as well as community-based organizations, to obtain their input on its marketing and disposition strategy.
The FDIC expects the process to take place over the next three months with transactions completed by year-end 2023.
The commercial real estate loans up for sale total 5,137 with an unpaid principal balance of about $33.22 billion. The loans will be offered in 14 pools: 12 joint-venture pools ranging from $267.54 million to $5.92 billion and two all-cash pools at $309.26 million and $899.06 million.
The 14 pools comprise four that are mixed commercial real estate, including market-rate multifamily, and 10 that are tied to rent-controlled or rent-stabilized properties.
Apart from multifamily, other collateral for the loans includes retail, office, mixed-use, industrial, healthcare, hospitality, self-storage and other commercial real estate properties.
Up for sale separately are $18.5 billion in loans comprising 201 loans made to private equity funds and offered in four pools. The portfolio has $14.7 billion of associated unfunded commitments. Bidders for these loans will be limited to FDIC-insured depository institutions or commercial banks that are not competitors of the borrowers.