Limited clarity expected from pending Signature Bank loan portfolio sale 

Related Companies and Blackstone are among reported bidders for the failed bank’s commercial and multifamily lending portfolios.

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. 

Published reports indicate The Related Companies, a New York-based manager, is in pole position to acquire all or part of the portfolio. Additional reports indicate private equity giant Blackstone is a leading contender for the bank’s $17 billion commercial mortgage loan portfolio. 

While a large, high-profile portfolio, the FDIC’s involvement is what makes this transaction less important, says one New York-based lawyer who is following the sale. 

“The FDIC’s involvement skews any ability for this transaction to set any kind of market value,” the lawyer says. “Because the FDIC is backing the sale and providing the equity for the transaction, it will not be as informative as it would have been if this was the sale of a large, foreclosed portfolio. 

“In a way, it is a non-event for the market.” 

In addition to the impact of the FDIC’s support, there is also the effect of the portfolio’s large concentration of New York affordable housing properties, which are subject to complex regulations and are difficult to compare with similar assets in other markets, says Shlomo Chopp, a managing partner at New York-based distressed real estate manager Terra Strategies.

Still, the pending sale is a step toward where the market will ultimately end up. Banks will be able to use guidance from the sale to help calculate potential markdowns on their own portfolios and the pain for lenders and borrowers will continue, Chopp says.

“While there is a sense the FDIC does not want to see banks mark down their portfolio substantially, that strategy could backfire because I don’t think anyone will be buying these portfolios for 90 cents on the dollar,” Chopp adds.

Breaking down the portfolio 

An offering memorandum from Newmark outlines the breakdown of the portfolio, which has been divided into 14 pools. Twelve of those pools, ranging in size from $268 million to $5.9 billion, will be offered on a joint venture basis with the FDIC. The remaining pools, at $309 million and $899 million, will be offered on an all-cash basis.  

Additionally, six of the 12 joint venture pools are being offered with optional leverage and three of the joint venture pools will have a cash-purchase option. The two all-cash pools will be limited to bids from FDIC-insured banks and feature loans with interest rate swaps and loan participations. 

Nitin Chexal, chief executive of manager Palladius Capital Management, notes Signature Bank’s collapse was the result of a confluence of bad circumstances including historic pandemic that rendered some assets functionally obsolete, the fastest rate-hike cycle in history and turbulent macroeconomic conditions.

“The portfolio is a mix of high-, medium-, and low-quality assets. The buyer or buyers will be rewarded for taking the risk of acquiring these assets that are suffering from a moment-in-time loss in value. Values and operational performance will recover like they did post-GFC, and the buyers will be rewarded,” Chexal adds.

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.  


Terra Strategies’ Chopp highlights what he sees as a significant, near-term risk for the market: the scale of maturities through 2025 is much greater now than it was during the global financial crisis.

“During the last downturn, there was about $400 billion of near-term maturities and there are about $1.3 trillion this time around. While those $400 billion of loans didn’t have purely a refinancing problem, the maturities this time around are indexed to yesterday’s low interest and cap rates,” Chopp says.

Ultimately, this means forced sales, extensions, losses on commercial mortgage-backed securities loans and other negative outcomes, he adds.

“The sale is a bellwether in the sense that when was the last time you saw a bank being unwound? People are interested because of that magnitude,” the local participant says. “We are watching this play out in slow motion and I believe this will be one of the hallmarks of the crisis.”