Signature Acquired, But What Happens to Its Remaining Loans?

Some believe the loans will shortly be trading in bulk.

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New York commercial real estate industry participants are taking a closer look at Signature Bank (SBNY)’s loan portfolio after the news broke that New York Community Bank (NYCB) had  agreed to purchase a large share of Signature Bank’s assets at a major discount a week after a Federal Deposit Insurance Corporation (FDIC) takeover

Long Island-based NYCB via its subsidiary, Flagstar Bank, announced Monday it was acquiring a big chunk of Signature Bank’s assets in a $2.7 billion deal. The bank purchased roughly $38.4 billion of  Signature’s $110.4 billion in total assets reported on Dec. 31, 2022, prior to its collapse on March 12 when it incurred large-scale deposit losses 48 hours after the shutdown of Silicon Valley Bank (SIVBQ). Roughly $60 billion of Signature Bank’s loans will remain in receivership and be sold off by the FDIC over time, the agency announced as part of the transaction. 

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NYCB said it is working on an agreement to “sub-service” the legacy loans it didn’t acquire in Signature’s portfolio.

Ran Eliasaf, founder and managing partner of real estate private equity firm Northwind Group, said so far the acquisition has been a smooth process and he has confidence going forward working with Flagstar. Eliasaf, who had operating cash flow accounts and lines of credit with Signature, opted to quickly move all deposits into other banks after the collapse of Silicon Valley Bank on March 10, but felt comfortable returning to the bank after regulators stepped in with a backstop plan to protect depositors two days later. 

“It’s a very smart move for New York Community Bank as they increase their deposit base, which is a very positive thing in the current environment for any commercial bank,” Eliasaf said.  “The uncertainty remains about the remaining loans in Signature Bank, and we are assuming they are going to trade in bulk to various buyers with varying discounts.”

Eliasaf added that he expects the resolution of Signature’s CRE loan portfolio to take another couple weeks. He said multiple bids are out there for the loans that came in below par, which is one of the reasons the assets were not included in the Flagstar deal. 

For New York, the bank’s demise presents a big liquidity blow to the city’s commercial real estate sector. Signature was the third-largest CRE lender in New York City with about $20 billion in loans, including around $15 billion in multifamily properties, according to data from Maverick Real Estate Partners.

Ted Martell, co-founder and principal of Maverick, said Signature’s departure  leaves a big void  in the multifamily sector in the New York metropolitan area. The bank had 46 percent of its CRE loans in the New York City market in the rent-stabilized multifamily space, according to Martell.

“Their departure from the market leaves a significant hole, which will likely be filled by private lenders and existing banks who lend in the space,” Martell said. 

NYCB executed $45.7 billion of CRE lending volume in 2021 with multifamily loans rising 7 percent. The bank’s 2022 lending stats have not been released yet.

Thomas R. Cangemi, president and CEO of NYCB, said in a statement that the deal “further diversifies our loan portfolio away from CRE loans and more toward commercial loans.” 

Justin Kennedy, co-founder of 3650 REIT, said the acquisitions of Signature and Credit Suisse, which was purchased over the weekend by UBS, will do little to allay fears of further banking collapses, noting that analysts are tracking a number of U.S. banks that could be at risk of insolvency due to having a lack of tangible common equity. Kennedy noted that regional banks have a larger percentage of CRE loans as assets than the larger global institutions, which puts them at increased risk due to the expected rise of defaults, especially in the office sector. 

While credit conditions overall are stronger now than they were during the 2008 Global Financial Crisis, Kennedy said there are far more headwinds against regional banks today compared with 2008. 

“Certainly the large banks are far better capitalized than they were at that point and there is much less off-balance-sheet risk,” Kennedy said. “But that said I think there is probably more risk in the regional bank book than there was back then.”

The FDIC takeover of Signature Bank 48 hours after the collapse of Silicon Valley Bank spurred fears of more community bank failures, with First Republic’s finances facing increased scrutiny. JPMorgan Chase (JPM) is now advising First Republic on “strategic alternatives” that could include a capital raise or sale of the bank, CNBC.com first reported Monday.

JPMorgan announced Friday it was contributing $5 billion of uninsured deposits to First Republic along with Bank of America, Citigroup and Wells Fargo as part of a $30 billion rescue package aimed at boosting confidence in the health of the U.S. regional banking industry. The plan also involves Goldman Sachs and Morgan Stanley providing $2.5 billion apiece, with BNY Mellon, PNC Bank, State Street, U.S. Bank and Truist Financial Corporation contributing $1 billion each.

“I think you’re going to see banks significantly reducing their lending because of this, especially the banks that lost deposits, but on the other hand some banks, both national and regional, that got infused with a significant amount of deposits they didn’t plan on,” Eliasaf said. “I think you’re going to see some banks scale back in a significant way and might even stop lending completely, but on the other hand you’re going to see some banks that are going to be active again.” 

Andrew Coen can be reached at acoen@commercialobserver.com