Savings And Loan Crisis

[David Goldsmith]

First Republic is also known for being somewhat easier to deal with in buildings with less than ideal financials.

Fannie Mae and Freddie Mac have been really cracking down and vastly expanding their "no fly list" of Coops and Condos. So for portfolio loans like jumbos it's a lot easier for banks to lend where they had no plans to sell the loans anyway. Of course that's the same as self insuring: everything is fine until you have an incident.

The Dawn of a New Reality in Condo, Co-op Lending

This piece originally appeared in the June 2022 edition of MReport magazine, online now. In Janua...

themreport.com

 

[David Goldsmith]

Nine days in hell: Inside the lending crisis that rocked multifamily

Over nine days, bank collapses tested the mettle of everyone from rent-stabilized landlords to high-flying condo developers

therealdeal.com

https://therealdeal.com/
Nine days in hell: Inside the lending crisis that rocked multifamily
Institutions collapsed, deals froze and fear took over. A look back at banking’s crucible
MAR 25, 2023, 9:00 AM
By

• Joe Lovinger

“How did you go bankrupt?”
“Two ways. Gradually, then suddenly.”

— Ernest Hemingway, The Sun Also Rises
In the beginning, God created Silicon Valley Bank. The heavens and earth flooded with venture-backed startups fueled by low interest rates and easy money. The bank had more cash than it could lend, and with rates near zero, it put that surplus in long-term, government-backed securities. God saw that it was good.

In 2001, God created Signature Bank. For two decades, the bank catered to cabbies and rent-stabilized landlords, with hardscrabble employees and a decidedly non-blue-blood atmosphere. Screw an Ivy League degree — if you were a grinder, they wanted to work with you.
“They opened me an account pretty quickly,” Anna Sorokin, the famed grifter who charmed her way into New York’s high society under the alter ego Anna Delvey, told Bloomberg.
On March 10, 2023, God saw all that he had made, and it was not good. It was, in fact, very, very bad. He sent down plagues: Bank runs, contagion, regulators, fear. Silicon Valley Bank lost $14 billion of deposits in a single day. Signature customers, including major landlords, pulled out $18 billion. In the span of a long weekend, both institutions collapsed.
It was commercial real estate in the crucible, nine days that tested the mettle of everyone from humble rent-stabilized landlords to swashbuckling condo developers. Nobody knows how the story of the collapse will end, but its impact on the real estate industry so far is stark: This was commercial real estate’s nine days in hell.

“They took their eyes off of that small entrepreneur.”
AL D’AMATO, SIGNATURE BANK

“Total fear”​

Silicon Valley Bank provided banking services to roughly half of all venture-backed tech and life science companies in the U.S., according to the Financial Times. That model worked well when interest rates were near zero, which meant cheap money was pouring into the startups that parked their cash with SVB. In 2021 alone, deposits rose a staggering 85 percent to $189 billion from $102 billion..

Flush with funds, SVB invested in a $120 billion portfolio of government-backed securities. Some $91 billion of them were tied up in fixed-rate mortgage bonds with an average interest rate of less than 2 percent. While T-bills are considered some of the safest investments in the world, SVB’s money was invested in long-term maturities vulnerable to rising rates.
When the tech bubble burst and the Federal Reserve raised rates, it was a double whammy for SVB. Its depositors wanted their money, but all the cash the bank had invested was both unavailable and decreasing in value each time Fed chair Jerome Powell reared his silvered head.
“One of the biggest risks to our business model was catering to a very tightly knit group of investors who exhibit herd-like mentalities,” a bank executive told the FT. “I mean, doesn’t that sound like a bank run waiting to happen?”
Bank bosses expected deposits to fall when the bubble burst, but they declined even faster than expected in February and March. SVB moved to free up cash by selling those long-term deposits at a $1.8 billion loss, but that only added to depositors’ fears of a liquidity crunch.
On March 9, investors tried to pull $42 billion from SVB. By the time the Federal Deposit Insurance Corporation declared the bank insolvent the next day, it had a negative cash balance of almost $1 billion.

“They went for an extra [0.4 percentage points] of yield and blew up the bank,” one investor who bet against SVB told the FT.
As SVB was imploding, an East Coast player was starting to sweat.
Former employees and competitors have likened Signature Bank to a slot receiver: scrappy, hungry and capable of turning niches into big plays.
Al D’Amato, a former senator from New York and a director at Signature Bank, said the firm’s customers were “hard-working people who had come up the hard way, with tough businesses.”
“They did business the old-fashioned way,” John Catsimatidis, the CEO of developer Red Apple Group, told Bloomberg. Signature’s CEO, Joseph DePaolo, studied accounting at Iona and often ate deli lunches at his desk, surrounded by undecorated walls.

The bank had ambition. Some of its bankers reportedly outearned DePaolo. Within real estate, Signature was a particularly prominent lender on rent-stabilized apartments, which became increasingly difficult to finance after changes to New York’s laws in 2019 restricted rent increases and many tenants fell behind on payments during the pandemic.
Before its collapse, Signature was New York City’s third-largest commercial real estate lender by dollar volume and the top source of middle-market financing, according to data compiled by Maverick Real Estate Partners, an investment firm active in the distressed-debt space.
In 2019, as Signature’s assets swelled to new heights, the firm launched Signet, a digital payments platform built on the blockchain. The platform allowed crypto firms to exchange fiat currency year-round with no delay. DePaolo considered digital currencies an existential threat to banks.
“We have to do this, otherwise we’re not going to exist,” he told Forbes in 2018.
Scott Shay, the bank’s chairman, framed his hand-drawn plan for the payments network and displayed it in his office.

Let he who never considered buying a Bitcoin cast the first stone, but even Signature would soon realize it had jumped a bit too enthusiastically into the crypto boom.
“Their downfall came when they got into this crypto business,” D’Amato told Bloomberg. “They took their eyes off of that small entrepreneur.”
By March of last year, Signet held about $29 billion, accounting for roughly a quarter of Signature’s total deposits. When the crypto bubble burst, Signet’s deposits evaporated — the bank’s digital currency assets fell by $2.4 billion in the second quarter alone. The real estate ramifications were huge.
On an earnings call last summer, Signature said it planned to cut lending by up to $6 billion to balance its loan-to-deposit ratio. That cutback would largely hit its commercial lending department, which accounted for $35.7 billion at the end of 2022, about half of Signature’s total loans.
Signature pivoted hard away from crypto after the exchange FTX collapsed in November, and executives worked to assure customers and investors that it was secure. But the pain worsened on March 8 when Silvergate Bank, a major force in the crypto world, announced it would voluntarily liquidate and return customers’ deposits. Investors’ fears mounted about crypto-friendly banks. Signature’s share price tumbled 12 percent that day.

When SVB fell on March 10, anxiety about regional banks spread across the country. Investors and regulators honed in on banks that replicated SVB’s sins — concentrating heavily in one or two sectors and carrying abnormally high amounts of uninsured debt.
Most analysis has blamed Signature’s collapse on its crypto adventures, but that was just a bruise. Its real estate depositors, the ones who invited its executives to their children’s christenings and bar mitzvahs, struck the haymaker.
On the same Friday that SVB collapsed, depositors began pulling money out of Signature en masse. Signature held assets worth $110 billion and deposits of $89 billion, much of it belonging to nervous landlords.
Ira Zlotowitz, founder of commercial brokerage Gparency, told the Wall Street Journal that a real estate group chat he’s in started buzzing off the hook as panic spread.
“The chat was total fear,” he told the Journal. “Some people were saying, ‘You’ve got to take your money and run.’” Zlotowitz clarified that he kept his money in the bank.

“The regional bank balance sheet option is literally off the table right now.”
MICHAEL SHAH, DELSHAH CAPITAL

Signature tried to stem the bleeding. Around noon, it borrowed $2 billion from the Federal Home Loan Bank of New York. By 1:30pm, it returned for another $2.5 billion, the Journal reported. By the time the second request was filed, Signature customers had pulled about a fifth of the bank’s total deposits.
The Signature brain trust spent the weekend looking for answers, considering or requesting in various strides a sale, a capital infusion and a $20 billion loan from the Federal Reserve.
Nothing materialized, and on Sunday evening, regulators dissolved the board and took over the bank. Three priorities for real estate customers emerged: accessing their money, drawing down on loans and replacing letters of credit, which were suddenly worthless.

Landlords and their fixers began telling commercial tenants their letters of credit from Signature needed to be replaced. Alexandria Real Estate Equities, the Bay Area-based life sciences giant, told investors that its tenants had used just over $108 million in letters of credit backed by Silicon Valley Bank.
Regulators assured customers they would be made whole, even on deposits larger than the $250,000 per account guaranteed by the FDIC. That calmed nerves to an extent.
“There are plenty of other concerns in this business, but that is not one of them,” said Jerry Waxenberg, a New York landlord.
Still, many customers moved their money to larger banks anyway.
“Today, I’ve gotten no less than 30 text messages from other landlords that are pulling their money from regional banks out of fear that something bad’s gonna happen,” Michael Shah, CEO of Signature customer Delshah Capital, said on March 14.

With their deposits secure, real estate’s next fear set in: contagion.

A feelings fight​

“What we are afraid of,” Danny Fishman of Gaia Real Estate said, “is a snowball effect.”
“As soon as rumors start, there’s a run on the bank,” he added. “And no bank can survive a run.”
Over the weekend, the Daily Mail published photos of customers lined up outside of San Francisco-based First Republic Bank, and the following Monday, March 13, the firm’s shares slid 62 percent. An index tracking regional banks fell more than 10 percent.

By March 15, First Republic’s shares had entered junk territory and Bloomberg reported that larger rivals were looking at buying the bank. Even as First Republic assured customers that it secured additional funding and had over $70 billion in liquidity, fear persisted, particularly in real estate circles. The bank held roughly $24 billion in commercial real estate loans at the end of last year and $62 billion in residential mortgages in California.
“The regional bank balance sheet option is literally off the table right now,” Shah said. “Every regional bank in the country today is in danger as a result of the past three days.”
On March 16, six days after the meltdown began, a group of top banks deposited $30 billion in First Republic as a show of confidence. Since the collapse of SVB, though, the bank has weathered $70 billion in withdrawals, or about the gross domestic product of Croatia.
Despite attempts to stem the bleeding, panic leaked out of California and New York into other real estate markets. Miami, the ultimate WAGMI city, had already been burned by crypto when FTX collapsed, forcing Miami-Dade County to abandon a 19-year, $135 million naming rights deal for the Miami Heat’s arena. South Florida spent years aggressively courting California investors, particularly from the tech set.
“Well, you got them. But you also got Silicon Valley exposure,” said Peter Zalewski, a local real estate market analyst. “You live by the sword, you die by the sword.”

South Florida players said dealmaking was on pause as lenders examined their balance sheets for potential exposure to SVB. Craig Studnicky, CEO of brokerage ISG World, said developers should expect some “short-term heartburn” as construction lending slowed. Under new pressure to keep large reserves of liquid cash, banks were loath to get tied up in long-term development projects.

Bystander effect​

While there hasn’t been a resolution, some white knights have emerged. The Journal found that JPMorgan CEO Jamie Dimon is now leading efforts to further boost First Republic, even by investing in it directly. New York Community Bank, Signature’s top rival, agreed to acquire $12.9 billion worth of its $74 billion loan portfolio, though it will not touch Signature’s crypto-related deals or its commercial real estate debt.
Perhaps NYCB just didn’t want to wade too deeply into the muck of rent-stabilized lending, but it’s worth noting that the bank has $14 billion in loans of less than $100 million each to rent-stabilized properties on its books already, by far the largest in the city.
“Loans that were taken out through the end of 2018 were at peak valuations. Values are down 25 to 55 percent since then,” said Michael Weiser, president of GFI Realty Services, a brokerage that represents many landlords who borrowed from Signature.

“I’d venture to say there are a fair amount of problems there,” he added.
Now, the Treasury Department is studying ways to insure all bank deposits if the crisis continues to grow. While they don’t yet think it’s necessary, officials are looking into whether the government has the power to act unilaterally in guaranteeing all deposits, not just up to $250,000 as current policy allows, according to Bloomberg.
Born in the ashes of the last financial burnout, alternative lenders are now poised to profit off the regional bank panic.
“Now is a great opportunity for debt funds to take a bite at the apple,” said Nelson Stabile, a principal at Miami-based real estate investment firm Integra Investments. “Those debt funds now have plenty of opportunities for them to lend against.”
Free from traditional regulatory scrutiny banks face, alternative lenders can chase higher-risk, higher-reward deals. They can move faster than big banks, too. That sound you hear is them licking their chops.

NY multifamily fears bank contagion
Another winner: the big banks that nearly fell in the run-up to the Great Recession. Under the Dodd-Frank Act, any bank with $50 billion or more in assets was considered “systemically important” and subjected to stricter liquidity requirements, stress tests and more.
To avoid breaking that barrier, Signature and SVB hovered just below $50 billion in assets, but in 2018, Congress raised the threshold to $250 billion. Sure enough, in the four years that followed, Signature’s assets doubled. SVB’s quadrupled.
When those regional players began to falter, the enhanced scrutiny borne by the big banks promised security. Panicked real estate players fled to Jamie Dimon’s warm embrace.
“For in the day of trouble, he will keep me safe in his dwelling; he will hide me in the shelter of his sacred tent and set me high upon a rock.”

Psalm 27:5

 

[David Goldsmith]

What’s next for Signature’s loans?

As Signature Bank’s loans go to market, insiders say buyers will be from private markets.

therealdeal.com

What’s next for Signature’s loans?​

TRD takes industry's temperature in aftermath of lender's collapse

New York Community Bank’s decision to pass on buying Signature Bank’s commercial real estate loans set off alarm bells in the multifamily sector and left the city’s landlords in financial limbo.

Industry insiders laid the blame on the rent-regulated buildings backing most of that debt. Of the $19.5 billion in multifamily loans Signature had on its books, $11 billion was on rent-stabilized buildings, which have seen valuations plummet after changes to the state rent laws in 2019 made rent increases far more difficult.
“[NYCB] didn’t buy their New York City multifamily loans because they knew they were shit,” said Joe Tahl of Manhattan-based landlord Tahl Properties.

Jennifer Recine, who co-chairs the real estate practice at Kasowitz Benson Torres, said NYCB’s decision suggested that the bank “believes the demand for the underlying collateral … may be collapsing.”
So when the Federal Deposit Insurance Corp. tapped Newmark last month to sell Signature’s real estate loans to someone else, it naturally prompted questions: How bad are these loans? Who would want them? And how might a sale impact the rent-stabilized market?
The Real Deal checked in with investors, attorneys and workout experts. Here’s what we’ve learned:
How bad is bad?
Though the rent law hobbled Signature’s rent-stabilized loan book, regional banks’ lending practices before 2019 may have laid the foundation for its collapse.

In 2018, the state’s Department of Financial Services raised concerns about allegations that regional banks had knowingly issued high-leverage loans to bad actors on a bet that these landlords could force stabilized tenants out and deregulate their units.
Signature wasn’t called out directly, but the bank had been tied to notorious players such as Raphael Toledano, who faced multiple accusations of tenant harassment and was eventually given a five-year ban from engaging in any New York real estate business by state Attorney General Letitia James.
Signature had backed a $124 million loan issued to Toledano by Madison Realty Capital. The loan-to-value ratio of 128 percent signaled that lenders expected Toledano to be able to dramatically increase the income from the portfolio, likely through deregulation.
The bank’s then-CEO, Joseph DePaolo, denied that Signature was knowingly financing tenant harassment, saying in 2017 that its loans were “always based on current cash flow.”
Within months of DFS’ 2018 memo, however, Signature made a public pledge to be more responsible in its underwriting.

In a tweet this week, landlord advocate Jay Martin of the Community Housing Improvement Program called the idea that Signature lent on a deregulation model “fundamentally false,” and said its loan book lacked suitors solely because of the 2019 rent law.
But attorneys say those loans did sit on the bank’s books, and that aggressive landlords were the first to feel the pain when the rent laws changed.
“The music stopped and the market was already seeing who was left without a chair,” said Kenneth Fisher, an attorney at Cozen O’Connor. “[Those] buildings were overpriced on a mark-to-market basis.”
In blocking most routes to hike rents on stabilized units, the changes to rent laws drove down values by up to 65 percent, according to an analysis by Maverick Real Estate Partners, a distressed-debt player in the space.
“[Rent-stabilized] properties have come down as high as 50 percent,” said Lev Mavashev, principal at investment sales brokerage Alpha Realty. “So many are definitely underwater now.”

Only 4 percent of Signature’s multifamily book is currently distressed, according to an analysis by the University Neighborhood Housing Program, a nonprofit that says it’s been monitoring the portfolio “for years.”
But owners often take money from cash-flowing buildings and invest it into some of their more troubled assets. Data gathered by the city’s Rent Guidelines Board, which sets limits on rent increases at stabilized properties, show that in 2021, owners saw their net operating income drop to $576 per unit, a record 9.1 percent annual decline from 2020.
Once owners attempt to refinance, today’s far higher interest rates could put a chunk of properties into delinquency and default. Moreover, the buyer pool for such assets is shallow.
“I can’t sell a lot of the buildings that I’m asked to sell,” Manashev said, “because you know the market value or the value they would trade at right now is below their debt.”
Who’s buying, anyway?

New York Community Bank was thought to be an ideal buyer for Signature’s loan book. It’s already the top lender in the rent-stabilized space and works with a lot of the same clients.

​

A spokesperson for NYCB said its decision to turn down Signature’s multifamily loans was rooted in the fact that it is already the top lender to rent-stabilized landlords in the city.
“Taking on Signature’s entire portfolio would have resulted in NYCB being overly concentrated in this lending vertical,” the spokesperson said. “[The] decision to not bid on Signature’s multifamily/CRE portfolio had nothing to do with credit quality.”
Insiders doubt an institutional player will step into the mix.

“They also don’t want to have such toxic loans on their books,” said Manashev, speculating that the loans would instead be purchased by multiple private lenders, such as debt funds or “one of these cowboy private equity firms.”
“I think it’s definitely going to be private markets,” said Wesley Carpenter, co-founder of alternative lender Stormfield Capital, pointing to hedge funds or private credit. “This is going to be yet another step function of the private markets: picking up the slack for what the regional banks haven’t been able to serve.”
Reset
What’s clear to the industry is that the loan book will be sold on the cheap.
The $12.9 billion in Signature loans that NYCB did pick up sold for a $2.7 billion discount.

“There’s going to be a large percentage of defaults,” said Carpenter of the rent-stabilized portfolio. “That is going to manifest itself in the purchase price.”
Insiders say a sale could have implications across the city.
“It’s going to force other regional banks to mark loans to value,” Manashev said.
What’s yet to be seen is how low bidders will go — or what the FDIC will accept.
Some optimists predict the loans will sell for 80 to 90 cents on the dollar. That could benefit the borrowers, giving their lender the leeway to work things out. If a hedge fund buys the loans at 80 cents, it could offer distressed borrowers a plan to repay the loan at 90 cents.

“[The sale] may actually be the step down in basis New York’s real estate market, particularly the rent-controlled and rent-stabilized assets, really need,” said Carpenter.
But if the loans sell to a private equity fund seeking fatter returns, that firm may buy the debt for cheap, limit the restructuring options and collect on default interest or a foreclosure.
The Uncle Sam question
Another complication for borrowers staring down distress may be government oversight.
On April 3, U.S. Rep. Ritchie Torres, whose district covers much of the Bronx, called on the FDIC to consult with city and state housing officials on the sale of Signature’s loans.

“It remains unclear who might end up purchasing this portfolio and whether the buyer will be committed to prioritizing the needs of residents and maintaining affordable housing,” Torres wrote.
The same day, the FDIC said it would seek input from state and local governments, given its “statutory obligation” to preserve affordable housing.
“FDIC is giving [the Department of Housing Preservation and Development] a chance to review the loans before they are sold to identify potential distress,” said Rachel Fee, executive director of affordable housing group New York Housing Conference, who said the move may “ensure loans for at-risk buildings land in responsible hands.”

That may prevent the debt from being scooped up by a buyer intent on foreclosing. But for property owners already wary of the regulatory environment, additional oversight could mean prioritizing tenants’ needs over their own.
“It probably helps that FDIC Chair [Martin] Gruenberg grew up in an apartment building in the Bronx,” Fee added. “He understands what’s at stake.”

 

[David Goldsmith]

First Republic Bank Lost $102 Billion in Customer Deposits

The regional bank received a $30 billion lifeline from big banks last month, but depositors and investors remain worried about its prospects.

www.nytimes.com

First Republic Bank Lost $102 Billion in Customer Deposits​

The regional bank received a $30 billion lifeline from big banks last month, but depositors and investors remain worried about its prospects.

• Give this article
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During the first quarter, First Republic borrowed $92 billion, mostly from the Federal Reserve and government-backed lending groups, essentially replacing its deposits with loans.Credit...Gabby Jones for The New York Times

By Maureen Farrell and Rob Copeland
Maureen Farrell and Rob Copeland cover Wall Street and finance.
April 24, 2023
4 MIN READ
First Republic Bank, the most imperiled U.S. lender after last month’s banking crisis, on Monday disclosed the grisly details of just how troubled its business has become — and not much else.
In the bank’s highly anticipated first update to investors since entering a free-fall over the past month and a half, its leaders said little. In a conference call to discuss its first quarter results with Wall Street analysts, the bank’s executives offered just 12 minutes of prepared remarks and declined to take questions, leaving investors and the public with few answers about how it would escape its crater.
“When a bank feels like it has few options remaining, it starts to play by its own rules,” said Timothy Coffey, a bank analyst at Janney Montgomery Scott. “Every day, every week from now until whenever — it’s going to be a fight for them.”
One thing is certain: The bank, which caters to a well-heeled clientele on the coasts, seems to be hanging by a thread. During the first quarter, it lost a staggering $102 billion in customer deposits — well over half the $176 billion it held at the end of last year — not including a temporary $30 billion lifeline it received from the nation’s biggest banks last month.

Over that same period, it borrowed $92 billion, mostly from the Federal Reserve and government-backed lending groups, essentially replacing its deposits with loans. That’s a perilous course for any bank, which generally do business by taking in relatively inexpensive customer deposits while lending money to home buyers and businesses at much higher interest rates.
First Republic is still making some money; it reported a quarterly profit of $269 million, down one-third from a year earlier. It made far fewer loans than it had in earlier quarters, keeping with a general trend in banking, as industry executives worry about a recession and softening home prices and sales.
The bank’s stock dropped about 20 percent in extended trading, with the fall worsening after executives declined to take questions from analysts.

First Republic’s share price is down more than 85 percent since mid-March.
The bank said that its deposit exodus largely ceased by the last week of March. From March 31 to April 21, the bank said that it lost only 1.7 percent of its deposits and that most of those withdrawals were related to tax payments by its clients.

The slide began roughly six weeks ago, when the midsize lenders Silicon Valley Bank and Signature Bank were taken over by federal regulators after customers pulled billions of dollars in deposits. First Republic, based in San Francisco, was widely seen as the lender most likely to fall next, because it had many clients in the start-up industry — similar to Silicon Valley Bank — and many of its accounts held more than $250,000, the limit for federal deposit insurance.

First Republic has been in talks with financial advisers and government officials to come up with a plan to save itself that could include selling the bank or parts of it, or raising new capital.
Much more remains to be done. The bank said on Monday that it would cut as much as a quarter of its work force, and slash executive compensation by an unspecified sum.
Until recently, First Republic was a darling of Wall Street. It was founded in 1985 by Jim Herbert, who is still the bank’s executive chairman at 78. The company distinguished itself by offering wealthy clients jumbo mortgages, which can’t be sold to the government-backed mortgage giants Fannie Mae and Freddie Mac. Mr. Herbert consistently touted First Republic’s business model as a sound one because its borrowers had good credit records.

In 2007, Merrill Lynch paid $1.8 billion to acquire the bank, but its ownership lasted only three years. Mr. Herbert, with the help of other investors, bought the bank back after the 2008 financial crisis and took it public.
Since then, First Republic has focused on expanding by setting up branches in the poshest parts of New York, Boston, San Francisco and Los Angeles and in places synonymous with wealth like Greenwich, Conn., and Palm Beach, Fla. The bank’s branches endeared themselves to clients and prospective customers with personal touches, like warm, freshly baked cookies.

Janna Koretz, a 37-year-old psychologist in Boston, started banking with First Republic roughly a decade ago as she was building a group practice. “It’s not like I had all this money,” she said, but her banker was constantly available. The bank would send couriers to her office to pick up cash from her practice.
In mid-December, the bank hosted a holiday party at a performing arts space in Manhattan for hundreds of employees and clients, according to two attendees who spoke on the condition of anonymity because they wanted to preserve their relationships with the bank. A graffiti artist wielding black spray paint, and flamenco dancers entertained the crowd. The bank’s chief executive Mike Roffler, who had been in the top job only since March of 2022, warned the crowd that 2023 could be a challenging year for the bank.

Three months later, the bank found itself in the spotlight of a different sort. In the days and weeks after Silicon Valley Bank’s demise, numerous larger banks looked into buying First Republic. But a deal didn’t come together and the chief executive of JPMorgan Chase, Jamie Dimon, and the Treasury secretary, Janet L. Yellen, worked together to inject $30 billion in deposits into the bank. The big banks that put in that money can withdraw it in as soon as four months.
On the brief conference call on Monday, Mr. Roffler said little about what could happen next and merely reiterated the bank’s public disclosures. “I’d like to take a moment to thank our colleagues for their commitment to First Republic and their uninterrupted service of our clients and communities throughout this challenging period,” he said. “Their dedication is inspiring.”

 

[David Goldsmith]

https://www.cnn.com/2023/05/01/business/first-republic-purchase-hnk-intl/index.html

JPMorgan Chase to buy most First Republic assets after bank fails​

By Chris Isidore and Olesya Dmitracova, CNN
Updated 9:36 AM EDT, Mon May 01, 2023

New York/London(CNN)JPMorgan Chase is buying most assets of First Republic Bank after the nation's second-largest bank failure ever, in a deal announced early Monday that protects the deposits of First Republic's customers.
JPMorgan Chase said it had acquired "the substantial majority of assets" and assumed the deposits, insured and uninsured, of First Republic from the Federal Deposit Insurance Corporation, the independent government agency that insures deposits for bank customers.
"Our government invited us and others to step up, and we did," said JPMorgan Chase CEO Jamie Dimon. He said the deal is also a good one for his bank's shareholders, adding to its expected earnings going forward.

Under the deal, the FDIC will cover 80% of any losses incurred on First Republic's portfolio of single-family residential mortgage loans and commercial loans over the next five to seven years. JPMorgan Chase also will not assume First Republic's corporate debt, and it will receive $50 billion in financing from the FDIC to complete the deal.
Under terms disclosed by JPMorgan Chase, it will make a $10.6 billion payment to the FDIC, return $25 billion in funds that other banks deposited with First Republic in March in a lifeline negotiated with Treasury at that time, and will eliminate a $5 billion deposit it had made with First Republic. JPMorgan will record a one-time gain of $2.6 billion on its books from the deal, although it expects to spend $2 billion on restructuring through the end of 2024.
Besides being good news for JPMorgan Chase and First Republic's worried customers, it was also cheered by Treasury Department officlals, who are worried about a loss of confidence in the banking system causing damage to the US economy.
"Treasury is encouraged that this institution was resolved with the least cost to the Deposit Insurance Fund, and in a manner that protected all depositors," said a Treasury Department spokesperson. "The banking system remains sound and resilient, and Americans should feel confident in the safety of their deposits and the ability of the banking system to fulfill its essential function of providing credit to businesses and families."
The FDIC took control of the embattled First Republic and then immediately announced the sale. The failure will cost the FDIC about $13 billion. That money will be paid by the nation's banks, which pay premiums to support the agency. It is less than the $20 billion cost of the failure in March at Silicon Valley Bank, which was a bit smaller than First Republic.
The FDIC conducted an auction among several banks to see which would end up with First Republic's assets. Those bids were submitted late Sunday afternoon, a source told CNN. Then came hours of waiting for news about which bid was successful.

Health of the regional banking sector​

The move represents the latest effort by federal regulators to prop up consumer confidence in the US banking system, which has suffered three major bank failures in the last seven weeks. Silicon Valley Bank and Signature Bank both were taken over by the FDIC last month following runs on those banks by their customers.
The collapse of those banks sparked weeks of speculation about the health of US regional banks, especially those with a largely uninsured deposit base.
Deposits at First Republic will continue to be insured by the FDIC, and "customers do not need to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits," the agency said in its statement Monday.
"As part of the transaction, First Republic Bank's 84 offices in eight states will reopen as branches of JPMorgan Chase Bank, today during normal business hours," it noted.
First Republic, which started operations in 1985 with a single San Francisco branch, is known for catering to wealthy clients in coastal states. It had assets of $229.1 billion as of April 13. As of the end of last year, it was the nation's 14th-largest bank, according to a ranking by the Federal Reserve. JPMorgan Chase is the largest bank in the United States with total global assets of nearly $4 trillion as of March 31.

First Republic has branches in high-income communities such as Beverly Hills, Brentwood, Santa Monica and Napa Valley, California; in addition to San Francisco, Los Angeles and Silicon Valley. Outside of California, branches are in other high-income communities such as Palm Beach, Florida; Greenwich, Connecticut; Bellevue, Washington; and Jackson, Wyoming. It had about 7,200 employees as of the end of last year.
The bank's failure comes after its stock plunged more than 97% since the problems at Silicon Valley Bank surfaced in mid-March, worrying investors about the state of the banking sector. Attempts by some larger banks to provide a $30 billion dollar lifeline proved to be insufficient to turn things around at First Republic.
Its final woes kicked off early last week when the bank reported financial results that disclosed it had lost more than half of its deposits during the first quarter, not counting the infusion of cash it received from other banks.
The FDIC's rules mean that any customers with $250,000 or less in First Republic will have those funds insured by the agency. First Republic reported last week that its uninsured deposits totaled $19.8 billion, not counting $30 billion in uninsured deposits it received from other banks as part of the attempt to keep the bank afloat.
Many of the bank's customers who withdrew money during the last month were likely above that $250,000 threshold. Uninsured deposits at the bank fell by $100 billion during the course of the first quarter, a period in which total net deposits fell by $102 billion, not including the infusion of $30 billion in deposits from other banks.
The uninsured deposits stood at 68% of its total deposits as of December 31, but only accounted for 27% of its non-bank deposits as of March 31.
In its most recent earnings statement, the bank said insured deposits declined moderately during the quarter and have remained stable from the end of last month through April 21.

Support for the banking system​

The infusions of cash into First Republic came after the collapse of Silicon Valley Bank and Signature Bank in mid-March. The cash came from the nation's largest banks, including JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (CBEAX), Citigroup (C) and Truist (TFCPRF), which worked together after the intervention by Treasury Secretary Janet Yellen.
The banks agreed to keep First Republic flush, in the hopes it would provide confidence in the nation's battered banking system. The banks and federal regulators wanted to reduce the possibility that customers of other banks would start withdrawing their cash.
But while the cash allowed First Republic to make it through several weeks relatively unscathed, its Monday quarterly financial report, which disclosed massive withdrawals by the end of March, spurred new concerns about its long-term viability.
Banks never have the full amount of cash on hand to cover all deposits. They instead take in deposits and use the cash to make loans or investments, such as purchasing US Treasuries.
When customers lose confidence in a bank and rush to withdraw their money all at once, in what is known as a "run on the bank," it can cause even an otherwise profitable bank to fail.
First Republic's latest earnings report showed it was still profitable in the first quarter: Its net income was $269 million, down 33% from a year earlier. But it was the news about the loss of deposits that worried investors and, eventually, regulators.
https://www.cnn.com/2023/05/01/politics/biden-economy-first-republic-bank/index.html
While those who had more than $250,000 in their accounts were likely wealthy individuals, most were likely businesses that often need that much cash just to cover daily operating costs.
A company with 100 employees can easily need more than $250,000 just to cover a biweekly payroll. First Republic's annual report said 63% of its total deposits were from business clients, with the rest from individuals.
Over the past decade, roughly 70 banks have failed, according to FDIC data, though most of those have been smaller regional lenders. But there were no failures in either 2021 or 2022. The three failures since March 10 matches the total number of bank failures in the previous 36 months from March 2020 through February 2023.
Each of the recent failures involved banks with assets of more than $100 billion. The last time there was a failure of a bank with $1 billion in assets was in May 2017, when Guaranty Bank in Milwaukee went under.
And the last time there was a $100 billion bank that failed was Washington Mutual in September 2008, which had $307 billion in assets, which is still the record for a US bank failure.
—

 

[David Goldsmith]

Cross River, emerging lender to NYC dealmakers, in rough waters

Cross River Bank has lent to numerous mid-market landlords and developers in New York, but an FDIC consent order could jeopardize its future.

therealdeal.com

Cross River, emerging lender to NYC dealmakers, in rough waters​

NJ-based bank with $1.1B in real estate loans faces FDIC scrutiny

Another regional lender with ties to New York’s commercial real estate sector has drawn regulatory scrutiny as the industry navigates a string of high-profile bank failures.

New Jersey-based Cross River Bank, an increasingly active lender to the city’s mid-market landlords, was flagged by the Federal Deposit Insurance Corporation for engaging in “unsafe or unsound banking practices” and “failing to establish and maintain internal controls,” according to a March consent order which predated that month’s bank failures but was only recently made public.
The order requires Cross River to conduct a bevy of internal assessments and implement corrective actions on its lending practices by early next month, 90 days after the order was issued.

A spokesperson for Cross River called the consent order “the result of a standard review pertaining to certain aspects of our lending processes conducted two years ago” and said it will have no impact on the bank’s commercial real estate loan portfolio, which the spokesperson described as “very high credit quality.”
Cross River has already complied with a number of the FDIC’s demands, added the spokesperson, who pointed to a Kroll Bond Rating Agency report issued last week stating that “the consent order is not expected to have any material effect on the bank’s operations.”
Cross River holds $1.1 billion in real estate loans, including $400 million on multifamily properties, several of which were provided to well-known dealmakers in Brooklyn and mid-sized landlords across the city and in New Jersey.
Founded in 2008, Cross River emerged from the financial crisis as a key partner to fintech and later cryptocurrency companies as both sectors grew rapidly during the 2010s. But the venture-backed bank has faced substantial challenges of late from rising interest rates, cratering cryptocurrency prices and the expiration of the federal Paycheck Protection Program, under which the bank churned out tens of thousands of loans to small businesses during the pandemic.
“They were the facilitator for an awful lot of the fintech boom,” said banking consultant Chris Whalen, chairman of Whalen Global Advisors. “Now that that’s over, I don’t know what they’re gonna do.”

According to the Small Business Administration, Cross River was the nation’s sixth-largest originator of Covid relief loans in 2021. When that revenue channel dried up, the bank’s net income dropped by a stunning 73 percent last year, according to the Information and publicly filed reports.
T. Rowe Price, which invested in the bank’s parent company at a $3 billion valuation, cut the value of its shares in Cross River by 26 percent in December. Other investors in the $620 million haul Cross River garnered in March 2022 include private equity firm Eldridge and venture capital giant Andreessen Horowitz.
If Cross River pulls back on commercial real estate lending, it could push more multifamily borrowers toward larger banks like JPMorgan, exacerbating what one multifamily broker called a “gaping hole in the market” left by First Republic’s seizure and sale last month.
While Cross River doesn’t have as large a presence in New York commercial real estate as Signature Bank did, it recently played a role in a number of high-profile deals in Brooklyn. Last year, it provided a group of investors including Hutton Capital and Rosewood Realty’s Aaron Jungreis with a $27 million loan for their takeover of a Williamsburg apartment complex developed by Toby Moskovits and Michael Lichtenstein, ending a long-running series of disputes over the property.

In Crown Heights, Cross River provided Cheskie Weisz’s CW Realty with a $44 million construction loan for a 98-unit rental project at 1499 Bedford Avenue in November, then gave Abraham Fruchthandler’s FBE Limited a $29 million loan in December to refinance its 75-unit rental property at 1120 St. John’s Place.
When Bushburg and the Moinian Group were ready to begin their redevelopment of a landmarked former dairy factory in East New York into a 320-unit luxury residential and retail complex, the developers turned to Cross River and Valley Bank, who provided a $105 million construction loan.
While any suggestion about the bank’s future is purely speculative, Cross River’s crypto and fintech ties have clearly caused concern.
“If they have examiners living with them, which is what it looks like, I don’t know how they’re gonna keep doing business,” said Whalen. “It becomes very burdensome when you’re under something like this. It’s a real problem for a lot of investors.”
This story was updated with a statement from Cross River Bank and to clarify that the FDIC consent order was issued before the failures of Silicon Valley and Signature Bank.

​

 

[David Goldsmith]

Signature Bank layoffs hit key CRE team

Signature Bank executed layoffs that hit its commercial real estate team as Newmark prepares to sell its $60 billion loan book.

therealdeal.com

Signature Bank layoffs hit key CRE team
Cuts come as Newmark looks to sell $60B loan book

As Newmark lays the groundwork to sell Signature Bank’s $60 billion loan book, some of the failed bank’s top players are being shown the door.
A dozen members of Signature’s commercial real estate team will be laid off at the end of the month, the Commercial Observer reported. The layoffs include Joseph Fingerman, who served as the managing group director and senior vice president of the bank’s commercial real estate lending team.

Fingerman, who had been with Signature for around 16 years, took charge of the CRE originations team five years ago.
The cuts impacted several senior members of the lending group and people familiar with the situation told the outlet they are only the start of eliminations in the department. Some clients were surprised to hear of the layoffs.

Signature’s CRE lending team executed 632 loans in 2021 alone for a total of $4 billion in new transactions. But it wasn’t enough to save the regional bank from failure in March, when it followed in the footsteps of another collapsed regional bank, Silicon Valley Bank on the opposite coast.
New York Community Bank, through subsidiary Flagstar Bank, acquired a $12.9 billion portion of Signature’s $74 billion portfolio. Notably, the deal didn’t include Signature’s commercial real estate portfolio — $35 billion at the end of last year — or its $19.5 billion multifamily loan book.

​

The Federal Deposit Insurance Corp. in March tapped Newmark to sell $60 billion of remaining loans from Signature, a task believed to likely fall upon recent additions Adam Spies and Doug Harmon. Flagstar and NYCB are servicing the portfolio in the interim; it is expected to be sold in seven loan pools, the first of which is expected to hit the market soon.

Since 2020, Signature issued the largest volume of commercial real estate mortgages in New York City, according to PincusCo.

It lent out $13.4 billion against New York City properties with loan amounts of $5 million or above. Office loans accounted for about 5 percent of Signature’s total loans, while the majority of its outstanding multifamily loans were on rent-stabilized properties, severely hurt in value by 2019 rent law changes.

 

[David Goldsmith]

Silvergate Bank Lands in the Middle of Another Massive Alleged Crypto Fraud – This Time at Binance

By Pam Martens and Russ Martens: June 7, 2023 ~ It’s only June 7, but the liquidating, federally-insured, crypto-loving Silvergate Bank is having one

wallstreetonparade.com

Silvergate Bank Lands in the Middle of Another Massive Alleged Crypto Fraud – This Time at Binance​

By Pam Martens and Russ Martens: June 7, 2023 ~
It’s only June 7, but the liquidating, federally-insured, crypto-loving Silvergate Bank is having one helluva month. On June 1, the Federal Reserve released an enforcement action (called a Cease and Desist Consent Order) that it and a California banking regulator had filed against Silvergate Bank and its parent, Silvergate Capital Corporation. (See our report: Disgraced Silvergate Bank Hints It May Not Be Able to Cover All of Its Deposits; Fed Slaps It with a Cease and Desist Consent Order.)
The bank had announced on March 8 that it was going to voluntarily wind down and liquidate itself. The announcement followed a run on the bank when news articles began appearing linking Silvergate Bank to indicted crypto kingpin, Sam Bankman-Fried. The bank is facing a growing roster of lawsuits on charges that it moved customer funds deposited at Bankman-Fried’s crypto exchange, FTX, to his hedge fund, Alameda Research, where they then went missing to the tune of billions of dollars to fund Bankman-Fried’s and other FTX executives’ lavish lifestyles.
Shareholders in Silvergate Bank’s parent, Silvergate Capital, which is publicly traded, have also lost their shirts. The stock traded at $105 last August. It closed yesterday at 97 cents.
Having a federally-insured bank’s name linked to one massive international crypto fraud is bad enough, but on Monday Reuters dropped a new bombshell. It reported that it has documents showing that Silvergate Bank was also involved in moving customer funds for crypto exchange Binance.US, by people who should not have had access to those accounts.
Also on Monday, without one mention of Silvergate Bank, the Securities and Exchange Commission filed 13 charges against Binance, its various affiliates, and its founder Changpeng Zhao, who is known as “CZ.”
In a statement accompanying the SEC complaint, the SEC specifically mentions “commingling billions of dollars of investor assets and sending them to a third party, Merit Peak Limited, that is also owned by Zhao.” The SEC writes:
“The SEC also alleges that Zhao and Binance exercise control of the platforms’ customers’ assets, permitting them to commingle customer assets or divert customer assets as they please, including to an entity Zhao owned and controlled called Sigma Chain. The SEC’s complaint further alleges that BAM Trading and BAM Management US Holdings, Inc. (BAM Management) misled investors about non-existent trading controls over the Binance.US platform, while Sigma Chain engaged in manipulative trading that artificially inflated the platform’s trading volume. Further, the Complaint alleges that the defendants concealed the fact that it was commingling billions of dollars of investor assets and sending them to a third party, Merit Peak Limited, that is also owned by Zhao.”
One could be forgiven for thinking that there are striking similarities between what Sam Bankman-Fried was doing and what CZ was doing – and both, coincidentally (or not), being aided and abetted by federally-insured Silvergate Bank.
The Federal Reserve Board was the primary regulator of Silvergate Bank. It had farmed out its bank examinations to the San Francisco Fed. Those same federal regulators and bank examiners were dosing when Silicon Valley Bank blew itself up on March 10.
These latest revelations that not one, but two, alleged master crypto fraudsters were having their way with customer deposits in a federally-insured bank will further erode confidence in the U.S. banking system.
It’s not that the Fed and other banking regulators did not have ample warnings that crypto was, itself, a giant fraud. One of the most respected investors in America, Warren Buffett, summed up Bitcoin like this in May 2018: Bitcoin is “probably rat poison squared.” In January of the same year, Buffett told CNBC in an interview that “In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending.”
Also in 2018, Bill Harris, the former CEO of Intuit and PayPal, wrote a detailed critique of Bitcoin for Vox, under the unabashed headline: “Bitcoin is the greatest scam in history.” Harris opines:
“In my opinion, it’s a colossal pump-and-dump scheme, the likes of which the world has never seen. In a pump-and-dump game, promoters ‘pump’ up the price of a security creating a speculative frenzy, then ‘dump’ some of their holdings at artificially high prices. And some cryptocurrencies are pure frauds. Ernst & Young estimates that 10 percent of the money raised for initial coin offerings has been stolen.”
If Bitcoin is a pump and dump scheme, nothing has helped to perpetuate that scheme more than Bitcoin futures trading, which has very conveniently been accommodated by the CME Group and its equally accommodating federal regulator, the Commodity Futures Trading Commission (CFTC).
Harris also knocked down the idea that there is intrinsic value to Bitcoin. He writes:
“It helps to understand that a bitcoin has no value at all.
“Promoters claim cryptocurrency is valuable as (1) a means of payment, (2) a store of value and/or (3) a thing in itself. None of these claims are true.
“1. Means of Payment. Bitcoins are accepted almost nowhere, and some cryptocurrencies nowhere at all. Even where accepted, a currency whose value can swing 10 percent or more in a single day is useless as a means of payment.
“2. Store of Value. Extreme price volatility also makes bitcoin undesirable as a store of value. And the storehouses — the cryptocurrency trading exchanges — are far less reliable and trustworthy than ordinary banks and brokers.
“3. Thing in Itself. A bitcoin has no intrinsic value. It only has value if people think other people will buy it for a higher price — the Greater Fool theory.”
In July 2019, NYU Professor and economist, Nouriel Roubini, launched a scathing analysis of Bitcoin. In a Bloomberg interview, Roubini said this:
“Crypto currencies are not even currencies. They’re a joke…The price of Bitcoin has fallen in a week by how much – 30 percent. It goes up 20 percent one day, collapses the next. It is not a means of payment, nobody, not even this blockchain conference, accepts Bitcoin for paying for conference fees cause you can do only five transactions per second with Bitcoin. With the Visa system you can do 25,000 transactions per second…Crypto’s nonsense. It’s a failure. Nobody’s using it for any transactions. It’s trading one sh*tcoin for another sh*tcoin. That’s the entire trading or currency in the space where’s there’s price manipulation, spoofing, wash trading, pump and dumping, frontrunning. It’s just a big criminal scam and nothing else.”
Adding significant substance to these off-the-cuff remarks, in July of last year Wall Street On Parade reported that Over 1,600 of the Brightest Scientific Minds in Technology Have Signed a Letter Calling Both Crypto and Blockchain a Sham.
U.S. markets and the U.S. banking system were once the pride of this nation. Today, we mostly hang our head in shame.

 

[David Goldsmith]

This is the Bank Chart that Is Alarming Fed Insiders

By Pam Martens and Russ Martens: June 27, 2023 ~ Between March 10 and May 1 of this year, three of the largest bank failures in U.S. history occurred. On

wallstreetonparade.com

This is the Bank Chart that Is Alarming Fed Insiders​

By Pam Martens and Russ Martens: June 27, 2023 ~
Between March 10 and May 1 of this year, three of the largest bank failures in U.S. history occurred.
On March 10 the Federal Deposit Insurance Corporation (FDIC) seized Silicon Valley Bank after $42 billion in deposits had exited the bank the day prior with another $100 billion queued up to leave the next day – meaning it was possible for a federally-insured bank to lose 85 percent of its deposits in the span of 48 hours in the digital age. (For a closer look at what was going on at Silicon Valley Bank, see our report: Silicon Valley Bank Was a Wall Street IPO Pipeline in Drag as a Federally-Insured Bank; FHLB of San Francisco Was Quietly Bailing It Out.)
Two more bank failures followed in short order: Signature Bank on March 12 and First Republic Bank on May 1. Both banks were experiencing bank runs as a result of a loss of confidence by their customers.
First Republic Bank, Silicon Valley Bank, and Signature Bank were the second, third and fourth largest bank failures in U.S. history, respectively. (The largest failure was Washington Mutual during the financial crisis of 2008.)
The Fed’s answer to this crisis of confidence was to allow JPMorgan Chase, officially the riskiest U.S. bank with a string of felonies, to buy the failed First Republic Bank. At the time, First Republic was the 14th largest bank in the U.S. and JPMorgan Chase was the number 1 largest bank with $3.3 trillion in consolidated assets. (Is there any logic, whatsoever, in allowing the riskiest bank in the United States to get even larger? The only possible explanation is regulatory capture.)
So here we are today. The banking crisis has pretty much disappeared from the headlines but the smoldering remnants of the crisis are very much still with us.
The Federal Reserve has released a listing of the largest banks in the United States by assets as of March 31, 2023. We decided to check to see how much the 15 largest banks by assets have lost in market value in the past year and a half – from their closing price on December 31, 2021 to their closing price yesterday, June 26, 2023.
Per the chart above, among the 15 largest banks, the following five banks have performed the worst in terms of share price declines since December 31, 2021: Truist Bank (ticker TFC), Citizens Bank (CFG), U.S. Bank (USB), PNC Bank (PNC), and Bank of America (ticker BAC).
Bank of America is the second largest bank in the United States with $2.5 trillion in consolidated assets and 3,804 domestic bank branches. It has lost 37 percent of its market value (market capitalization) in a year and a half.
But by far, the worst performer in the above group is Truist Bank – a name that grew out of the merger of SunTrust and BB&T banks in 2019. Truist Bank has lost 49 percent of its market value in a year and a half.
As of March 31, Truist was the sixth largest bank in the United States with consolidated assets of $565 billion and a whopping 2,006 branches. According to its regulatory filing of March 31, it held a total of $416.9 billion in deposits, of which $176 billion were uninsured deposits, or 42 percent.
Uninsured deposits, those exceeding the FDIC’s $250,000 insurance cap per depositor/per bank, were one of the key problems in the run on the banks earlier this year.
As we reported in January, in the past decade and a half, the Fed has rarely seen a bank merger it couldn’t wrap its arms around. (See In 16 Years, the Fed Has Approved 4,506 Bank Mergers and Denied One.) But there was one regulator’s voice that did speak out boldly regarding the SunTrust and BB&T merger in 2019.
At the time, Martin Gruenberg was a member of the Board of Directors of the FDIC. (Today, he is the Chairman of the FDIC.) This is a portion of his stated concerns on the merger that created today’s Truist:
“Based on September 30, 2019 Call Report data, BB&T and SunTrust together hold approximately $150 billion in deposits in excess of the deposit insurance limit. The combined institution is expected to hold approximately $331 billion in deposits, indicating that about 45 percent of the deposits would be uninsured. In addition, the combined institution is expected to have over 14 million deposit accounts based on recent Call Report data from the individual institutions.
“Total assets of the combined institution are expected to be about $450 billion. The individual institutions each report some long-term unsecured debt, which if combined would amount to approximately 3.6 percent of total assets at the time of the merger.
“In the event of failure of the merged institution, the universe of potential acquirers would be quite limited for an institution of this size. It is likely that only a Global Systemically Important Bank, or GSIB, would have the capacity to make such an acquisition. Even then, based on the experiences in the financial crisis, interest in, and support for, such acquisitions may be limited among the GSIBs. Absent a viable purchase and assumption bid, the FDIC would likely have to establish a bridge bank to manage an orderly failure of the institution.
“The large branch network, substantial IT systems, and millions of account holders would make the management of a bridge bank a significant operational challenge. The volume of accounts, combined with the estimates of uninsured deposits, would also pose a challenge to an orderly resolution with a rapid deposit insurance determination over the course of a weekend.”
There was also this from Gruenberg:
“Given the limited availability of potential acquirers if the merged institution were to fail, the heavy reliance on uninsured depositors, and the lack of an unsecured debt requirement, the failure could well pose a ‘risk to the stability of the United States banking or financial systems.’ ”
Despite these grave warnings, the merger went through.
Today, the U.S. Treasury Secretary, Janet Yellen (who took millions in speaking fees from Wall Street banks before taking her seat at Treasury) is prepping the public that more bank mergers will likely be necessary.

 

[David Goldsmith]

The FDIC is stepping in with a somewhat unusual move, but one which shows some backbone. Rather than just liquidating the portfolio to a low bidder, which most likely wouldn't work with debtors, would try and force foreclosures, and would be a disaster for tenants as the buildings would deteriorate from lack of maintenance....
The FDIC is keeping a substantial interest so it can enforce it's mandate to preserve housing.

FDIC makes surprising decision in sale of “toxic” Signature loans

The FDIC said it would maintain a majority equity interest in Signature Bank’s rent-stabilized loan book.

therealdeal.com

FDIC makes surprising decision in sale of “toxic” Signature loans​

Agency selling market-rate loans and minority interest in rent-stabilized loans separately

After a six-month wait, the marketing for failed Signature Bank’s commercial real estate loans kicked off Tuesday with a surprise.
The Federal Deposit Insurance Corporation said it would sell the $33 billion of debt in two buckets — rent-stabilized and not — and would keep a majority stake in the loans on rent-stabilized buildings.

The FDIC said it would place the $15 billion rent-stabilized loan book, which some dubbed “toxic” after New York Community Bank declined to buy it, in one or more joint ventures.
The government agency will keep control of the JVs, even as it sells a minority stake in them to one or more firms that will act as managing partners, in charge of servicing and ultimately selling the loans.

A spokesperson for the FDIC said the strategy would allow the agency to retain the largest amount of equity that would still draw bidders from the private sector.
“This is a normal practice often used during (and after) the Great Recession,” the spokesperson wrote in an email.
But a lawyer with knowledge of the sale characterized the marketing as “a way to make sure the properties don’t go into decline during the interim period and the loans don’t go to low bidders who won’t work with borrowers or invest in the buildings if the owners default.”
It’s possible the FDIC, which cited its “statutory obligation … to maximize the preservation of the availability and affordability” of homes for low- and moderate-income people, is trying to stave off private interests’ foreclosure of the rent-stabilized buildings backing the mortgages.
A spokesperson for the firm said the FDIC’s majority stake wouldn’t prevent a JV partner from “using any disposition strategy appropriate for the asset, including foreclosure.” However, it noted the partner must also abide by the terms of the JV operating agreement, which has yet to be disclosed.

The assumed toxicity of the loans stems from the impact of the 2019 rent law, which severely limited rents and undercut valuations of rent-stabilized buildings. As mortgages come due, owners have struggled to refinance. Insiders expect delinquencies and defaults, which have begun to pop up, could mount.
When Signature Bank collapsed in March, industry observers speculated that an investor might seek to buy the loans on the cheap, foreclose, then sell the distressed assets. The FDIC took over Signature’s loans when it bailed out the bank’s depositors, then went about recovering as much money as possible from the loan book.
As the agency in charge, the FDIC gets a greater say in how any troubled assets might be worked out, according to Trepp.
That doesn’t mean foreclosures won’t happen eventually. The FDIC’s release said minority partners in the JVs will be responsible for the “ultimate disposition” of the loans, meaning their subsequent sale. It does not appear that the agency intends to keep the loans forever.

It’s possible whoever buys the minority interest in the loans will eventually move to foreclose — assuming the FDIC agrees — but in the meantime will reap fees for servicing the debt.
The FDIC also did not offer details on the marketing strategy for the remainder of Signature’s commercial real estate loans, which are primarily backed by market-rate rentals, according to an analysis by Maverick Real Estate Partners.
But the two-bucket approach will likely allow the agency to attract a higher-paying bidder for the debt, which is less likely to be troubled given the performance of free-market rentals in New York City.

 

[David Goldsmith]

Office defaults send bad debt at NYCB up 2,500%

New York Community Bank reported a 2,500 percent increase in debt deemed nonrecoverable, driven primarily by office loans.

therealdeal.com

Office defaults send bad debt at NYCB up 2,500%​

Two loans marked nonrecoverable account for most of increase

New York Community Bank reported a surge in bad debts. The cause: office properties.
Across the bank’s loan portfolio, charge-offs or debt deemed nonrecoverable rose to $26 million in the third quarter, up from just $1 million in the same period last year.

Commercial real estate loans, most of them backed by office properties, accounted for $14 million in charge-offs in the quarter, compared with zero a year ago.
CEO Thomas Cangemi blamed two office loans: a $28 million mortgage on a Syracuse property and a $112 million loan tied to a Manhattan building.

Cangemi did not name the troubled properties, but court records suggest the Syracuse building is owned by AMTrust Realty.
In late September, New York Community Bank subsidiary Flagstar Bank filed to foreclose on AMTrust’s Equitable Towers, two buildings at 100-120 Madison Avenue in Syracuse, a complaint shows.
AmTrust had defaulted on the property’s $28 million loan in May. AmTrust did not immediately return a request for comment.
John Adams, New York Community Bank’s president of commercial real estate finance, said when the loan was made in 2012, the loan-to-value ratio was no higher than 65 percent — a healthy margin of safety for the lender.
When the property was reappraised, the ratio had jumped above 100 percent. When a property’s debt exceeds its value, the owner is prone to walking away.

Adams noted “the impact of the pandemic and obviously leasing activity and vacancies” when explaining the increase.
As for the Manhattan default, Cangemi emphasized that it was small potatoes compared with the bank’s overall office loan book.
“It’s one loan,” Cangemi said. “So we have a very strong portfolio.”
It’s unclear what property accounted for the $112 million default.
NYCB made a $117 million loan to AmTrust Realty to finance 250 Broadway in June 2012, property records show.

In April 2, The Real Deal reported AmTrust President Jonathan Bennett was overhauling 250 Broadway to attract a major tech tenant. The firm was trying to fill seven floors vacated by a city agency in the 30-story tower, built in 1962.
“I don’t see Class B as a business I want to be in,” Bennett said at the time. “I want to be in the Class A business.”

​

The majority of NYCB’s office loans are collateralized by properties in New York City where remote work is forecast to deplete values by 44 percent, according to a study by New York University and Columbia University researchers.
In the third quarter of 2023, Class B and C properties had already depreciated 20 percent since the start of the pandemic, an Avison Young report found.

On the multifamily front, NYCB reported $2 million in net charge-offs, twice the figure from the same quarter last year. Multifamily loans marked 30 to 89 days past due rose 76 percent year-over-year to $60 million, the largest increase across the firm’s loan book.
The majority of the bank’s multifamily debt is tied to rent-regulated buildings, an asset that has seen valuations decline from 20 to 45 percent since a 2019 law strangled rents.
Analysts on the Thursday morning earnings call pressed Cangemi on the health of the bank’s rent-stabilized loan book.
“Starting to see any kind of cracks there?” asked Stephens’ Matthew Breese. “It just feels like there’s a pile-up of issues from the 2019 rent law.”
Cangemi attributed any distress to “one-off families.” NYCB filed to foreclose on eight rent-stabilized properties owned by two families in July.

“It’s not systemic,” Cangemi said.
Adams tied the troubles affecting rent-stabilized properties to tenants who have failed to pay rent.
The bank’s executives pointed to New York’s high market rents as a strong point for multifamily, rent-stabilized included. Many rent-stabilized buildings have a mix of regulated and market-price units. Revenue from the latter can offset the former’s stagnant growth.
But landlords say rent-stabilized buildings have been able to withstand the rent law only if they are majority market-rate.
Brokers and landlords say that rent-stabilized distress is mounting, a claim backed up by some court filings.

Cangemi said the bank is not seeing that larger trend.
“You just can’t kill the New York multifamily market,” Adams said.

​

 

[David Goldsmith]

Signature’s rent-stabilized loans draw anemic interest

With bidding wrapped on the Signature Bank loan book, sources say the rent-stabilized debt portfolio drew little interest.

therealdeal.com

Signature’s rent-stabilized loans draw anemic interest​

FDIC rule disqualifies prospective bidders; others fear “toxic waste”

Bidding on the $33 billion of Signature Bank’s commercial real estate loans closed last Thursday, and winners may be chosen as soon as today.
But insiders say a closely watched slice of that portfolio — $15 billion in loans on New York’s deteriorating rent-stabilized housing — might not sell this round.

When the Federal Deposit Insurance Corporation launched the sale in September, it broke the failed bank’s debt into 14 pools. Investors could bid on a minority stake in the debt, but the FDIC would maintain majority ownership. Its rationale was to protect affordable housing.
Three of the pools held Signature’s commercial real estate debt — office and retail properties, hotels and market-rate apartment buildings. Two pools were open to bank bidders only, and nine contained the rent-stabilized loan book, according to a source.

The commercial real estate debt drew “tremendous interest,” said Thomas Galli, a partner at Duane Morris who is representing some bidders.
Institutional heavyweights, including Blackstone, KKR, TPG and Goldman Sachs, reviewed bidding materials on the Signature loans, the Wall Street Journal reported.
But the nine rent-stabilized pools were shunned by potential bidders.
“I’m shocked at how few calls I’ve gotten on the rent-regulated pools,” said Galli, who 15 years ago represented private equity firms in bids on FDIC-held loans during the Financial Crisis.
When New York Community Bank took over much of Signature after its collapse but declined to pick up its commercial loans, industry observers dubbed that debt “toxic waste,” given the snub and the declining values of rent-stabilized buildings.

“The FDIC knows there’s a spotlight on them.”
WILL DEPOO, ANHD

Still, insiders expected the loans to be available at enough of a discount to attract bids. The FDIC maintained a 95 percent interest in the rent-stabilized pools, marketing just 5 percent to private parties, said Zachary Rothken, an attorney who specializes in rent stabilization.
Sources say the FDIC organized the rent-stabilized pools by performance so the most distressed debt could be discounted appropriately.
But one provision governing the sale may have screened out potential bidders. Firms with “any interest whatsoever” in a borrower or asset tied to a debt pool were barred from bidding on it, Galli said. A similar provision was used in FDIC loan sales during the Great Recession, he noted.
The FDIC likely implemented the guardrail to prevent firms from gaming the bidding process to pay cents on the dollar for loans on their own buildings, the attorney said.

The FDIC did not immediately respond to a request for comment.
Signature was the largest bank lender to New York rent-stabilized landlords. A plethora of prospective bidders may have previously borrowed from Signature, partnered with a firm that did, or lent to a borrower or on a property tied to debt in the pool. Any of those transactions would disqualify them.
“That must be why so many otherwise qualified entities did not show up to bid,” Galli said.
Less competition typically means lower bids. If the FDIC thinks the top bid isn’t high enough or doesn’t like a bidder’s business plan, it can cancel the bidding and reschedule it, Galli said.

But a delay could hamper the government agency’s twin goals in the sale.
Typically, the FDIC’s sole aim is to obtain the best net present value, meaning the highest bid. But this sale is unique in that the FDIC has also cited its “statutory obligation” to protect lower-income tenants.
Tenant groups have been pushing for a sale to a lender willing to hold landlords accountable for building maintenance, said Will Depoo, a senior campaign organizer at the nonprofit Association for Neighborhood and Housing Development.
“The FDIC knows there’s a spotlight on them,” Depoo said.
The Community Housing Improvement Program’s Jay Martin noted that mandating rent-stabilized landlords, who operate on capped revenues, to make repairs would only make it harder for them to pay their debts.

The FDIC isn’t set up to manage assets. The longer it holds the loans on rent-stabilized buildings, the more those properties figure to deteriorate. Valuations have already plummeted by up to 40 percent, leaving some owners underwater on their mortgages.
Letting buildings decay runs afoul of the FDIC’s statutory obligation, and the more owners fall behind on payments, the less the FDIC will fetch for the debt.
It’s possible all of the rent-regulated pools will sell in this round. If any pool draws multiple competitive bidders, they will be asked for best and final offers and the high bidder will win.
The FDIC’s projected closing date for all of the pools is Dec. 21, sources said.

​

 

[David Goldsmith]

Blackstone, Related lead bidding for Signature’s $32B loan portfolio

Blackstone is chasing Signature’s multi-asset commercial debt while Related is a frontrunner for the rent-regulated portfolio.

therealdeal.com

Blackstone, Related lead bidding for Signature’s $32B loan portfolio​

Jeff Blau’s firm, nonprofits poised to grab rent-regulated debt

The competition for Signature Bank’s commercial real estate loans is coming into focus after bidding on the failed bank’s debt closed.
Blackstone is pacing the field to win about $17 billion in commercial property loans from the FDIC’s debt sale from the failed bank, Bloomberg reported. The loans are secured by commercial assets, including retail, office and industrial.

Other bidders include Starwood Capital Group and Brookfield Asset Management. Blackstone is in discussions with Rialto Capital to help service the loans.
Meanwhile, a Related Companies affiliate has emerged as the leading contender for a 5 percent stake in $15 billion in Signature loans backed by New York’s rent-regulated apartments. Because the properties’ value has declined since the state overhauled rent stabilization in 2019 and New York Community Bank snubbed those loans upon buying the rest of Signature’s assets, some industry observers dubbed the debt “toxic waste.”

Still, Related sees value in the loans, which are expected to sell at a significant discount. Related Fund Management — in partnership nonprofit housing groups Community Preservation Corporation and Neighborhood Restore — is the leading contender for the rent-regulated loan portfolio, the Wall Street Journal reported. Most of the money would come from Related.
The joint venture bid less than 70 cents on the dollar of the loans’ face value. With the FDIC planning to keep a 95 percent stake in the rent-regulated portfolio as part of its statutory obligation to protect low-income tenants, the venture’s bid for the full $15 billion would be approximately $500 million.

​

New York’s commercial real estate players have been watching the bidding process closely to check the temperature of how far property values have fallen given remote work, higher interest rates and the rent law reform. Signature was the largest bank lender to rent-stabilized landlords.
Much remains to be seen, including confirmation of winning bidders and how much they bid for the various pools of commercial loans. Winners could be declared as early as today, though the FDIC’s projected closing date for all of the loan pools is Dec. 21, sources previously told The Real Deal.

Newmark’s Doug Harmon and Adam Spies are marketing the Signature loans.
—

 

[David Goldsmith]

City Hall backs Related’s bid for Signature Bank’s loans

New York City Hall backed a bid submitted by Related Fund Management, the Community Preservation Corp. and Neighborhood Restore.

therealdeal.com

City Hall backs Related’s bid for Signature Bank’s loans​

In unusual move, Adams administration weighs in on auction for rent-stabilized debt

In an unusual move, City Hall is weighing in on the competition for Signature Bank’s commercial loans.
The Adams administration sent a letter to the Federal Deposit Insurance Corp. this month, supporting a bid submitted by Related Fund Management, the Community Preservation Corp. and Neighborhood Restore. The trio emerged last week as the top contender for a portion of the failed bank’s loans backed by rent-stabilized properties.

The two nonprofits asked City Hall for a letter of support and the administration obliged, given the city’s long history of working with both groups to finance and stabilize housing, according to a city official.
In a letter obtained by The Real Deal, Deputy Mayor Maria Torres-Springer writes that the team “bring decades of deep experience in multifamily, rent regulated, and affordable housing finance in the city of New York” and that the proposed partnership would “deliver stable, long-term management to the servicing of the loan portfolio.”

Representatives for Related, CPC and Neighborhood Restore did not return messages seeking comment.
The participation of the two nonprofits was key in securing the city’s support. The administration wrote another letter backing another bid by nonprofit Enterprise Community Partners, which is part of a team bidding on another portion of Signature’s rent stabilized debt, according to a city official.
CPC, founded in 1974, bills itself as the largest Community Development Financial Institution in the country exclusively focused on investing in multifamily housing.
Neighborhood Restore has preserved more than 10,500 units of affordable housing since 1999, according to its website. The nonprofit also acts as an intermediary in the city’s controversial third-party transfer program, temporarily taking over management of properties seized by the city for unpaid taxes. The firm helps address immediate needs at a property before the new owner takes control.
In other words, these nonprofits have experience working one-on-one with property owners in distress, financing renovations and taking over management of stabilized properties. The last of those may come into play if owners default on their loans.

Changes to the state’s rent law in 2019 closed off most avenues for landlords to increase rents on regulated apartments. At the same time, inflation has driven up operating costs and mortgage rates have soared. As a result, many owners have struggled to maintain their buildings and are facing rapidly approaching debt due dates, some without much hope of refinancing.
A City Hall spokesperson said “providing safe, high-quality, affordable housing” is the administration’s “north star as the FDIC determines the future of Signature Bank’s rent-regulated housing portfolio.”
“The Community Preservation Corporation and Neighborhood Restore have decades-long track records of partnering with the city to provide and protect much-needed affordable housing for New Yorkers, and we are confident they, and their partners at Related Companies, would be faithful stewards of this critical portfolio if they win,” the spokesperson said in a statement.
Related is reportedly providing most of the financing in the proposed deal. The company is the developer behind high-end Hudson Yards, but got its start in affordable housing. The letter of support from the city shows that pairing up with the nonprofits gave Related’s bid a boost.

The FDIC indicated in September that it consulted with city and state housing agencies and community-based groups to develop its marketing strategy for the portfolio. When asked about the letters, the agency indicated that it is guided by various statutory mandates, including maximizing the return on the sale of the loan portfolio and the availability of affordable housing.
Related reportedly bid 70 cents on the dollar for just over a third of Signature’s rent-regulated loans. The offer was not the highest received by the FDIC, with Brookfield Asset Management and Tredway, Brooksville and Sabal, and Skylight Real Estate Partners and Rithm Capital all bidding more than 80 cents on the dollar, according to the Commercial Observer.
The agency has not officially named any winners.

​

 

[David Goldsmith]

Brookfield: Picking Related’s bid for Signature loans is illegal

Brookfield Property Group slammed the FDIC’s plan to sell Signature loans to a firm other than the highest qualified bidder.

therealdeal.com

Brookfield: Picking Related’s bid for Signature loans is illegal​

Real estate giant calls foul on FDIC’s “secret” auction

Brookfield Property Group called foul on the FDIC’s handling of the Signature loan sale, asserting that choosing something other than the highest qualified bid could be illegal.
The global investment giant and contending bidder accused the government agency late last week of running a “secret” auction and awarding the loans to a group with a bid lower than its own, according to the Financial Times.

“If the winning bidder’s price is in fact lower than ours, as it appears to be, we intend to launch a formal protest, as we believe that this would be in violation of law,” Lowell Baron, the firm’s chief investment officer wrote in a letter.
Brookfield’s fear is likely that Related Fund Management will take the cake.

Related, alongside two nonprofits, bid 69 cents on the dollar for a stake in $6 billion of Signature’s $15 billion rent-stabilized loan book. As of late November the firm was reportedly in position to win the award.
Brookfield, in partnership with Tredway, bid more than 80 cents on the dollar on a $4.4 billion pile of rent-stabilized loans, according to the Financial Times. It’s unclear if the firms bid on the same pools.
Typically, the FDIC’s sole goal in any sale is to minimize losses for its insurance fund. That means awarding the loans to the highest bidder.
This sale is unique in that the FDIC has also expressed its statutory obligation to preserve affordable housing. In part because of New York’s 2019 rent law, industry observers believe a good chunk of Signature’s rent-stabilized loan book is underwater.

​

Sources say Related’s bid is favored to win because the firm partnered with two nonprofits — Community Preservation Corporation and Neighborhood Restore — with decades of experience working with owners to restructure debt and manage troubled properties.

The Adams administration backed Related’s bid in a letter to the FDIC late last month.
Brookfield, in its letter, said the FDIC had signaled it would not be swayed by bidders that had garnered political support or partnered with nonprofits.
Still, Brookfield partnered with Tredway, an affordable housing developer founded in 2021 by Will Blodgett. Blodgett co-founded affordable housing owner Fairstead in 2014.
It’s unclear if the FDIC could face legal ramifications should it not award Signature loans to the highest bidder. Losses shouldered on the loans must be made up by the big banks required to fund the agency.
The FDIC has not announced winners for any portions of the rent-stabilized or other remaining commercial loan pools.

 

[David Goldsmith]

Blackstone, Rialto's $1.2B bid wins Signature CRE loan deal

The FDIC awarded a Blackstone affiliate a 20 percent interest in Signature Bank’s commercial real estate loan pool.

therealdeal.com

Blackstone, Rialto’s $1.2B bid wins Signature CRE loan deal
Blackstone affiliates partnered with Rialto Capital and Canada Pension Plan

DEC 14, 2023, 5:13 PM
The Federal Deposit Insurance Corporation on Thursday awarded a stake in Signature Bank’s $17 billion commercial real estate loan pool to two Blackstone affiliates.
Blackstone Real Estate Debt Strategies and BREIT partnered with Rialto Capital and Canada Pension Plan Investment Board on the deal.

The Blackstone team bid $1.2 billion for a 20 percent stake in a joint venture that holds the failed bank’s commercial real estate debt, according to an FDIC press release. The FDIC retained an 80 percent interest in the venture and provided financing equal to 50 percent of the venture’s value, according to the winning bidders.
The commercial real estate loan book holds 2,600 mortgages on retail, market-rate multifamily and office properties. The loans are predominantly performing and 90 percent are fixed-rate, according to Blackstone and its partners.

Blackstone will be the lead asset manager on the debt and Rialto will service the loans. A team at Newmark led by Doug Harmon and Adam Spies brokered the deal. JLL advised the Blackstone team.
The FDIC is selling a total of about $33 billion in Signature loans in a process closely watched by the industry.
The award does not include Signature’s rent-stabilized or rent-controlled loans, which total $15 billion.

​

 

[David Goldsmith]

Related, Community Preservation Corp win stake in Signature rent-stabilized loans

Community Preservation Corporation nabbed a stake in a venture holding the rent-stabilized loans of the failed Signature Bank.

therealdeal.com

Related, Community Preservation Corp win stake in Signature rent-stabilized loans​

Big firm partners with nonprofits to nab 5% interest in $5.8B of failed bank’s debt

Related Fund Management and Community Preservation Corporation on Friday were chosen to buy a stake in $5.8 billion in Signature Bank’s rent-stabilized loans.
Nonprofit Neighborhood Restore is also a partner in the deal.

The Federal Deposit Insurance Corporation awarded a 5 percent equity interest in the ventures formed to hold the debt, according to a release from the government agency. The FDIC retained the remaining 95 percent.
The team reportedly bid 68 cents on the dollar for a $6 billion pool of rent-stabilized debt, according to the Wall Street Journal. The FDIC release did not include a bid amount, but the reported figure prompted rival bidder Brookfield Property Group to warn the agency against not choosing its higher bid.

Canada-based Brookfield, in partnership with local affordable housing developer Tredway, bid more than 80 cents on the dollar on a $4.4 billion pile of rent-stabilized loans, according to the Financial Times. Those loans were part of the $5.8 billion pool awarded to the Related-led group.
The pool that CPC and Related will co-own makes up a little over one-third of the $15 billion in rent-stabilized debt from the collapsed Signature Bank.
The loans were broken up into nine pools, according to sources. CPC’s awarded equity stake is in two joint ventures. A team at Newmark led by Doug Harmon and Adam Spies brokered the deal.
CPC will lead the partnership and service the debt, according to the firms.

​

Community Preservation Corp. cut its teeth rehabilitating rent-stabilized buildings during the housing crisis of the 1970s. Related owns rent-stabilized housing throughout the city. Neighborhood Restore is a housing development fund corporation, or HDFC, that seeks to create affordable homeownership opportunities and works with a New York City program to move neglected properties to new ownership.

The FDIC, in marketing the rent-stabilized loans, had cited its statutory obligation to maintain affordable housing for lower-income tenants. Tenant groups pushed the government agency to award the regulated loans to a nonprofit in hopes that such a lender would look out for tenants’ interests, for example by pushing landlords to maintain their buildings.
Related, CPC and Neighborhood Restore in a joint release said it would “work to ensure the preservation of long-term affordability for properties securing the loans in the venture.”
Many rent-stabilized buildings have deteriorated in the wake of the 2019 rent law, which effectively capped rents on regulated assets.
The FDIC on Thursday awarded two Blackstone affiliates — in a partnership with Rialto Capital and the Canada Pension Plan Investment Board — a 20 percent stake in a venture holding all of Signature’s non-rent-regulated loans. That debt totals about $17 billion.
Also, on Dec. 7, Axos Bank bought two Signature loan pools holding $1.2 billion in non-regulated commercial real estate loans from the FDIC for 63 cents on the dollar. The FDIC marketed those pools to bank bidders only and did not offer ownership through a joint venture, as it did with the other pools.

​

 

[David Goldsmith]

Santander’s $1.1B bid nabs stake in rest of Signature’s rent-stabilized debt

The FDIC awarded Santander Bank the balance of Signature Bank’s rent-regulated loan book with a winning bid of $1.1 billion.

therealdeal.com

Santander’s $1.1B bid nabs stake in rest of Signature’s rent-stabilized debt​

Bank won 20% equity interest in venture holding $9B loan portfolio

The Federal Deposit Insurance Corporation on Wednesday awarded Santander Bank a stake in the balance of Signature Bank’s rent-regulated loan book for a winning bid of $1.1 billion.
Santander, a national bank, nabbed a 20 percent equity interest in a joint venture holding $9 billion in loans backed by rent-stabilized and rent-controlled properties. The FDIC will maintain an 80 percent stake in the venture. A Newmark team led by Doug Harmon and Adam Spies acted as financial advisor for the FDIC.

The award concludes the auction of the $33 billion in loans marketed by the FDIC after the government agency seized Signature Bank in March.
Last week, a smaller slice of the total $15 billion in rent-stabilized loans, held in another joint venture, went to Related Fund Management, in partnership with nonprofits Community Preservation Corporation and Neighborhood Restore. The groups won a 5 percent stake in the joint venture.

The FDIC also awarded Blackstone Real Estate Debt Strategies and BREIT a 20 percent stake in a joint venture holding Signature’s $17 billion non-regulated commercial real estate debt. The groups partnered with Rialto Capital and Canada Pension Plan Investment Board.

​

The government agency has repeatedly cited its statutory obligation to preserve affordable housing throughout the rent-stabilized bidding process. Ahead of the sale, industry observers said some of Signature’s rent-stabilized loan book is likely underwater.
Since the 2019 rent law effectively capped revenues in rent-regulated buildings, owners facing rising expenses, have struggled to service their debt. The rent-regulated loans were split into nine different pools according to performance, sources said.
Related’s move to partner with two non-profits may have made its reported bid of 68 cents on the dollar more attractive to the FDIC, outshining higher bids from a Brookfield team.

Santander CEO TIm Wennes in a press release noted Santander’s standing as a multifamily lender, adding “this transaction will leverage that industry expertise.”

​

 

[David Goldsmith]

FDIC, CPC set aside $550M for Signature’s struggling landlords

Community Preservation Corp and the FDIC have set aside $550 million to rescue rent-regulated buildings with Signature Bank loans.

therealdeal.com

FDIC, CPC set aside $550M for Signature’s struggling landlords
Fund can be tapped for repairs to 35,000 rent-stabilized units

As the credits roll on the historic sale of a failed bank’s loans, eyes now turn to the sequel: the fate of struggling rent-stabilized building owners who hold billions of dollars worth of those mortgages.
Community Preservation Corporation, the lender set to service some of that Signature Bank debt, has come up with a rescue plan.

The New York City-based nonprofit will partner with the FDIC to capitalize an approximately $550 million fund to pay for repairs and loan workouts in rent-regulated buildings. Landlords of about 35,000 apartments could benefit from the strategy.
“[It] will give them additional resources to do capital improvements that are necessary to clear violations,” said Rafael Cestero, CEO of the nonprofit, which was created to deal with the city’s real estate crisis of the 1970s.

Cestero said the capital could also be tapped to restructure some of Signature’s troubled rent-stabilized loans — debt that some observers labeled “toxic waste” after New York Community Bank declined to buy it.
CPC, in partnership with Related Fund Management and nonprofit Neighborhood Restore, bid successfully for a 5 percent stake in a venture holding loans backed by those 35,000 units. The FDIC, which auctioned off the equity interest, retained a 95 percent stake in the $6 billion loan portfolio.
Accordingly, the FDIC will contribute 95 percent of the capital for the $550 million fund, with CPC, Related and Neighborhood Restore kicking in the rest. “It’s a lot of money,” Cestero said.
It could be transformative for some cash-strapped owners. State legislation passed in 2019 effectively blocked their paths to raise rents outside of the Rent Guidelines Board’s annual increases, which have historically lagged the cost of doing business.
In the wake of the 2019 law, owners have let many vacant units sit, typically because the legal rent is too low to cover the cost of repairs.

The impact the new fund will have is difficult to gauge. Estimates of the city’s rent-stabilized vacancy problem have varied widely, from 13,000 to 89,000 units. A gut renovation of an apartment costs roughly $100,000.
At that cost, the rescue capital would cover about 5,500 units — a fraction of the 35,000 units that collateralize loans under CPC’s wing.
“It’s a good start,” the Community Housing Improvement Program’s Jay Martin said.
But the fund could reach far more apartments if it were made available to those needing less than gut renovations, or if landlords chip in for the repairs. It could also repair far fewer apartments if much of the fund ends up going toward loan workouts.

The $550 million dwarfs the meager amount that the city has put on the table to bring vacant rent-stabilized units back online. The Unlocking Doors program, which launched in December after months of delays, will invest $10 million to rehabilitate units that have been off the market for at least two years.
Owners can receive up to $25,000 for repairs, meaning the program could address as few as 400 units.
The city does have other tools to help rent-stabilized buildings. David Bistricer’s Clipper Equity this summer landed a tax exemption worth an estimated $191 million over 40 years to offset the cost of improvements at Flatbush Gardens, a development of 2,494 rent-stabilized units in East Flatbush with nearly 3,000 open housing code violations.

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[David Goldsmith]

NYCB loses 7% of deposits in last month

The disclosure of outflows over the last month came one day after a tumultuous ride for New York Community Bank.

therealdeal.com

NYCB loses 7% of deposits in last month​

Bank deposits went from $83B t
77B in a few weeks

As troubling developments continue to seep out of New York Community Bank, so do the deposits.

NYCB disclosed on Thursday morning that it had $77.2 billion in deposits, Reuters reported. That represents a 7 percent decline from Feb. 5, when the bank counted $83 billion worth of deposits.
The withdrawal of money by panicked customers spelled doom for several banks last spring. Some landlords were pulling deposits, a source familiar with blank clientele said, but said that this is not another Signature Bank.

Still, the loss of nearly $6 billion in deposits over the course of a month isn’t the kind of news the bank needed after its wild Wednesday.
The bank’s stock plunged a staggering 47 percent by noon on Wednesday, prompting the New York Stock Exchange to halt trading of shares.
By the end of the day, NYCB announced a $1 billion equity infusion from a group of institutional investors, including former Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital. The infusion led to a spike in the stock, only to slip significantly again only 20 minutes later.
Wednesday also brought another leadership change to the bank, which appointed former Comptroller of the Currency Joseph Otting to the role of chief executive officer, mere days after the bank replaced Thomas Cangemi with Alessandro DiNello, former leader of Flagstar Bank.

Part of the issue facing NYCB is the presence of rent-stabilized loans. The bank became the submarket’s largest lender upon Signature’s collapse last March, but it is a challenging market to navigate after the 2019 rent law change effectively capped revenues for rent-stabilized buildings, making it hard for owners to cover expenses such as debt service.
While observers wait to see how the chaos at NYCB gets handled — and if it spreads beyond the bank’s walls — the stock is again showing signs of life. In the first hour of trading on Thursday, NYCB’s stock rose roughly 12 percent.

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