Sale of Signature Bank Loans Expected to Attract Bids up to 40% Below Face Value

The Federal Deposit Insurance Corp. (FDIC) is auctioning off $33 billion in Signature Bank commercial-property loans as a result of the March 2023 closure of the lender by regulators following a run on its deposits. The sale comes at a time when “many firms have assembled huge war chests to take advantage of distressed opportunities,” but have yet had few chances to spend it. Although most of the loans are performing, they were made when interest rates were a lot lower than current rates, partially contributing to the need to sell them at discounts which are expected to range between 15% and 40% on average and likely to affect values of New York commercial property for a number of years, while also offering new evidence of how much property prices have eroded. Among the three Signature pools being auctioned, loans on office buildings, retail properties, hotels, and nonregulated apartment buildings have attracted the most attention from big private-equity firms. In contrast, pools with rent-regulated loan portfolio have attracted the least attention since many of these buildings “have rapidly declined in value since 2019, when the New York State Legislature ended special exceptions that had allowed landlords to increase rents in excess of the city board’s level.” However, the “FDIC has said it plans to retain a 95% stake in the pools with rent-regulated loan portfolio, partly because of its statutory obligation to preserve affordability for low- and moderate-income renters.”