The race to buy Signature Bank’s $15 billion rent-stabilized loan portfolio is far from over, despite reports that Related Fund Management and two partners are the frontrunners.
The portfolio has attracted higher bids and those competitors may still be competing, according to people close to the process. The FDIC, which is in charge of the sale, has not yet notified any companies that it has become the top company.
Related companies also bid for just over a third of the failed bank’s rent stabilization debt. Other groups may end up splitting the pie. If rejected, some of the nine rent-regulated pools would be resold at a later date.
According to the Wall Street Journal, if the FDIC chooses affiliated teams, it will accept them for less than 70 cents on the dollar. However, other bidders offered higher amounts. A decision could be made as early as this week.
With one month left until the FDIC seeks to close the sale, here’s what to watch.
conflicting directives
The FDIC’s sole objective in most sales is to obtain the highest price. But a second goal complicates it. Officials cite a legal obligation to maintain affordable housing for low-income tenants.
The company is asking companies to work with rent-stabilized building owners instead of playing hardball on debt repayments.
Owners are expected to suffer after the 2019 Rent Act capped returns on rent-stabilized apartments, which have been hit by pandemic-related arrears, inflation and rising mortgage rates. Many struggled to maintain the buildings. Tenant groups want Signature to lend to companies that hold owners accountable for maintenance and won’t rush into foreclosure.
New York state foreclosures can take years to resolve. In the meantime, even if a beneficiary is named, the building may become dilapidated.
To the casual observer, Related may seem like an odd choice for the FDIC. The Hudson Yards mega-development has been called a playground for the rich, and its chairman, Stephen Ross, is a billionaire who has faced protests from left-wing activists for raising money for Donald Trump.
But the company has decades of experience in affordable housing. Additionally, Related strengthened its bid for Signature’s rent stabilization debt by partnering with nonprofits Community Preservation Corporation and Neighborhood Restore. It should be filed with the FDIC.
CPC services more than $3.7 billion in rent-regulated, affordable real estate, and is often more willing to work with borrowers than banks or government agencies, according to a nonprofit spokesperson. It’s proactive. Neighborhood Restore works with the city to transition poorly managed properties into “responsible third-party ownership,” according to its website.
CPC declined to comment on the bidding process. Related and Neighborhood Restore did not respond to requests for comment.
best and last
Still, the FDIC must weigh its affordable housing efforts against the higher bids submitted by at least three groups.
Brookfield Asset Management and affordable housing specialist Treadway bid more than 80 cents on the dollar for rent-regulated loans, and multifamily owner Brooksville Company also announced plans to move to Regions Bank this summer. The company reportedly made the bid in partnership with financier Sabal, which was acquired by the company. to Commercial Observer.
Multifamily investor Skylight Real Estate Partners and publicly traded REIT Rhythm Capital also bid more than 80% of the loan’s notional value.
When the FDIC receives multiple competing offers, a second round of bidding is often held in which candidates submit their best and final offer.
“What could be happening, and what’s likely happening, is that the FDIC is making the best final round,” said Thomas Galli, a partner at Duane Morris who represents some of the bidders. It means that it is included in the
Signature’s $17 billion commercial debt bid backed by market-rate assets (offices, retail space, hotels, apartments) is now more likely to advance to additional rounds.
Those loans were likely to be in better condition than the regulated portfolio and attracted more interest, the sources said. Additionally, the FDIC has no similar legal obligation to sell these debt pools.
This means that the highest offer will be awarded, and the agent has reason to extend the bid.
leftovers
Even if Related Group were selected, its bid would be for 5% of the $5.5 billion rent-regulated loan pool, according to a report in the Commercial Observer. Nearly $10 billion more in rent-regulated debt is about to be purchased.
The FDIC sold rent stabilization loans in nine pools. Six companies will offer 5% stake, and three others will give bidders a 20% stake and access to low-interest financing provided by the FDIC, the people said.
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The FDIC broke down rent-stabilized loans by performance and grouped the most unstable loans. Some pools may have attracted low-level bids that the FDIC deems unacceptably poor. Ghali said the agency could relist next quarter in hopes of getting a better bid.
Once the FDIC selects a winner, the loser will not be notified until the selected team submits a deposit. The agency will not officially announce the winners of this round until the sale closes on December 21st.