The FDIC retains control of the stable-for-rent signature loans
After a six-month wait, the marketing of Signature Bank’s failed commercial mortgages began on Tuesday with a bang.
The FDIC said it would sell $33 billion in debt in two groups — stable and non-stable rent — and would retain a majority stake in loans on stable-rent buildings.
The FDIC said it would put its $15 billion rental stable loan book, which some called “toxic” after Community Bank of New York refused to buy it, into one or more joint ventures.
The government agency will retain control of the joint ventures, even when it sells a minority stake in it to one or more firms that will act as managing partners, responsible for servicing and eventual sale of the loans.
A spokesman for the agency did not respond to a request for comment on the rationale behind the strategy.
But one lawyer familiar with the sale described the marketing as “a way of ensuring that real estate will not depreciate during the interim period and that loans do not go to low bidders who will not work with or invest in borrowers.” buildings if their owners fail.
It is possible that the FDIC, which has indicated its “legal obligation … to maximize the preservation of the availability and affordability of homes” for low- and moderate-income people, is trying to avoid foreclosure by special interests of fixed-rent buildings that support the government. Mortgages.
The riskiness of the assumed loans stems from the impact of the Rent Act 2019, which severely restricted rents and undermined valuations of buildings with fixed rents. As the mortgage comes due, landlords struggle to refinance. Insiders predict that defaults and defaults, which are beginning to emerge, could increase.
When Signature Bank collapsed in March, industry watchers speculated that an investor might seek to buy loans on the cheap, then foreclose, then sell the troubled assets. The FDIC took over the Signature loans when it bailed out the bank’s depositors, then proceeded to recover as much money as it could from the loan book.
As the responsible agency, the FDIC has a greater say in how any distressed assets are handled, according to Tripp.
This does not mean that foreclosures will not happen eventually. The FDIC statement said the minority partners in the joint ventures would be responsible for the “final disposition” of the loans, meaning their subsequent sale. It does not appear that the agency intends to hold the loans forever.
Whoever buys the minority interest in the loans could eventually move into foreclosure – assuming FDIC approval – but in the meantime earn debt-service fees.
The FDIC also did not provide details about the marketing strategy for the rest of Signature’s commercial real estate loans, which are primarily backed by market-rate rents, according to an analysis by Maverick Real Estate Partners.
But the bucket-dollar approach is likely to allow the agency to attract a higher-paying bidder who is less likely to run into trouble given New York City’s free-market rent performance.