Uncertainty grips Signature Bank’s real estate customers

Customers, borrowers scramble for answers after FDIC takeover

Signature Bank CEO Greg Carmichael
Signature Bank CEO Greg Carmichael (Getty; Photo-Illustration by Kevin Rebong for The Real Deal)

Signature Bank’s real estate customers were left with more questions than answers Monday as they tried to figure out how to do business after regulators took over the troubled multifamily lender.

Withdrawing deposits, drawing down loans and replacing letters of credit are among the issues borrowers and depositors are facing after the Federal Deposit Insurance Corporation took the bank into receivership Sunday.

“In the short term there’s going to be a lot of dislocation and fear of the unknown,” said Cozen O’Connor attorney Ken Fisher, who has a personal bank account with New York-based Signature and represents many of the bank’s real estate borrowers and depositors.

One of the largest uncertainties Signature clients are facing is exactly when deposits over $250,000 will be available. Federal regulators on Sunday said they would protect all deposits above the deposit insurance limit, but it’s unclear when funds above that threshold will be available to move to another bank or to pay bills.

Signature Bank put out a press release Monday morning saying the bank was opening its doors, but a spokesperson declined to comment further about how the business would be operated.

Fisher and others said that despite the government’s attempts to stop a bank run, clients are still attempting to move their money from smaller banks to bigger ones.

Gov. Kathy Hochul held a press conference Monday to tell customers not to worry. “The banks are open,” she said. “Everything is fine, calm. Now the FDIC is in charge of the bank, and they’ll be communicating any further details about the future.”

The Daily Mail had published photos of customers lining up at branches of First Republic Bank over the weekend to take out their money. Shares of the bank plunged when trading opened Monday and finished the day down 62 percent. Signature stock was trading at $70 — down from $110 Tuesday — when it was suspended Friday.

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Signature’s dalliance with cryptocurrency investors, combined with the debacle at Silicon Valley Bank, may have led regulators to fear depositors would rush to withdraw funds Monday.

Another issue for Signature borrowers is servicing on their loans. Signature doesn’t make a lot of construction loans, but many multifamily loans provide funding for things like tenant improvement costs and leasing commissions. It’s not clear how requests for those are being handled.

One area already hit by disruption is letters of credit, which Signature Bank provides to commercial tenants. Landlords are now telling tenants that the letters are no longer good to use as security deposits.

“We’re going to them and saying if you’ve got a letter of credit with Signature, you need to replace that,” said Rosenberg & Estis attorney Eric Orenstein.

California-based life-sciences landlord Alexandria Real Estate Equities filed a disclosure Monday saying it has a little more than $108 million worth of letters of credit backed by Silicon Valley Bank and its affiliates, and that it is working with tenants to replace them.

More broadly, it’s unclear what impact Signature Bank’s takeover will have on New York’s lending market. Fisher, a land-use attorney, said many lenders are likely hitting pause today as they wait for the banking sector to settle down.

When things do get back to normal, there will be one big player missing for borrowers who still have to contend with higher interest rates.

“A lot of this is going to pass like a kidney stone: painful and bloody,” Fisher said.

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