Brookfield’s protest on Signature loan sale peters out

Firm plans no legal action after FDIC chose Related’s low-ball bid

Brookfield’s Protest on Signature Loan Sale Peters Out
From left: FDIC Chairman Martin Gruenberg; Brookfield’s Brian Kingston (Getty, Brookfield)

A week before Related Fund Management and two nonprofits won a closely watched slice of Signature Bank’s rent-stabilized loans, Brookfield Property Group was ready to sue.

Brookfield, in partnership with Tredway, had reportedly bid 80 cents on the dollar to the Related team’s 69 cents. After rumors surfaced that the Federal Deposit Insurance Corporation planned to go with the lower bid, Brookfield wrote the agency, threatening a formal protest if the FDIC followed through.

It turns out that Related bid even less: just 59 cents on the dollar, Commercial Observer reported, for a 5 percent stake in $5.8 billion of rent-stabilized debt.

Yet, Brookfield has not challenged the award, sources told The Real Deal. The firm is not planning legal action, according to Commercial Observer. 

Brookfield declined to comment.

The firm had about 10 days after the auction closed to submit a protest, after which the dispute would have gone to the courts, a source who advised bidders said.

No such suit has been filed, a TRD review of court records found.

In awarding the loans to Related’s group instead of Brookfield’s or two other bidders, the FDIC left between $60 to $70 million “on the table,” according to the Commercial Observer.

The decision seems to run afoul of the agency’s objective — to get the greatest possible return for the Deposit Insurance Fund — giving Brookfield fuel to sue. 

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So why hasn’t it?

It’s possible Brookfield, which claimed to be left in the dark by a “secret” bidding process, became better briefed after the auction on another FDIC goal.

The agency had cited its “statutory obligation” to preserve affordable housing in selling Signature’s rent-stabilized loans. Some of the buildings collateralizing that debt have fallen into disrepair and financial distress since the 2019 rent law effectively capped revenues.

Industry observers took the FDIC’s statement to mean it wanted an owner that would fix up buildings and keep them out of foreclosure.

Related’s partners, the Community Preservation Corporation and Neighborhood Restore, have decades of experience doing just that. CPC got its start rescuing owners facing foreclosure during the 1970s and ’80s. Neighborhood Restore, through the city’s third-party transfer program, takes over mismanaged buildings, patches them up and finds a buyer.

The team’s plan is to forgive some distressed debt if owners fix up buildings. It has $550 million at its disposal to fund repairs and forgive loans. The FDIC will put in 95 percent of the money; Related and its partners supply the remainder.

Read more

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It’s unclear if the FDIC would have worked out a similar plan with Brookfield and Tredway, for example. Both groups own affordable housing but, as traditional for-profit firms, aren’t in the business of bailing out private landlords like itself.

Tom Galli, an attorney who has represented numerous bidders on loans sold by the FDIC, said the agency would not have picked a lower-paying bidder if it thought doing so would risk a viable challenge.

“At the end of the day, there is no way the FDIC would put themselves in the line of fire for a credible bid protest,” he said.

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