RFR’s Aby Rosen and Michael Fuchs are the second Signature Bank borrowers to land in default after Rialto Capital Partners started servicing their loans.
The principals were sued this week by the joint venture that holds Signature’s non-rent-regulated commercial real estate loans. Two Blackstone affiliates, Rialto and the Canada Pension Plan Investment Board, bought a 20 percent stake in the debt as the Federal Deposit Insurance Corporation retained the rest.
Blackstone became the asset manager and Rialto the loan servicer.
Their joint venture, which uses Rialto’s Miami office address in the complaint, claims RFR failed to pay off $39 million in promissory notes last year. A $35 million note matured in late March, weeks after Signature collapsed, and a $4 million note came due at the end of August.
Default interest has pushed the amount owed up to $48 million, according to the complaint.
Rialto said the venture could not comment on the case, but expressed its commitment to working with borrowers in accordance with loan agreements.
“In certain instances where borrowers are not engaging in substantive conversations, we may be forced to utilize the court system,” a spokesperson said in a statement.
A source said Rialto had been attempting to work with RFR for months and was left with no other option. A spokesperson for RFR did not comment in time for publication.
The complaint is the second in two months involving Rialto’s servicing of Signature loans. In the previous case, it was the borrower that sued. The owner of a Staten Island shopping center alleged the venture had made a “possibly illegal attempt” to “fabricate a default.”
The landlord claimed it had exercised a loan extension when the FDIC controlled Signature’s debt, but when Rialto took over, the servicer was unresponsive, failed to credit a payment to its account and saddled it with over $1 million in charges, more than half of which were late fees.
Eventually, Rialto got in touch and told the borrower it would need to sign a pre-negotiation letter and pay for a lawyer to document the extension. The borrower claimed its loan terms required neither for the routine extension.
Rialto and the FDIC settled the case two weeks later, court records show.
Other landlords claim Rialto has been engineering defaults to run up fees.
The owner of a mixed-use building in Brooklyn, who requested anonymity because he “can’t go to war with Rialto,” said the servicer had asked for him to cover attorney’s fees and sign a pre-negotiation agreement for an extension, provisions not required by his loan.
“The next thing they say is, ‘Oh, the loan wasn’t extended because you didn’t sign the pre-negotiation agreement. Now you’re in default and you owe us interest and late fees,’” the owner said.
In response, the Rialto spokesperson said “any notion that Rialto is not acting in accordance with the loan agreements is patently false.”
The special servicer typically makes its money on the fees charged for workouts of securitized loans. Disgruntled borrowers, including one California hotel owner, have said Rialto siphons money from borrowers.
A letter sent to the FDIC by a concerned observer and shared with The Real Deal noted “many other cases where Rialto is behaving in a possibly criminal manner.”
“The M.O. seems to be that they can get away with anything because if they come after people, they have nothing to lose,” the author said, noting Rialto either collects fees and interest or the property itself. “It’s heads they win and tails you lose.”
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New York
“Wanton dishonesty”: Rialto, FDIC accused of botching Signature loan extension