FDIC Reveals Signature Bank Loan Sale Bids, Bidders

Back when the sale of Signature Bank’s rent-stabilized loan book was fueling industry-wide gossip about sweetheart deals and stark discounts, the window into the sale process was all-but boarded up.

New documents now offer a look into who bid what and which parties’ money couldn’t sway the regulators.

Here’s the upshot:

Cred over bread

In line with industry speculation, two slices of the $14.8 billion rent-stabilized loan book sold on the cheap despite a number of higher bids. That is, the Federal Deposit Insurance Corporation left some money on the table.

Stakes in the deals were awarded in three separate transactions. The largest went to Santander Bank, which faced no competing bids for the total $9 billion pool, FDIC documents show.

On the other sales, a venture led by nonprofit lender Community Preservation Corporation beat out at least a dozen other parties despite bidding less than competitors.

For its 5 percent stake in the larger $4.3 billion pool, it paid the equivalent of 60 cents on the dollar; on the remaining $1.5 billion it paid 56 cents on the dollar, according to FDIC documents.

Considering the discounts at which rent-stabilized deals have traded in the past few years, the steep devaluation isn’t surprising.

Rent-regulated revenues have been effectively capped by state law for nearly six years. Meanwhile, expenses, including interest payments on mortgages, have soared. Buildings are underwater, and the deals that do trade are going for peanuts.

What is striking is that there were four groups willing to pay more for a share of the $4.3 billion pool. The highest: 82 cents on the dollar from a venture between Brookfield Asset Management and Tredway.

The $1.5 billion pool drew five bids well above the 56 cents on the dollar CPC paid. The highest: 85 cents on the dollar by an unknown party, according to FDIC documents.

Who’s worthy

In the thick of the sale process, Brookfield and Tredway, perhaps anticipating they’d be passed over, accused the agency of running a “secret” auction and picking winners that were not the highest bidders.

They claimed the move ran afoul of the FDIC’s directive to minimize losses to the Deposit Insurance Fund by maximizing the value of assets.

But throughout the sale process, the FDIC repeatedly cited its mandate to maximize the preservation of affordable housing. The agency’s pick for the rent-regulated deals — CPC, which partnered with Related Fund Management and nonprofit Neighborhood Restore, seemed to jibe with that directive.

CPC cut its teeth rehabilitating rent-stabilized buildings when the Bronx was burning in the 1970s. Neighborhood Restore helps handle the city’s third-party transfer program, which moves abandoned, delinquent buildings to responsible owners. Related, for its part, is a big owner of affordable housing, which it calls a “foundational element” of its company on its site.

To be fair, Brookfield and Tredway also own and operate affordable housing. It’s especially Tredway’s niche.

Though, it could be argued that Brookfield’s rent-stabilized experience is concentrated in new buildings operating under 421a – not the much older stock in the Signature portfolios. And Will Blodgett, formerly of Fairstead, has more than a decade of experience with affordable housing; though, he’d only been running Tredway for two years when the Signature loan sales closed.

The FDIC did not specify the other three parties that outbid CPC. But the competition included entities tied to nonprofit Enterprise Community Partners and affordable housing owners and developers CIM Group, Slate Asset Management and Kushner Companies.

Dealing with distress

The smaller, $1.5 billion pool drew a different crowd.

Winhall Investment Company, which deals in non-performing commercial real estate, made what the FDIC considered the next-best bid, though not the highest, at $55 million for a 5 percent equity stake. That’s 32 percent above what the CPC group paid.

It’s likely the FDIC, in working to meet its mandate, declined to take more money from a firm that specializes in optimizing the value of distressed debt, not preserving affordable housing.

Other losing bidders may have raised similar red flags.

Among them: Meir Cohen’s Cohen Equities, another distressed debt investor; Ellington Financial, whose parent company foreclosed on the Applesway portfolio in Houston; and InterVest, which has partnered with Nightingale of the multi-million-dollar crowdfunding scandal.

Despite CPC’s problem-solving reputation, the group has had to trade the carrot for the stick with some borrowers.

In the past few weeks, the JV, operating under the name Community Stabilization Partners, has filed to foreclose on buildings owned by Ved Parkash, once named the city’s worst landlord by the public advocate, and a portfolio Madison Realty Capital acquired from notorious rent-stabilized owner Raphael Toledano. Toledano has since been banned from New York real estate for harassment of rent-stabilized tenants.

CPC said it is also working out loans; though, it has yet to discuss details of those negotiations.