Signature Bank Fire Sale Could Cut Prices by 15% to 40%

Since spring, investment professionals have been worried about what Federal Deposit Insurance Corporation asset sales of banks closed earlier this year might do to market prices. Bond investors holding Agency MBS, CMO, and CMBS issues have been worried. Silicon Valley Bank assets fetched 77 cents on the dollar.

Bad enough. Now reality is sinking in even deeper. Signature Bank’s $33 billion CRE loan portfolio went on sale in September. Now, the Wall Street Journal reported that the properties were expected to sell on the average at 15% to 40% lower than their face price, according to bidders that the Journal spoke with. Bids are due on Thursday.

The majority comprises multifamily properties primarily located in New York City, as GlobeSt.com previously reported. The FDIC said that about $15 billion of the CRE loans secured by multifamily residences, more than 45%, are rent stabilized or rent controlled. They’re limited on how much rents can be increased, which limits the net operating income they can deliver, especially as costs of operations keep increasing.

The financial challenge for multifamily markets in New York is that price discovery has been missing for the last year, as so many sources have told GlobeSt.com. Buyers and sellers keep seeking signals to show how much properties should sell for — what they could both expect.

Any large-scale sale sees many properties and potentially buyers. The mere existence of the sale helps establish price discovery, which “will likely affect values of New York commercial property for a number of years,” as the Journal reported. “The market will get an initial data point from the coming loan sale and again when the loans are resolved, either through a payoff, a loan sale or a foreclosure, said D. Michael Van Konynenburg, president of real-estate investment-banking firm Eastdil Secured.”

In addition to the multifamily properties, there are also office, retail, and hotel categories represented. They make up $16 billion in face value.

Some of the firms out of the dozens that have reportedly reviewed the bidding materials include Blackstone, KKR, TPG, and Goldman Sachs. With so much pricing and value uncertainty in the markets, companies that have significant amounts of capital have largely kept it to the side, waiting for clues as to when significant distressed sales might happen and how low prices could reasonably go.

Now it looks like everyone is about to find out.