Brookfield Claims FDIC Ran Secret Auction For Signature Bank

Brookfield Property Group claims the FDIC ran a “secret” sales process for the loans of Signature Bank, according to a Financial Times report.

“‘[We] have heard from numerous sources, including from your adviser (Newmark) and from media reports, that a winning bidder has been selected and that this bidder’s price is lower than ours,’ Brookfield said in a letter addressed on December 7 to the FDIC seen by the Financial Times.

Lower pricing could have an impact on how non-related properties are valued, more broadly affecting commercial real estate going forward.

The company, which has more than $850 billion in assets under management, reportedly has threatened to file a formal protest over the auction process if the winning bid is significantly lower than its own.

“Brookfield focused on two pools of assets containing affordable housing loans,” the Financial Times wrote. “These tranches were considered the most politically sensitive because they involved buildings in low-income neighborhoods, according to a source familiar with the matter.”

The Wall Street Journal reported in November that a combination of two nonprofits and Related Fund Management had won the bid for less than 70% of loan’s face value. According to the Financial Times report, Brookfield had bid 80 cents on the dollar.

As GlobeSt.com previously reported, the majority of the $33 billion CRE loan portfolio being marketed is comprised of multifamily properties, primarily located in New York City, according to FDIC. It added that approximately $15 billion of the CRE loans secured by multifamily residences are rent stabilized or rent controlled.

When GlobeSt.com contacted the FDIC about Brookfield’s claim, the agency made a number of points. One is that the auction is of an equity stake, not loans, as an FDIC release noted in September.

While there is a legal requirement to minimize losses, there is another as well. One of the FDIC’s statutory obligations is “to maximize the preservation of the availability and affordability of residential real property for low- and moderate-income individuals.” To that end, those buildings will go into “one or more joint ventures” in which the FDIC will hold a majority equity interest. “In addition, the JV operating agreement will provide certain requirements that facilitate the financial and physical preservation of these loans and underlying collateral.”

A joint venture would mean an equity stake and not an outright purchase of loans, and an arrangement in which the ongoing status of the affordable housing also plays a key role.

FDIC Chairman Martin Gruenberg’s congressional testimony in May 2023 reiterated the “statutory obligation, among other factors, to maximize the preservation of the availability and affordability of residential real property for low- and moderate-income individuals.” He said that the agency was “committed to engaging with state and local government agencies, as well as community-based organizations, to seek their input as the FDIC develops its marketing and disposition strategy.”

GlobeSt.com has reached out to Brookfield and will update the story on receipt of a response.