Related, Nonprofits Win 5% Stake of $5.8B in Signature Loans

The Federal Deposit Insurance Corp. on Friday awarded a 5% equity stake in $5.8B in Signature Bank loans to a bid from Related Fund Management and two nonprofits, Community Preservation Corp. and Neighborhood Restore.

FDIC said the stake in the package of $5.8B of loans, which are collateralized by rent-stabilized or rent-controlled multifamily properties in NYC, was awarded in two joint ventures in which FDIC will retain a 95% equity interest.

The bidding process for this tranche of Signature loans, which began in September, has been mired in controversy.

After the Wall Street Journal reported in late November that the bid by Related and the two nonprofits was expected to be selected by FDIC, an unsuccessful bidder sent a letter to the federal agency accusing it of illegally awarded the portfolio stake to a lower bid in a “secret” process.

Brookfield Property Group, which submitted a bid for a stake in $4.4B in Signature loans in partnership with affordable housing developer Tredway, said in a December 7 letter to FDIC that Newmark, which advised FDIC on the auction of Signature loans, had informed it that the winning bidder’s price was not the high bid, according to a report in the Financial Times.

“If the winning bidder’s price is in fact lower than ours, as it appears to be, we intend to launch a formal protest, as we believe that this would be in violation of law,” Lowell Baron, Brookfield’s chief investment officer, said in the letter to FDIC, according to the FT report.

While the successful bid amounted to 68 cents on the dollar and FT reported that Brookfield’s bid was more than 80 cents on the dollar, it is not certain that the competing bids were aiming to acquire a stake in the exact same tranche of assets.

The total value of the loans in the joint ventures announced on Friday was $5.8B, while Brookfield has said it was bidding on a $4.4B package. The $5.8B tranche of loans is about a third of the $15B in Signature loans backed by rent-stabilized assets.

FDIC’s auction was a sealed-bid process in which the bidders had one shot to make their best offer and did not know the identity other bidders or the amounts specified in competing bids.

FDIC said in its release announcing the award that “the transactions were marketed on a competitive basis, with a seven-week due diligence period for qualified parties,” adding that FDIC had “carefully considered [its] statutory obligations in the selection of the winning bid.”

While the federal agency has an obligation to minimize losses, FDIC has in its public statements prior to the auction clearly signaled that the primary factor in awarding bids for the $15B portion of Signature’s portfolio backed by rent-stabilized or rent-controlled apartments would be a statutory requirement to “maximize the preservation of the availability and affordability of residential real property for low- and moderate-income individuals.”

In its letter to FDIC, Brookfield maintained that once the pool of bidders was cleared to participate in the auction “all such bidders would be on equal footing and price would be the only determining factor.”

In its release on Friday, FDIC sent a strong signal that CPC’s participation in the winning bid–as well as a highly unusual last-minute public endorsement of the bid by the Adams Administration–may have been the deciding factor in awarding the 5% stake to Related and the nonprofits.

“For this portfolio, the FDIC-Receiver engaged with New York City and New York State housing authorities and government agencies, as well as community-based organizations, to obtain their input,” FDIC’s release said.

At the end of November, City Hall released a letter it sent to FDIC supporting the bid submitted by Related and Its partners. The letter from Maria Torres-Springer, the deputy mayor for housing, was requested by the two non-profits. A copy was obtained by The Real Deal.

Torres-Springer said the non-profits “bring decades of deep experience in multifamily, rent-regulated and affordable housing finance in the city of New York,” adding that the proposed partnership would “deliver stable, long-term management to the servicing of the loan portfolio,” according to TRD.

CPC is a nonprofit multifamily finance company founded in 1974 to revitalize underserved communities. Neighborhood Restore said on its website it has preserved an estimated 10,500 units of affordable housing since 1999.

FDIC and Newmark did not respond to a request for comment.