Blackstone Venture Looks to Offload $1.8B Old Signature Bank CRE Loans

A Blackstone partnership with Canada Pension Plan Investment Board and Rialto Capital that had won a 20% stake in nearly $17 billion of the former Signature loans in December 2023, is selling that interest, as Bloomberg reported.

It may draw investor interest because sales could help highlight what current values for properties actually are. The lack of price discovery has been a thorn in the side of markets since 2022, when interest rates kept rising and valuations, dropping. Some estimates had previously pegged the impact on the involved properties valuations as from 15% to 40% lower than their face value.

However, at best this will be only one data point and one potentially flawed to offer wider insight.

The $33 billion CRE loan portfolio from Signature Bank’s collapse early in 2023 went up for sale last year. The majority of the CRE loan portfolio are secured by multifamily properties, primarily located in New York City, according to FDIC. About $15 billion of the CRE loans are on rent-stabilized or rent controlled multifamily units.

They were going to be sold in tranches and there’s been controversy, like when Brookfield claimed the FDIC ran a secret auction and awarded a bid on two pools of affordable housing assets for only 70 cents on the dollar when the giant had bid 80. The FDIC noted that it had dual mandates — one to recover money, the other “to maximize the preservation of the availability and affordability of residential real property for low- and moderate-income individuals.”

Put differently, these are properties where the maintenance of valuation for the interest of investors takes a back seat to the dual mandates married to the concept that the properties have to go. The FDIC can’t keep hold of the buildings indefinitely, but also can’t write off the availability of affordable housing. Maximizing potential valuations is not necessarily the goal.

The selling of units at a cut price doesn’t necessarily have an impact on valuations everywhere. These are concentrated in New York. Even if there is downward pressure, will that extend to a Class-A multifamily in Dallas/? Probably not. There will be different market rates and rent growth.

“I think more price discovery, especially in a market like this, is almost always a good thing,” Matt Reidy, director of commercial real estate economics for Moody’s Analytics CRE, tells GlobeSt.com. “Some of what was sold was affordable housing or rent-stabilized or rent-controlled multifamily units. Given that the FDIC wants those to remain as affordable as possible, [the markets will] take that into account. When a big portfolio sells and sets a price for existing loans, it’s going to affect every market. There may be influences on the pricing that go beyond a pure price discovery exercise. Some of it depends on what the underlying loans and collateral were, how they were performing. The degree and extent to which it affects other markets depends on those markets.”

Also, the sales of the Signature Bank loan properties aren’t the only dynamic affecting valuations. Multifamily unit deliveries will top last year’s — which was a record — by 50%. In many markets, especially in the South, that is likely to have a significant impact on occupancies and rents, when means an effect on valuations. The hypothetical Dallas apartment building might lose value because another 38,400 units are expected to hit that market this year.