Brookfield Warns Of Legal Action If FDIC Accepts Lower Bid For Signature Bank Loans

Brookfield Properties is unhappy with how the Federal Deposit Insurance Corp. is running its auction for loans belonging to the failed Signature Bank, alleging that the regulator's process is shrouded in secrecy and potentially in violation of the law.

Brookfield, one of the world's largest real estate owners, is leading a group bidding on $4.4B of loans tied to affordable housing buildings in New York City, which the FDIC is selling equity interests in as part of the auction of assets owned by Signature Bank prior to its failure this spring.

The auction is expected to be completed this month, and a likely winner has already been selected, leading a Brookfield entity to cry foul about the process, The Financial Times reports. 

“[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 Property Group Chief Investment Officer Lowell Baron wrote to the FDIC in a letter obtained by the FT. “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.”

Brookfield's bid on the equity interest was more than 80 cents to the dollar on the assets, according to the FT. But a group led by Related Fund Management, which The Wall Street Journal reported last month is expected to win the auction, floated a price below 70 cents on the dollar, sources told the FT.

An FDIC spokesperson declined to comment, while representatives for Brookfield didn't immediately respond to Bisnow's request for comment. 

The FDIC absorbed the assets of the midsized regional banks that failed this March, including Signature, and has since sought to find buyers for the banks and their loans. It began auctioning Signature’s assets in September, with Newmark overseeing the process, which drew interest from some of the biggest names in NYC commercial real estate, including Blackstone, Fortress and Related. 

Brookfield’s bids focused on two asset pools containing Signature’s affordable housing loans. The FDIC is maintaining a 95% stake in those assets, with the remaining 5% equity interest being auctioned in an attempt to preserve the affordability and availability of those apartments, many of which are in lower-income neighborhoods.

As a result, investors seeking to win the bid partnered with companies and nonprofits specializing in affordable housing. Brookfield partnered with Tredway, while Related worked with Community Preservation Corp. and Neighborhood Restore.

Related’s bid won support from New York City Mayor Eric Adams, The Real Deal reported, an unusual declaration of preference by a politician. Adams' ties to Related are under scrutiny after his administration fast-tracked the fire alarm inspection at a Hudson Yards building, creating inspection delays at other buildings, including a public school, Gothamist reported.  

Even once the Signature loans are sold, financial difficulties may continue for rent-stabilized owners in NYC. The portfolio sale is expected to trigger a reset in property values, adding to financial woes facing rent-stabilized landlords.