Related, CPC Nab Stake In Signature’s $5.8B Rent-Stabilized Loan Portfolio

Nonprofit Community Preservation Corp., along with one other nonprofit and Related Fund Management, has been selected to acquire a 5% equity stake in a loan portfolio covering tens of thousands of affordable housing units across New York City.

The Federal Deposit Insurance Corp. picked the CPC-led bid for the equity stake in a deal that closed Friday, with the winning bid coming in at $171M for the stake in the $5.8B loan portfolio.

The CPC’s bid involves two partner organizations: fellow nonprofit Neighborhood Restore Housing Development Fund Corp., which will act as a strategic asset manager, and Related Fund Management as a strategic investor.

“CPC is proud to work with our partners at Related Fund Management and Neighborhood Restore HDFC to bring long-term financial stability to these properties,” CEO of the nonprofit Rafael Cestero said in a statement. “We are committed to a mission of preserving the long-term affordability as well as the physical and financial stability of these properties.”

The loan portfolio’s total worth is approximately $5.8B, with the dollar value working out to roughly 59 cents on the dollar. An FDIC spokesperson said the deal was unique in that the buyers are required to preserve the buildings' financial and physical health going forward.

“Related Fund Management is proud to support CPC and Neighborhood Restore with a strategic equity investment in this venture,” Related Fund Management Managing Principal Justin Metz said in a statement. “Our collective expertise, track-record, and mission to preserve affordable housing will help secure the future of these buildings.”

The FDIC will retain a 95% stake in the portfolio, which comprises 868 permanent loans and is secured by properties that add up to roughly 35,000 apartments. Approximately 80% of those apartments — some 28,000 units — are part of NYC’s rent-stabilized housing stock.

No changes to building ownership or management will follow as a result of the equity stake sale, according to the FDIC.

The bid from the nonprofits and Related had been publicly supported by City Hall before the announcement, with Mayor Eric Adams writing a letter backing them to the FDIC, The Real Deal previously reported.

“New York tenants in 30,000 affordable homes can breathe a sigh of relief today,” Adams said in a statement following the announcement. “We applaud the FDIC for safeguarding these valuable resources and overseeing a fair process with the right priorities.”

Speculation has been rife over the fate of the loan portfolio covering a swath of NYC’s rent-stabilized housing, with investors including Fortress Group and Blackstone submitting bids to the regulators over the seven-week auction period, which opened in September.

Tensions rose this week as bidders grew impatient. Brookfield Properties threatened to file a formal protest if the FDIC chose a bid lower than the one it submitted. The Wall Street Journal reported last month that Brookfield's bid was higher than Related and CPC's. The WSJ reported an estimated bid closer to 70 cents on the dollar.

“Bid amounts are not the sole factor in the FDIC’s decision to award the sale of a JV interest in loan portfolios,” Duane Morris partner Tom Galli wrote in an email. “Among other factors considered by the FDIC are a bidder’s business plan for the loans and cash flow projections on the portfolio resulting from the implementation of that business plan.”

Brookfield Properties declined to comment to Bisnow on Friday afternoon when asked if it planned to go forward with contesting the FDIC’s selection.

Galli, who has advised bidders in the FDIC's Signature Bank auctions, said a factor in Related's selection may have been its rumored status as a borrower on some of the loans in the portfolio. If that were the case, to be eligible to acquire the loans, Related would have to agree to prepay its balances. 

If Related was a borrower in a significant chunk of the portfolio “and it agreed to prepay those loans upon or soon after closing with the FDIC, then the significant cash flow to the JV from those prepayments upon or soon after closing would have significantly factored into the FDIC’s analysis to close a meaningful portion (if not all) the gap/ value between the bids submitted by Related and other higher bids with cash flow projections and business plans which reflect later recoveries,” Galli wrote.

The announcement of the rent-stabilized loan sale came less than 24 hours after the FDIC announced that a joint venture of Blackstone, Canada Pension Plan Investment Board and Rialto Capital won a 20% stake in Signature's $16.8B commercial loan portfolio with a $1.2B bid.

UPDATE, DEC. 15, 5:35 P.M. ET: This story has been updated to include commentary from Duane Morris partner Tom Galli.