New York’s Third-Biggest Commercial Real Estate Lender Shut Down By Regulators
Signature Bank, a major lender on New York multifamily assets, became the second bank to close in three days Sunday night as officials rush to stabilize the banking sector.
State regulators shut down the bank and the Federal Deposit Insurance Corp. took over its operations, officials announced Sunday. The bank's leadership was disbanded with the move.
In a joint statement issued Sunday night, the Department of the Treasury, the Federal Reserve and the FDIC announced a “systemic risk exception” for Signature. SVB was closed by California regulators on Friday morning.
"All depositors of this institution will be made whole," the statement on Signature read. "As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer."
Signature was one of the largest lenders to the cryptocurrency industry, accepting digital currency as deposits, which made it vulnerable to the same type of run that doomed SVB on Friday. The bank had $17.8B in digital asset deposits at the end of 2022, 20% of its total deposits.
But unlike SVB, which had just $2.6B of CRE loans on its books, Signature was the third-largest commercial real estate lender in New York City, per PincusCo analysis.
As of the end of last year, real estate made up 48% of its total funded loans, representing about $35.6B, according to its annual reported filed this month with the Securities and Exchange Commission.
Signature had tried to find a buyer by Monday morning, but was unable to reach a deal before regulators stepped in, The Wall Street Journal reported. The bank had experienced a run of billions of dollars on Friday, with customers spooked by Signature’s crypto exposure in the wake of the Silicon Valley Bank collapse last week, the WSJ reported.
Since January 2020, Signature has issued $13.3B across more than 800 loans, according to PincusCo, second only to Wells Fargo and JPMorgan Chase in terms of dollar volume.
For the most part, the bank's loans are on multifamily, cash-flowing properties, according to the publication’s analysis, with just two loans provided on ground-up construction since 2020. The most active borrower in the last three years was A&E Real Estate, which has received almost $1.3B in loans from the bank. SDG Management and FBE Limited have also sought loans from the bank.
“Given our business model, our depositor base is more heavily weighted to larger uninsured deposits than many other banks,” the bank wrote in its report. “As of December 31, 2022, approximately 89.7% of our total deposits of $88.59 billion were not FDIC-insured.”
In a statement, the FDIC said Signature Bank would reopen as Signature Bridge Bank Monday morning as the institution is marketed to bidders. Signature Bank’s official checks would still clear, according to the statement, and borrowers "should continue making loan payments as usual."
Federal regulators took emergency measures Sunday to shore up the health of the banking industry, including creating a fund to backstop uninsured deposits. President Joe Biden said Monday morning that the banking system is "safe" and taxpayer dollars would not be used to protect the banks' shareholders and owners.
Joy Construction Principal Eli Weiss said the federal government's actions helped to prevent panic that could have had broader capital markets impact this week, but he added that the shockwaves will still reverberate.
"Signature was a major lender and depository for the New York real estate industry," Weiss said. "So while deposit concerns have been addressed, it is hard not to view this adversely for New York real estate. What the world is waking up to after this weekend is what we in real estate have been feeling so acutely for the last year."
Signs of distress have already been picking up in commercial real estate, especially in New York. Sophisticated landlords like Blackstone, Related and Columbia Property Trust have defaulted on building loans in recent months, and market insiders expect the worst is yet to come.
"Historical upward rising interest rates are not stemming inflation as hoped but rather eroding asset prices at a pace that is causing real damage — and now realized losses," Weiss said. "Clearly, capital markets are in disarray due to both meteoric interest rate increases and the end of quantitative easing by the Fed. Losing two large banks over a weekend is not the kind of news the real estate industry will ever digest optimistically."
UPDATE, MARCH 13, 3:25 P.M. ET: This story has been updated to include additional context and comments from Weiss.
