What’s inside Signature Bank’s NYC Commercial Real Estate Loan Portfolio?
Published March 24, 2023
Last Sunday, March 19, 2023, New York Community Bank (“NYCB”) acquired certain assets and assumed certain liabilities of Signature Bridge Bank (“Signature”), leaving behind its fund finance business, its digital asset business, and most relevant to us, its $34B commercial real estate (“CRE”) loan portfolio, $24B of which we estimate to be in NYC (and $11B of which is rent stabilized). This FDIC-orchestrated transaction has left many wondering what’s inside the Signature CRE portfolio, and what will happen to these loans.
There are about 3,600 NYC loans in the Signature portfolio. The below chart plots each of the loans in excess of $1M. Roll over any dot for info about the loan.
Signature was the third largest NYC CRE lender over the last five years (after JP Morgan Chase and Wells Fargo), but number one among regional banks, and the largest lender for middle-market borrowers (for loans up to $100M). The chart below shows the scale of their activity relative to other New York-area regional banks. Their absence from the market going forward will leave a significant gap that will need to be filled by other banks or private lenders.
The significant volume of new originations to rent stabilized properties after June of 2019, when major changes were made to the rent regulation laws by New York State, is noteworthy. Generally, those changes capped rent growth rates permanently on stabilized units, while expenses tend to grow at a much faster rate. Initially, these properties still likely met underwriting standards – because interest rates were so low at the time and in-place cash flows did not drop immediately. However, the regulation changes yielded properties that are declining in value and, as a result, owners are disincentivized from putting any cash back into the properties. These conditions are exacerbated by rising interest rates – making it extraordinarily difficult to refinance or sell these properties.
When looking at the vintage of loans in the Signature portfolio by origination date in the chart below, the percentage of its current portfolio that is made up of loans to Rent Stabilized properties after the 2019 law change stands out:
According to NYCB’s press release after their acquisition, “The Bank acquired only certain financially and strategically complementary parts of Signature that are intended to enhance our future growth.” It’s understandable that NYCB was not interested in more exposure to rent stabilized loans. The following chart suggests another reason:
The average debt per square foot across Signature’s rent stabilized loan portfolio has grown since 2019, while NYCB’s dropped and remained relatively flat. Signature’s rent stabilized portfolio has an average debt per square foot that is materially higher than NYCB. While that may be explained away by higher property values at Signature on a per square foot basis, we don’t think that is the case. The chart below shows Signature lending at higher LTV (based on NYC Department of Finance Market Assessed Values) and a higher Debt Per Square Foot than their competitors, at scale.
Since the 2019 rent regulation changes and through the COVID pandemic, regional lenders in NYC have faced major headwinds in their real estate loan portfolios. Significant changes have been made in the way we work, live, and shop and it affects our real estate. The current economic environment is forcing a reckoning. Signature is not alone in these challenges though they are unique in some of the attributes of their portfolio.
Signature’s absence from the lending market may create further challenges for other banks and property owners, as its impact and scale in the NYC CRE market cannot be understated.
Maverick Real Estate Partners is an investment manager that invests in real estate credit in New York City. For inquiries about this analysis, please email us at info@maverickrep.com.