Attempting to answer that question posed in the post immediately below we turn to the real estate mavens at The Real Deal, April 7:
Updated April 7, 2023, 6:30 p.m.:
New York Community Bank’s decision to pass on buying Signature Bank’s commercial real estate loans set off alarm bells in the multifamily sector and left the city’s landlords in financial limbo.
Industry insiders laid the blame on the rent-regulated buildings backing most of that debt. Of the $19.5 billion in multifamily loans Signature had on its books, $11 billion was on rent-stabilized buildings, which have seen valuations plummet after changes to the state rent laws in 2019 made rent increases far more difficult. “[NYCB] didn’t buy their New York City multifamily loans because they knew they were shit,” said Joe Tahl of Manhattan-based landlord Tahl Properties.
Jennifer Recine, who co-chairs the real estate practice at Kasowitz Benson Torres, said NYCB’s decision suggested that the bank “believes the demand for the underlying collateral … may be collapsing.” So when the Federal Deposit Insurance Corp. tapped Newmark last month to sell Signature’s real estate loans to someone else, it naturally prompted questions: How bad are these loans? Who would want them? And how might a sale impact the rent-stabilized market?
The Real Deal checked in with investors, attorneys and workout experts. Here’s what we’ve learned:How bad is bad?Though the rent law hobbled Signature’s rent-stabilized loan book, regional banks’ lending practices before 2019 may have laid the foundation for its collapse.In 2018, the state’s Department of Financial Services raised concerns about allegations that regional banks had knowingly issued high-leverage loans to bad actors on a bet that these landlords could force stabilized tenants out and deregulate their units.
Signature wasn’t called out directly, but the bank had been tied to notorious players such as Raphael Toledano, who faced multiple accusations of tenant harassment and was eventually given a five-year ban from engaging in any New York real estate business by state Attorney General Letitia James.
Signature had backed a $124 million loan issued to Toledano by Madison Realty Capital. The loan-to-value ratio of 128 percent signaled that lenders expected Toledano to be able to dramatically increase the income from the portfolio, likely through deregulation.
The bank’s then-CEO, Joseph DePaolo, denied that Signature was knowingly financing tenant harassment, saying in 2017 that its loans were “always based on current cash flow.”
Within months of DFS’ 2018 memo, however, Signature made a public pledge to be more responsible in its underwriting.In a tweet this week, landlord advocate Jay Martin of the Community Housing Improvement Program called the idea that Signature lent on a deregulation model “fundamentally false,” and said its loan book lacked suitors solely because of the 2019 rent law.
But attorneys say those loans did sit on the bank’s books, and that aggressive landlords were the first to feel the pain when the rent laws changed.
“The music stopped and the market was already seeing who was left without a chair,” said Kenneth Fisher, an attorney at Cozen O’Connor. “[Those] buildings were overpriced on a mark-to-market basis.”
In blocking most routes to hike rents on stabilized units, the changes to rent laws drove down values by up to 65 percent, according to an analysis by Maverick Real Estate Partners, a distressed-debt player in the space.
“[Rent-stabilized] properties have come down as high as 50 percent,” said Lev Mavashev, principal at investment sales brokerage Alpha Realty. “So many are definitely underwater now.”....
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