First Foreclosures Filed By Buyers Of Signature Bank's Rent-Stabilized Loans
More than a year after a partnership of Community Preservation Corp., Neighborhood Restore Housing Development Fund Corp. and Related Fund Management bought a stake in the $5.8B package of Signature Bank loans tied largely to rent-stabilized New York City apartments, it has filed a foreclosure lawsuit against one of its borrowers.
An affiliate of the Community Stabilization Partners venture filed six foreclosure actions against eight buildings owned by Madison Realty Capital Friday. Experts worry that it could be the first of many in what is expected to be a severely distressed portfolio.
“Since CSP began managing a portion of the former Signature Bank portfolio over a year ago, we have actively worked with borrowers to resolve payment delinquencies and bring the loans back into good standing,” CSP said in a statement. “Despite these efforts, we are exercising our legal remedies including foreclosure against a subset of unresponsive and uncooperative borrowers.”
CSP is seeking to force a sale of the buildings, seven of which are in Manhattan and one of which is in Brooklyn, alleging defaults on $76M worth of loans, according to PincusCo, which first reported the filings.
CSP served MRC with notices of default for the individual properties in October, according to the complaints, after the landlord stopped making payments on the buildings between May 2023 and February 2024.
“This is part of our larger effort to preserve affordability and improve the overall physical and financial health of the properties in the portfolio,” CSP said in the statement.
MRC had $22B in assets under management as of Sept. 30 and owns thousands of market-rate and affordable units in the city. An MRC spokesperson didn't respond to Bisnow's request for comment.
When CSP, led by a local housing not-for-profit and backed by the asset management arm of Hudson Yards developer Related Cos., paid the Federal Deposit Insurance Corp. $171M for a 5% stake in the loan portfolio in December 2023, the deal was viewed as a win for the city's overall affordability.
The $5.8B portfolio contains mortgages tied to 35,000 rental units, approximately 80%, or 28,000 units, are rent-stabilized housing.
“Make no mistake: New York tenants in 30,000 affordable homes can breathe a sigh of relief today,” Mayor Eric Adams said in a statement when the deal closed. “We applaud the FDIC for safeguarding these valuable resources and overseeing a fair process with the right priorities.”
But some believe that sigh of relief was premature as rent regulations and rising insurance and operating costs have caused borrowers — from large operators like MRC to mom-and-pop owners — to only further spiral into distress.
“No matter who owns it — I own it, you own it, CPC owns it — You can't change the net operating income on the buildings,” New York Apartment Association CEO Kenny Burgos said. “You can't change the fundamental economics that plague the building, both now and prospectively, and that's the problem here.”
Other buyers of Signature Bank’s assets have already begun clamping down on troubled loans acquired in its deals. The joint venture between Rialto Capital and Blackstone has filed to foreclose on dozens of borrowers in just the past two months, according to New York State Supreme Court records.
The partnership paid $1.2B to the FDIC for a 20% equity stake in the $16.8B portfolio tied to office and retail buildings and market-rate apartments — all considered more secure than rent-stabilized assets.
Before Signature Bank collapsed in March 2023, the bank was a go-to lender for New York’s multifamily owners. Fears spread that a lender focused on maximizing profits could buy the portfolio tied to New York’s low-cost housing stock, jeopardizing the future of those tenants.
“It remains unclear who might end up purchasing this portfolio and whether the buyer will be committed to prioritizing the needs of residents and maintaining affordable housing,” Rep. Ritchie Torres wrote to the FDIC in April 2023. “This uncertainty is very concerning given Signature’s significant presence in an already challenged housing market.”
In another letter to the FDIC and the New York State Department of Financial Services, City Comptroller Brad Lander noted that many of the loans were made prior to the Housing Stability and Tenant Protection Act of 2019. That legislation has since caused the value of apartment buildings to plummet as costs have risen while the ability to raise rents has been limited. The Securities and Exchange Commission has already begun questioning the impact of those laws on lenders, Bisnow previously found.
“It has been our observation that, in some cases, multifamily loans of this type were predicated on plans for displacing rent-regulated tenants and raising rents much higher than the HSTPA allows,” Lander wrote. “I ask that you make potential purchasers aware of the provisions of the HSTPA that owners are obligated to follow.”
CSP bought the loan book for 59 cents on the dollar. It was seen as close to a best-case scenario: Perhaps the nonprofit, which has a 50-year history of financing affordable housing, would offer distressed borrowers more grace than more traditional lenders. But as a wall of maturity approaches, the train is still moving full speed ahead, experts say.
In 2024, apartment buildings built before 1974 had a 25.1% distress rate by balance and 6.9% by loan count, far outweighing post-2000 properties, which had distress rates of 2.9% by balance and 1.2% by loan count, according to a report by KBRA. The majority of NYC’s rent-stabilized units were constructed before 1974.
Case Property Services Managing Partner Shlomo Chopp has explored buying multifamily buildings from landlords struggling with debt payments, but said that he expects foreclosures to ramp up soon, bringing better deals to the market.
“At the end of the day, everything has to work out from a monetary perspective,” Chopp said. “CPC is a not-for-profit organization. At least they need to break even.”
