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What The Historic Collapses Of SVB, Signature Bank Mean For Commercial Real Estate Investors



Until late last week, the biggest concern for most commercial real estate investors was the prospect of a higher-than-expected interest rate hike. That changed in the blink of an eye when two of the 30 largest U.S. banks collapsed in a 72-hour window, triggering extraordinary steps by the federal government and the Federal Reserve to stabilize the financial system.

Now, there is an epic new cloud of uncertainty for real estate finance as lenders try to contain the fallout of the second- and third-largest bank failures in American history.


“There were already two things going against the real estate community — higher interest rates and lower valuations,” said Anchin Block & Anchin partner Robert Gilman, co-leader of the accounting firm’s real estate group. “Now there’s this, which is going to tighten up underwriting, including for credit facilities.”


After Silicon Valley Bank collapsed on Friday and New York’s Signature Bank was taken over by regulators Sunday evening, the federal government announced that it would guarantee all depositors at the banks would be able to access their money. The vast majority of deposits at both banks were higher than the FDIC’s insured maximum of $250K.

The Federal Reserve announced that it was launching the Bank Term Funding Program, allowing banks to lend from the government by posting their loans as collateral, rather than have to sell assets to raise capital — SVB’s announcement that it would have to sell to raise capital triggered the ultimately fatal bank run.

The federal government’s actions — and the tech- and crypto-heavy balance sheets of SVB and Signature positioning them as outliers — has helped to ensure confidence in the system, industry players told Bisnow.

“Everything that happened over the weekend is like a baby version of the Great Financial Crisis,” Palladius Capital Management Senior Managing Director Manish Shah said. “But the panic was worse then, and the response by the federal government wasn’t as organized.”

But the dramatic nature of the implosions is expected to drive further turmoil for real estate investors as debt becomes even harder to come by.

“Real estate capital values, which had already been falling, will be further pressured by an even more tightly constrained credit market,” CBRE Global Chief Economist Richard Barkham said in a statement. “This is different than the Global Financial Crisis. However, smaller banks, particularly those with a high proportion of lending to real estate, could be vulnerable. The Federal Reserve has not stated how it would assist banks with impaired real estate assets, but we expect that support will be forthcoming.”

Both failed banks had a significant amount of real estate loans on their books. SVB had $2.6B of CRE loans at the end of 2022, while nearly half of Signature’s loans — nearly $36B — were backed by commercial real estate.

“Despite the current volatility, regional banks play an incredibly important role in strengthening our economy by offering diversity and value to customers in addition to providing access to lending for smaller businesses,” JLL President of Financial Services Bobby Magnano told Bisnow in a statement, adding that JLL is studying the banking fallout’s implications for CRE. “We hope that the systems in place work to contain the situation and provide solutions moving forward.”

As other lenders pulled back on commercial real estate activity last year, regional banks stepped in to fill the void, Bisnow previously reported. Those days are likely over for now.

“Super-regional, regional and community banks, they are going to be much more reluctant to make loans right now,” Origin Investments co-CEO David Scherer said. “I think you’re gonna see a lot less lending, certainly for the next quarter as this is digested. I don’t think in a week everything’s forgotten, because it won’t be forgotten. The banks, all of them now see how precarious the situation really is.”

These failures will likely accelerate the prevalence of alternative lenders in commercial real estate deals as banks step even further away from risky deals, said Seth Weissman, the president of real estate private equity fund Urban Standard Capital.

In the last 72 hours, he said, his company has fielded several requests from borrowers working with regional banks who are worried about more collapses and looking to replace funding they thought they had locked down.

“People are very nervous,” Weissman said. “They are unclear if those loans are going to close. What we have just heard from borrowers, they are not getting a clear answer. They need to know what is happening and figure out Plan B.”

While the federal government’s decision to protect SVB and Signature’s customers has helped keep the market somewhat stable, they have injected new uncertainty into what had already been a confusing market.

“Where I think the concern now is going to be is, ‘What is next?'” Anchin’s Gilman said. “Where am I going to get my next loan from if I have to refinance or go out and acquire property?”

The recent tumult will also make lenders more circumspect when it comes to their borrowers’ finances, said Alliant Credit Union Chief Capital Markets Officer & Head of Commercial Lending Charles Krawitz.

“The situation is going to make lenders think, ‘I sure hope my borrowers don’t have money that they might not be able to access,'” Krawitz said.

Many are watching to see what the FDIC decides to do with the assets they took over from the banks. JPMorgan Chase, Bank of America, Wells Fargo and the other money-center banks are being eyed as potential buyers, and the FDIC is looking to conduct an asset auction after no takers emerged over the weekend, The Wall Street Journal reports.

Some regional banks have projected confidence about their ability to carry on business, touting their diversified customer base and strong liquidity. Eastern Union CEO Abe Bergman said he doesn’t anticipate a liquidity crisis.

“Maybe lender A will have to slow down one month, but lender B will pick up the volume,” he said. “So we’re going to see plenty of liquidity in the real estate market. We had some closings today, so it’s business as usual to a surprising degree.”

Much of the industry’s attention is now focused on the Federal Reserve’s next meeting March 21 and 22, when until last week many had predicted a 50-basis-point rate increase after another stronger-than-expected jobs report. The silver lining of the situation for many is hope that the Fed will now take a less aggressive path.

CBRE’s Barkham said the firm is still predicting a 25-point increase next week, but “the recent easing of core inflation allows the Fed some flexibility to temporarily hold, or even reduce, interest rates to protect the financial system.”

Others think the turnaround could happen sooner — Goldman Sachs predicted the Fed would take no action as a result of the bank collapses, although it is in the minority on Wall Street, CNBC reports.

“What’s really gonna happen with monetary policy, if anything?” said Martha Peyton, Aegon Asset Management’s managing director of real assets applied research. “The Fed might forestall further interest rate increases, and maybe even pump liquidity into the system, if things are bad enough.”


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Bank Crisis Could Cast Pall Over Commercial Real Estate Market – The New York Times



The market hadn’t fully rebounded from the pandemic. Some worry that another slowdown could add to fears of a recession.

The fallout from the recent banking crisis spurred by the collapse of two banks — and concerns about the health of a third — is bubbling up in the market for commercial real estate lending, as borrowers fear that banks will pull back. That could slow down construction activity and increase the likelihood of a recession, analysts and real estate experts said.

Silicon Valley Bank and Signature Bank imploded in the same week. First Republic Bank teetered for days before its shares partly recovered on Tuesday. Both Signature and First Republic are large lenders to builders and managers of office buildings, rental apartments, shopping complexes and other commercial properties.


First Republic has the ninth-largest loan portfolio in that market in the United States, and Signature had the 10th largest before it collapsed, according Trepp, a commercial real estate data firm.

Midsize and regional banks like Signature and First Republic not only provide the bulk of commercial real estate loans to businesses, they are also part of a far bigger market. Banks typically package the loans they make into complex financial products and sell them to investors, allowing the banks to raise more money to make new loans.

That means that a pullback in lending can also alter the behavior of investors. Commercial real estate contributed $2.3 trillion to the nation’s economy last year, according to an industry association. And because the industry hasn’t fully rebounded from the blow dealt by the pandemic, analysts worry about a fresh slowdown.

“It is a perfect storm right now,” said Varuna Bhattacharyya, a real estate lawyer in New York with Bryan Cave Leighton Paisner who mainly represents banks.

Lenders are pulling back from making new loans, said Varuna Bhattacharyya, a lawyer at Bryan Cave Leighton Paisner.Gabby Jones for The New York Times

“We were already in a place with a much lower rate of originations,” Ms. Bhattacharyya said, referring to new loan applications that banks process. “It’s hard not to feel a bit of panic and anxiety.”

Ms. Bhattacharyya said lenders would become even more cautious about writing loans for any new construction projects other than the highest-profile “trophy deals.”

The fear among borrowers is that banks will become more conservative about lending. And although the panic appears to have mostly stabilized for now, the specter of bank failure could haunt the decisions of regional banks for months.

For much of last year, commercial real estate lending had begun rebounding from the depths of the Covid-19 lockdowns, when new loan applications almost came to a standstill in the fourth quarter of 2020. By comparison, the annual rate of commercial real estate loan origination by dollar volume grew 18 percent in the fourth quarter of 2022, according to Trepp.

Even before the Federal Deposit Insurance Corporation stepped in to take over Silicon Valley and Signature, a noticeable slowdown in lending to the commercial real estate industry had begun in January.

On an annual basis, the rate of commercial real estate loan growth this year had already been cut in half compared with last year, said Matthew Anderson, a managing director at Trepp. He said some of the slowdown was the result of interest rate increases by the Federal Reserve, which were starting to take a bite out of commercial real estate activity.

And lending has probably tapered off further since the collapses of Silicon Valley and Signature, Mr. Anderson said. “How long and deep the impact will be remains to be seen,” he said.

A New York branch of First Republic Bank, a big real estate lender whose stock tanked in recent days.Gabby Jones for The New York Times

The universe of commercial real estate includes loans for new construction, mortgages and loans specifically for managing multifamily apartment complexes. The so-called securitized products containing loans that banks make are called commercial mortgage-backed securities — a more than $72 billion market last year. But it’s a different story in 2023, with issuance of those bonds down 78 percent from a year ago.

Daniel Klein, president of Klein Enterprises, a commercial real estate management firm based in Maryland, had been talking to several banks recently about a construction loan for a new project. But just the other day, after the banks collapsed, one of the banks suddenly pulled a term sheet for a loan, he said.

Mr. Klein, whose family-owned business manages about 60 shopping centers, offices and apartment buildings, said that the bank had offered no explanation for its decision, and that he did not know if the trouble in the banking sector had been a cause. He said he expected loan terms from lenders to get more onerous in the coming months, as midsize banks get skittish after the Signature and Silicon Valley Bank collapses.

“Banks in general are being more conservative than they were six or nine months ago,” he said. “But we have been pretty fortunate. We have many long standing community banking relationships.”

Banks have become more conservative in lending, said Daniel Klein, president of Klein Enterprises, a commercial real estate management firm.

Regional banks are a critical part of the commercial real estate ecosystem because their bankers invest a lot of time into forging relationships with real estate developers and managers, said Michael E. Lefkowitz, a real estate lawyer with Rosenberg & Estis in New York. Large banks do not tend to provide that kind of “high-level service” to middle-market real estate firms.

Some of the concerns of real estate lenders eased a bit when the F.D.I.C. announced on Sunday that it had sold substantially all of the remaining deposits at Signature Bank to a subsidiary of a peer, New York Community Bancorp, which is also a major commercial real estate lender. The banking regulator took over Signature on March 12 after business customers — including real estate firms and crypto investors — began pulling money out of the bank.

Before its collapse, Signature was one of the biggest commercial real estate lenders in the New York metropolitan area.

In buying some of Signature’s assets, New York Community Bancorp picked up about $34 billion in customer deposits, down from the $88 billion that Signature had before the bank run, an indication of just how many customers fled the bank before regulators stepped in on March 12 to stem the bleeding.

Even with the sale of banking deposits to New York Community Bancorp, there are worries about whether other banks will fill the void left by the collapse of Signature.

New York Community Bancorp acquired about $12.9 billion in loans from Signature, the F.D.I.C. said, but most were business loans to health care companies and not part of Signature’s large commercial real estate portfolio. That means the F.D.I.C. still needs to find a buyer for Signature’s core commercial real estate loan portfolio.

A spokesman for the F.D.I.C. said that the organization “has not characterize the types of loans left behind” and that they would be “disposed at a later date.”

“I think this means that Signature’s commercial real estate portfolio is still up in the air,” Mr. Anderson of Trepp said.

Construction in Lower Manhattan.Gabby Jones for The New York Times

An indicator that Trepp uses to measure the risk of default to loans held by banks on office complexes found that those facing the most distress were in San Francisco — where First Republic is based.

Banks are likely to cut back on lending to preserve capital in order to strengthen their balance sheets in anticipation of further Federal Reserve interest rate increases and renewed calls for regulators to get more aggressive in monitoring risk taking by banks. Any pullback in new lending could affect the start of commercial developments and push the economy closer to a recession.

As bank regulators work to stabilize the financial system, they will also need to keep an eye on banks holding too many commercial real estate loans in their portfolios — something that can create its own set of problems in a slowing economy.

A report late last year by Moody’s Investors Service, the credit rating agency, found that 27 regional banks already had high concentrations of such loans on their balance sheets. The report said the issue could become problematic for banks if the economy fell into a recession.

A construction site in Manhattan on Monday. The banking crisis could slow down building activity.John Taggart for The New York Times

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Gisele Bundchen Reacts to Reports Linking Her to Jiu-Jitsu Teacher and Billionaire Real Estate Developer – TooFab



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Simcoe County’s real estate market shows signs of recovery



Real estate experts paint a cautiously optimistic outlook after a year of downward market trends across the country.

Trends in Simcoe County show an increase in viewings and buyers re-entering the market after key interest rate hikes from the Bank of Canada warded off many last year.

Lance Chilton, the broker of record at Re/Max Hallmark Chilton Realty, calls the local market “more or less balanced.”

“Inventory conditions are the same as they once were in 2018,” he noted.” From 2020 to 2022, prices rose to about 43 per cent, which was rather rapid.”


Chilton said key interest rate hikes eventually bottomed out the local market by about September – that’s when home prices that peaked at around $1 million dropped to about $730,000.

“Since then, it’s recovered by about five per cent,” Chilton said. “In fact, we actually saw showings increase for the first time in about six months.”

The Barrie and District Association of Realtors (BDAR) confirms that showings have picked up again, with people getting that “spring fever.”

However, the one key issue that remains is low inventory.

“We saw prices dip because of interest rates and people pulling out of the market, but we never saw that supply come back online,” said Luc Woolsey, BDAR president, adding the situation creates multi-offer bids.

“So there’s still a lot of people having to come in firm, waiving conditions and inspections because they’re having to compete.”


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