About half of the bank’s assets in the closely watched auction fall into the rent-regulated category By Peter Grant Nov. 19, 2023 6:44 pm ET The leading bid shows how much the value of New York’s rent-regulated apartment sector has deteriorated in recent years. PHOTO: SCOTT HEINS/GETTY IMAGES A venture of two nonprofits and Related Fund Management is poised to win an auction for billions of dollars of Signature Bank loans backed by New York apartments, according to people familiar with the matter. The venture’s leading bid of less than 70 cents of the loan’s face value shows how much the value of New York’s rent-regulated apartment sector has deteriorated in recent years. A formal winner could be awarded as early as Monday, according to a person familiar with the auction of real-estate assets once owned by the failed bank. New York state legislation enacted in 2019 made it much tougher for multifamily owners to raise rents, a development that has greatly reduced the worth of these buildings. Higher interest rates have also weighed on property values. The Signature loan sale of $33 billion in real-estate loans and other assets has been the largest commercial-real-estate transaction of the year. It was conducted by the Federal Deposit Insurance Corp., which seized Signature earlier this year. About half of the bank’s assets in the closely watched auction fall into the rent-regulated category. The other half consists of assets backed by a range of commercial property including nonregulated apartments. Most of the loans are performing. In other auction activity, a partnership between investment giant Blackstone and Rialto Capital, an asset management firm, has emerged as one of the leading bidders for at least one of the pools of Signature assets backed by commercial property, according to people familiar with the matter. The prices paid for Signature loans, especially for the commercial properties and nonregulated apartments, will provide the market-critical data points in determining how far values have fallen. Laws passed by New York state four years ago made it significantly harder to raise rents on apartments subject to regulation, thwarting the business plans of speculators who acquired properties under the previous laws. Many of these buyers had hoped to renovate or deregulate rent-stabilized units and drive up rents. When the new regulations prevented many multifamily properties from converting to market-rent units, the properties’ worth began to fall. A number of apartment landlords missed their debt payments. Sales of rent-regulated apartment buildings have come at sharp discounts. At some buildings, where all apartments are regulated, values have fallen as much as 70%, according to the Community Housing Improvement Program, a landlord trade group. Related Fund Management, which is affiliated with New York developer Related Cos., provided most of the money for the bid for the rent regulated assets. The two nonprofit housing groups—Community Preservation Corp. and Neighborhood Restore—will help oversee the loans and possibly the management of the properties if the owners default. Signature failed in March following a run on its deposits, the fourth largest bank failure in U.S. history. While the failure had little to do with its real-estate portfolio, it was one of the biggest commercial property lenders in the New York region, making its unwinding of great interest to real-estate investors throughout the world. The FDIC also plans to retain a 95% stake in the rent-regulated pools. The agency has a statutory obligation to preserve affordability and also wants to be in a position to share in the profits from a rise in property values. The FDIC’s sale of Signature assets will be by far the largest commercial-property deal of the year. The auction is being run by a team at real-estate broker Newmark Group , led by Doug Harmon and Adam Spies. Blackstone’s emergence as a front-runner for the commercial-property assets was earlier reported by Bloomberg.