In an effort to keep tens of thousands of rent-stabilized apartments out of the reach of questionable lenders, the Federal Deposit Insurance Corporation (FDIC) Wednesday concluded the second of two massive deals that leave it with controlling interests in $15 billion of mortgages across New York that were once held by Signature Bank, the victim of a stunning cryptocurrency-induced collapse in March.

Until it crumbled in the fourth largest bank failure in American history, Signature was the largest lender to rent-regulated buildings across New York. Its collapse led to fears that the FDIC could auction the mortgages to financiers intent on encouraging landlords to push out lower-paying stabilized tenants or to scrimp on maintenance to meet their loan payments. 

Instead, the agency entered into two agreements within six days with Santander, a national commercial bank, and a partnership led by the Community Preservation Corporation (CPC), which features organizations focused on housing preservation. The two deals will manage loans covering more than 2,000 apartment buildings and 70,000 rent-controlled or rent-stabilized units in every borough but Staten Island. 

Both the bank and the partnership have agreed to comply with FDIC requirements that they preserve housing availability and affordability. 

While the details were still emerging as of yesterday’s Santander deal involving 1,370 loans valued at $9-billion, the agreement involving $5.8-billion in mortgages to the CPC partnership announced late Friday was hailed by an array of city and state officeholders including Mayor Eric Adams. 

The agreement covers 868 buildings with nearly 35,000 units, 80% of which are rent-regulated, to be managed by a partnership led by the Community Preservation Corporation, a nonprofit multifamily finance company with 50 years of experience in affordable housing preservation. Neighborhood Restore HDFC, a nonprofit affiliated with New York City programs that works to financially stabilize troubled properties, will serve as a strategic asset manager, and Related Fund Management (RFM), a debt fund manager with experience in rent-stabilized loans, will be the strategic investor in the partnership. 

U.S. Rep. Ritchie Torres (D-The Bronx), who pressed the FDIC to stay away from irresponsible lenders, hailed the week’s developments. “Our commitment to preserving affordability has kept these units from falling into predatory hands that could have led to mass displacement,” he said.  

Under the deal concluded Wednesday, the FDIC awarded Santander Bank a 20 percent equity interest in the $9 billion in loans backed by rent-stabilized and rent-controlled properties, in exchange for its bid of $1.1 billion. The FDIC will retain an 80% interest in the venture.

In the $5.8-billion package, the agency awarded the partnership 5% interest in each of the two ventures established to hold 868 permanent loans, while retaining 95% for itself. 

The FDIC said that it will monitor and oversee the administration of the assets of both portfolios. 

“We have extensive reporting requirements and decision-making sharing with the FDIC,” said Robert Riggs, senior vice president of Community Preservation Corp. “You could only bid if you accepted the statutory obligations, among others, to maximize the preservation of the availability and affordability of residential real property.” 

From Housing to Crypto to Bust 

From the moment of Signature’s collapse and the reversion of its massive portfolio to the FDIC, the state and city, as well as many community-based organizations, lobbied for a solution that would protect the bank’s rent-stabilized holdings in particular. 

Before the Signature Bank’s failure, housing activists had criticized Signature’s lending practices in many neighborhoods, with loans spanning every borough but Staten Island. Signature historically lent to small- and medium-sized businesses, including landlords. While its portfolio included many stable, well-managed buildings, it also had hundreds of vulnerable properties.

An investigation by THE CITY revealed that the bank was the lender to one-third of the building owners on the New York City Public Advocate’s list of 100 “worst landlords,” with properties that abounded in housing violations and accumulated debt. The analysis detailed long-standing allegations that Signature Bank repeatedly gave loans to property owners who had notorious track records of building violations and lawsuits, and confirmed the bank’s practice of giving inflated loans to landlords who had aimed to remove apartments from rent stabilization restrictions and increase rents. 

Both Signature and Silicon Valley Bank in California, which failed two days before it, underestimated the risks associated with crypto industry loans. 

After its failure, many banking and real estate experts assumed that Signature’s mortgages would be sold at significant markdowns and that those acquiring them stood a high chance of benefiting from the bank’s misfortunes.

Jim Buckley, the executive director of the University Neighborhood Housing Program in The Bronx, who documented physical and financial indicators of distress in many of the Signature-financed buildings, had warned about the implications of the portfolio falling into the wrong hands. In an interview with THE CITY after the bank’s failure, he cited the massive foreclosures in the late ’80s that led buildings to spiral downward.

Buckley applauded the deal involving CPC, Related, and Neighborhood Restore. “FDIC’s willingness to maintain a substantial interest in the mortgages sends a clear message that they are taking their obligation to preserve both housing quality and affordability seriously,” said Buckley. 

Riggs, of the Community Preservation Corp., told THE CITY  the structure of the FDIC agreement offers three resources available to stabilize the loans for the long term. 

“The first tool is the ability to modify the terms of the existing loans, the second would be to tap a substantial capital improvement fund to address capital needs, and the third would be to work with the city’s existing preservation programs for potentially tax abatements and or direct capital subsidies,” Rigss said. 

Also enthusiastic about the agreement was Barika Williams, executive director of the nonprofit housing group Association for Neighborhood Housing and Development, who said it “puts us in a strong position to protect long-term affordability and prevent unscrupulous and speculative investors.”

She said that “as of now, the ownership of the mortgaged buildings will remain with the current owners” but that Santander or the partnership could decide what action to take,  including a potential change in ownership, “if landlords are not taking the steps necessary to ensure the financial and physical security of the building.”