Andrew Edgell, Global Head of Credit Investments at CPPIB.Jenna Marie Wakani/The Canadian Press
Canada Pension Plan Investment Board has joined with two of Blackstone’s real estate investment arms and Rialto Capital to buy a stake in US$16.8-billion of commercial real estate loans that were orphaned after the collapse of New York-based Signature Bank earlier this year.
Blackstone Real Estate Debt Strategies and the asset manager‘s real estate income trust, BREIT, as well as CPPIB and Rialto are paying a combined US$1.2-billion to buy 20 per cent of a joint venture with the Federal Deposit Insurance Corp. The FDIC has been holding Signature Bank’s loans in receivership since it failed days after Silicon Valley Bank also collapsed.
The portfolio has about 2,600 mortgage loans on retail, office and apartment properties, mostly in New York City. It is one of multiple portfolios of commercial real estate loans that the FDIC has been auctioning off, with a total value of US$33-billion.
In March, Signature Bank was toppled by a liquidity crisis as nervous customers withdrew billions of dollars from accounts. But its loan book was believed to be largely intact, and the commercial mortgages that CPPIB, Blackstone and Rialto are buying into are “predominantly performing,” the investors said in a news release.
That presented a chance for investors to pick up a portfolio of stable loans at an attractive price. In addition, about 90 per cent of the loans are fixed rate, which protects them from pressure from higher interest rates in the near term.
The deal is rare in that it stems from a short-lived U.S. banking crisis that saw customers shift deposits from smaller regional banks to the largest lenders. But it is also a signal of the types of opportunities that are expected to surface for a burgeoning group of private-debt lenders as rising high rates, tighter banking regulations and market volatility put pressure on the banking sector.
With those forces at play, markets are “in this transition period where everybody’s trying to figure out where exactly credit risk is going to reside,” Andrew Edgell, global head of credit investments at CPPIB, said in an interview. “Historically, it was a lot in the banks and now it’s finding a different landing spot.”
Blackstone and CPPIB, in particular, are huge investors with large credit teams that were able to delve into the portfolio of Signature Bank loans up for auction and do the underwriting necessary to compete for the deal.
CPPIB’s credit division manages $75-billion of the pension fund’s $576-billion in assets. And Blackstone, which surpassed US$1-trillion in assets this year, is investing in part through its US$66-billion real estate income trust.
“With our partners, we were able to do a very granular underwriting and it was quite a rigorous process,” Mr. Edgell said. “You’re looking at loans individually, to a large degree, to build up your view on value.”
The FDIC will own 80 per cent of the venture, and has put up financing equal to half of its value.
James Bradshaw