Published on Thursday, September 21, 2023

The opportunities in CRE debt are large, according to one CEO.


Marathon Asset Management is bidding on Signature Bank’s $33 billion real estate loan portfolio, CEO Bruce Richards said this week to Bloomberg Television.

The Federal Deposit Insurance Corporation put the portfolio up for sale earlier this month. About $15 billion of the CRE loans secured by multifamily residences are rent stabilized or rent controlled. 

As the agency said, one of its statutory obligations is “to maximize the preservation of the availability and affordability of residential real property for low- and moderate-income individuals.” To that end, those buildings will go into “one or more joint ventures” in which the FDIC will hold a majority equity interest. “In addition, the JV operating agreement will provide certain requirements that facilitate the financial and physical preservation of these loans and underlying collateral.”

The FDIC will hold the equity while winning bidders will manage, service, and ultimately dispose of the loans under “strict monitoring,” as defined and required by the JV operating agreement.

Richards said JPMorgan Chase CEO Jamie Dimon was right in deciding not to “buy the banks.” As Fortune reported earlier this year, JPMorgan did buy First Republic under a sweetheart deal. But Dimon said that such acquisitions have hidden costs and that integrating them “distracts” from other things a company might do instead.

That is a classic description of the complications that face growth-by-acquisition strategies. As many studies over the years have suggested, between 70% and 90% of acquisitions fail to deliver the expected value, even when a “complementary” business, according to strategic consultant Graham Kenny, writing in the Harvard Business Review.

“It’s not only stricter regulations, but it’s the higher loan loss provisions that are going to go through with the higher rates,” Richards said. “They’re really impacting the consumer, businesses and real estate.”

However, there's an expansive difference between acquiring an entire operating business and a set of assets. With a loan portfolio, the loans already exist. There is no initial processing, removing the up-front costs.

The opportunities in CRE debt are large, Richardson told Bloomberg Television in May. “‘It’s time to enjoy the ride,’ Richards said in an interview, adding higher base rates offer investors an extra 500 basis points compared with the past decade, making it attractive.” He called it a “golden time.”