The dramatic failure of Silicon Valley Bank looks like having major implications for real estate with PropTech companies, residential mortgages and commercial real estate loans all affected.
Regulators stunningly shutdown SVB, America’s 16th largest bank, last week after depositors started pulling out their money.
SVB started moving towards insolvency when its largely technology-based customers began withdrawing their deposits, as they struggled to get financing.
The bank had to then sell bonds to cover the withdrawals, which had fallen in value dramatically after interest rates had skyrocketed – leading to the largest failure of a US financial institution since the height of the global financial crisis.
According to Inman, California regulators shut the bank down on Friday, while the Federal Deposit Insurance Corporation (FDIC) seized its assets.
The FDIC then created a new bank, the National Bank of Santa Clara, to hold the deposits and other assets of the failed bank.
The bank had about US$209 billion in total assets at the end of 2022 and about US$175.4 billion in total deposits, the FDIC said in a statement.
PropTech companies caught out
Some of Silicon Valley Bank’s most prominent PropTech customers included Opendoor, Roofstock, Homebound, Nomad, Airbnb, and Tomo.
Homeward, CEO Tim Heyl told Inman they had some money with the failed bank.
“It makes everyone’s life a little more stressful while companies wait to see if funds will be released,” Mr Heyl told Inman.
“Fortunately for us, we only had a small amount of our funds with them.
“SVB has always been a great partner to startups, so it’s unfortunate to see this playing out.”
Last week, the bank had attempted to raise money and then find a buyer, resulting in the stock price of the company plummeting 60 per cent.
US Treasury Secretary Janet Yellen was quick to react to try to prevent any financial system contagion, approving actions enabling the FDIC to complete its resolution of SVB “in a manner that fully protects all depositors”.
The FDIC said in a statement that all insured depositors will have full access to their insured deposits today.
“The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds,” the agency said.
“As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.
“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
Ms Yellen said rising interest rates were the core problem for Silicon Valley Bank, with many of its assets, such as bonds or mortgage-backed securities, losing market value as rates climbed.
“The problems with the tech sector aren’t at the heart of the problems at this bank,” she said.
She said she expected regulators to consider “a wide range of available options,” including the acquisition of Silicon Valley Bank by another institution, however, no buyer has stepped forward.
Residential and commercial loans
While SVB primarily lent to venture capital and private equity firms, about 15 per cent of loans were to residential mortgages and commercial real estate, according to The Real Deal.
While the FDIC sells the bank’s assets and pays out depositors, these loans have to change hands.
SVB held about $8.3 billion worth of loans secured by personal residence mortgages at the end of 2022 and about $138 million linked to home equity credit lines.
It also held $2.6 billion in commercial real estate loans with 35 per cent of its commercial backed loans on multi-family properties, while offices made up 21 per cent.
Australian companies have also been caught up in the collapse, with technology group Canva among the firms looking to recoup money deposited with SVB.
A Canva spokesman told the Australian Financial Review that the company had an account with SVB but would not discuss the balance.
“We’re in the fortunate position of having the majority of our cash outside their banking system and have safety nets in place to ensure our operations aren’t compromised,” he said.
Mining technology company Plotlogic also had money deposited with SVB.
“Fortunately, we’ve got a few months of working capital here in Australia,” Chief Executive Andrew Job told AFR.
“It’s bought us a few months, but we still need to get the money out, and we’re not sure where that’s at just yet.”