On March 10 and 12, respectively, Silicon Valley Bank and Signature Bank were placed into Federal government (FDIC) receivership. In a joint statement, the FDIC and the Fed, along with Secretary Yellen, guaranteed that all bank account holders would have access to their money.


Silicon Valley Bank was mostly tied to the tech sector. Because tech demand was high during the post pandemic period, numerous start-up companies received huge cash investment from venture capital firms and used the banks’ services to hold their influx of funds. But with the mass layoffs and uncertainty in the tech sector, account holders began to withdraw funds from the bank.


The collapse happened for multiple reasons, with the main one being a lack of diversification of the bank’s investments, which largely consisted of long-term U.S. Treasury bonds and mortgage-backed securities. To help fund the mass withdrawals, Silicon Valley Bank prematurely sold a $21 billion bond portfolio, at a $1.8 billion loss – due to a result of rising interest rates. [When interest rate rises, the value of the bond decreases on for-sale secondary markets. This is because the existing bond competes with newer bonds with higher interest rates.] To cover these losses, the bank tried to sell $2.25 billion in equity and stock – which, in turn, scared additional clients to withdraw funds from the bank and panicked investors into selling the bank’s parent company stock shares.


Signature Bank was shut down by federal regulators two days after the collapse of Silicon Valley Bank. Its failure resulted after bank customers withdrew billions of dollars in the aftermath of SVB’s collapse.


Valbridge Property Advisors notes that the collapses of these two banks appear to be isolated and not indicative of the beginning of a wider event. Most other banks that have a diversified holding of investments appear to be secure for account holders and investors.


The collapses of Silicon Valley Bank and Signature Bank has led to an overall industry-wide credit tightening. The combination of the stricter lending standards and higher interest rates will have an effect on the national, statewide, and local real estate markets. Deals continue to occur, however, competition among buyers has shrunken.


In the near term, commercial real estate market participants will likely execute very few transactions. Debt rates are increasing rapidly; we have observed pending sale transactions of commercial real estate that have fallen out of escrow while buyers were seeking financing. We expect to see more creative financing, such as seller-carried financing, loan assumptions, and wrap mortgages – as examples, when deals do close.


It is likely that only the best properties will trade in early 2023. High-quality tenancies with long-term leases remain the most sought-after investments. Lower-quality properties that can be assembled into development sites as large as one-acre, or greater, will likely reflect land value for other commercial real estate sectors, such as life sciences, multi-family residential, or mixed uses.