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CMA
September 25, 2015  

$815 Million Loan Sought on SF Apartments

A joint venture between Veritas Investments and Baupost Group is quietly seeking $815 million of debt on a San Francisco apartment portfolio.

Lenders are being asked to submit bids for a fixed- or floating-rate loan with a term of five or seven years. Eastdil Secured is pitching the assignment to a select group of lenders.

The portfolio encompasses 62 properties, with 1,853 total units, scattered across upscale neighborhoods in central San Francisco, including Downtown, Pacific Heights, Russian Hill, Marina, Mission and Haight-Ashbury. Rents at most of the buildings are regulated.

The properties were formerly owned by the Lembi family, once among the biggest landlords in San Francisco. In 2011, the family surrendered the heavily leveraged portfolio to San Francisco-based Veritas and Boston-based Baupost, which had bought debt on the properties via separate transactions.

The Veritas partnership would use most of the proceeds from the new loan to retire $572.3 million of financing it lined up in 2013. That package encompassed $390 million of loans from J.P. Morgan and $182.3 million of preferred equity.

J.P. Morgan originated two loans. The larger one — with a $231.5 million balance and a five-year term — is backed by 44 properties with 1,230 units. The bank carved that fixed-rate debt into two senior pieces, with 5.4% coupons, and a $20 million B-note. The senior debt was securitized via two pooled offerings (JPMBB 2013-C15 and 2013-C16). The B-note was placed separately.

A J.P. Morgan affiliate also wrote a $158.3 million balance-sheet loan, with a 30-year term, on the remaining 18 properties, with 623 total units.

The preferred equity consists of a $118.5 million senior tranche with a 10% yield and a $64 million junior tranche that pays 11%.

The $242.7 million difference between the requested loan and the existing financing reflects the big run-up in San Francisco apartment values over the past couple of years. The gap is big enough to justify prepayment costs that the partnership will incur.

The properties that back the existing CMBS loan were built between 1890 and 1976 and range in size from four to 79 units. Among them are an 81-unit building at 601 O’Farrell Street, a 79-unit property at 400 Duboce Avenue and a 60-unit property at 676 Geary Street.