Fifteen Group refinances Boyle Heights apartments with $163M from MF1

UPDATED, Oct. 25, 2023, 11:46 a.m.: Fifteen Group has refinanced one of L.A.’s largest apartment complexes — and one of the first garden-style apartment properties in the U.S. — with a new loan from MF1 Capital. 

The Miami-based firm scored $162.9 million in two loans from the multifamily-focused lender to refinance Wyvernwood, a 1,175-unit complex in Boyle Heights, according to data and a report from ratings agency DBRS Morningstar. Fifteen Group did not respond to a request for comment.

MF1, known for handing out huge swaths of debt in 2021 and 2022 to aggressive apartment buyers such as Tides Equities, then securitized one of the Wyvernwood loans into a collateralized loan obligation, or CLO. 

While Morningstar did not disclose the interest rate terms of the Wyvernwood loans, the agency stated the entire CLO — which totals about $895 million — had a stressed interest rate of 8.87 percent, a metric higher than the true rate.

However, borrowers are not paying that — all borrowers have purchased rate caps between 3.5 and 6 percent “to protect against rising interest rates,” according to a Morningstar report. 

Many borrowers that used floating-rate debt for acquisitions in 2020 and 2021, when rates were at historical lows, are now feeling the pain of ballooning mortgage payments. Fifteen Group is planning to refinance with a fixed-rate, commercial mortgage-backed securities loan “when market conditions improve,” according to Morningstar. 

Wyvernwood, located at 2901 East Olympic Boulevard, is valued at about $233 million, according to Morningstar. 

As of last month, when the loan was securitized, the Wyvernwood loan had a debt service coverage ratio of 0.79, meaning cash flow at the property was not enough to service the debt, according to Morningstar.

Across the entire CLO pool, Morningstar calculated a DSCR of 0.37, which could “ultimately impact the available proceeds available to be distributed to noteholders,” the agency added.

The property is in “relatively bad condition,” Morningstar, which toured the interior and exterior of the complex last month, said in its report. Sidewalks were cracked and “in desperate need of repair,” while common areas were filled with tenants’ damaged personal items, the agency added. However, the loan is structured to fund any deferred maintenance.

Fifteen Group has struggled to collect rent at the property, given the city of L.A.’s pandemic-related rent moratorium that lasted from 2020 through the beginning of this year, according to Morningstar. 

“Many tenants did not pay rent and now the large payments are due and eviction notices have been issued,” the agency wrote, adding the firm has recently filed 30 eviction notices against tenants. 

The property was 97 percent occupied in August and has $2 million available in future funding, according to Morningstar. The lender also agreed to a $3 million interest rate reserve, which can be used to pay off interest charges.

Fifteen Group bought Wyvernwood in 1999, after city health officials found lead-contaminated paint was strewn across the interiors and exteriors of apartments at the property and the previous owner was forced to sell. 

In 2007, the firm announced it wanted to spend $2 billion to redevelop the property into high-rise condos, quadrupling the size of the complex. Los Angeles city officials and tenants opposed the plans. 

Fifteen submitted an environmental impact report, a key step in obtaining city approval, but no progress was ever made on the redevelopment and the city terminated its planning case for the project in 2019. 

“There are no capital improvement plans for the near future other than repairing some noted deferred maintenance,” Morningstar wrote in its report. 

Fifteen Group also owns more than 1,000 units in Downtown L.A., after acquiring a struggling portfolio from Laguna Point Properties for $315 million. MF1 was also the lender on that set of properties. 

This story has been updated to include more information from DBRS Morningstar.