Neil Shekhter, the prominent Los Angeles landlord behind WS Communities, has lost about half of his firm’s portfolio to lenders.
WS has signed deeds-in-lieu of foreclosure on 28 multifamily buildings and development sites across L.A. County, as a way to relieve itself of about $1.1 billion in unpaid debt, according to property records.
Madison Realty Capital, the New York-based lender, took over the bulk of the portfolio, signing control over 20 properties. Another New York-based lender, Lightstone Capital, and local lender Hankey Capital also signed deeds-in-lieu — with Lightstone taking over three and Hankey six.
The deeds are a massive blow to Shekhter and his firm, which owned about 2,200 units across L.A. County in 2020. The deeds-in-lieu are tied to more than 870 units, and the firm has sold about 200 units since then, leaving Shekhter with about 1,100 units.
WSC’s CEO Scott Walter and Shekhter declined to comment on the firm’s troubles. Hankey Capital also declined to comment, while Madison Realty had not provided a comment by the time of publication. Lightstone did not respond to a request for comment.
Deeds-in-lieu offer a faster alternative to a traditional foreclosure proceeding, though still a last resort for borrowers — other remedies, like extensions or a forbearance agreement, at least allow borrowers to keep ownership of their properties while working out debt issues.
A source familiar with Shekhter’s deeds-in-lieu said most of the assets are not cash flowing, but the majority of his loans were floating-rate.
When the Fed hiked rates in mid-2022, so did Shekhter’s monthly debt bills. The source said some of his loans went from 7.5 percent to 12 percent over the course of a year.
“As liquidity was disappearing, he was unable to keep the loans current,” the source said.
Refinancing loans, another possible lifeline, has also become more difficult. Many lenders have pulled away from lending on commercial real estate generally, given troubled loans on lenders’ books have increased, but also L.A., thanks to the city’s new transfer taxes that have chilled investment.
Instead of working with Shekhter to extend the loans, the lenders were more concerned with getting paid. The lenders also did not want to sell off the properties quickly, recognizing that it could result in substantial discounts, given many buyers are on the sidelines due to high interest rates, the source said.
Madison Realty has handed out about $1 billion in debt since 2020, mostly to finance Shekhter’s development plans in Santa Monica, records show.
With the deal, Madison now owns six development sites in Santa Monica and 14 apartment complexes across the county, including the recently finished, 16-story tower at 6401 Wilshire Boulevard in Beverly Grove.
Some of the properties were once pitched as builder’s remedy developments in Santa Monica, the legal provision that Shekhter’s filings exposed in 2022, taking advantage of the city’s failure to comply with state housing law. While WSC settled with the city and agreed to pull most of its builder’s remedy applications, the firm scored expedited processing on future projects.
On most of the properties, Madison has already refinanced them with a new $250 million debt package from Hankey Capital, records show. Hankey and Madison had been joint lenders on a handful of deals with Shekhter.
WSC has also lost two other development sites — 1038 10th Street and 1007 Lincoln Boulevard — to a court-appointed receiver, after the firm defaulted on a loan from the Bank of Southern California, court records show.
But Shekhter is not the only multifamily owner in California grappling with a high interest rate environment. Last year, Veritas Investments lost control of 20 apartment buildings in San Francisco after defaulting on nearly $1 billion in loans.
Veritas also had troubles in L.A. last year. The firm was not generating enough income to service the debt tied to 11 apartment complexes, after rising rates caused its debt payments to rise. Veritas, however, looked to extend the loans, a common strategy to buy more time to pay off the debt.