The Distress Record: Multifamily woes continue for some of the biggest players

It has been a bad year for multifamily players, and things don’t seem to be getting any better. 

Los Angeles-based Shangri-La Industries is facing a lawsuit after it defaulted on loans tied to seven Project Homekey developments across California.

In August, contractor Johnson Electronics sued Shangri-La, asking the court to foreclose on a mechanic’s lien tied to 1030 Fairview Avenue in Salinas, a motel slated for conversion into housing for the homeless, according to a court complaint. 

But after Shangri-La defaulted on a loan tied to the same project in November, one of its lenders, a successor to original lender Sunday Capital, filed a cross-complaint, asking the court to appoint a receiver on the development. 

The firm has defaulted on loans tied to seven hotels slated for Project Homekey conversions over the last six months, according to property records and county notices of default. All seven received state grants — worth about $121 million — to help support the conversions. 

If the court approves the lender’s application for a receiver, control of the Salinas project. A receiver has the power to sell the property, help finish construction and distribute funds to lenders and other creditors. That leaves the status of the project — meant to house at least 100 people — and its future ownership up in the air. 

In Texas, problems are mounting for Austin-based multifamily syndicator GVA, which is set to lose two properties to foreclosure after defaulting on nearly $125 million in loans.

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The apartment complexes, Falls on Bull Creek and Park at Walnut Creek, are the latest to go sideways for GVA. Founded by former golf marketer Alan Stalcup in 2015, the firm recently defaulted on $288 million in loans for Houston properties as well. 

Meanwhile, in New York, Brooklyn-based developer Abraham Leifer is facing at least his third lawsuit this year after a lender claimed unpaid mortgages at an unfinished Brooklyn apartment project. 

Lender Parkview Financial filed a lawsuit last week in Brooklyn Supreme Court against Leifer’s Aview Equities over mortgages at 57 Caton Place totaling $66 million.

Aview defaulted on the three loans backed by the 131-unit apartment building in April, Parkview claims in the suit. The lender is aiming to take control of the partially completed project, requesting the court to appoint a receiver to collect rents and profits ahead of a potential sale.

Leifer acquired the site in 2014 for $7.2 million. His planned 130,000-square-foot development on the site is supposed to stand 95 feet tall with ground-floor retail space and underground parking.

And in Chicago, Loop retail landlord Isaac Shalom of One North State Street is facing a $50 million foreclosure lawsuit.

The alleged default by the New York-based investor is part of a broader trend of struggling retail properties along the famed shopping corridor through the heart of downtown Chicago. Decreased office occupancy since the pandemic has reduced foot traffic even along key strips such as State.

The loan, which was originated by German American Capital Corporation in 2014, was sold into the securitized debt market, making much of the details surrounding the property’s performance public.

Also in the news:

In New York, Fortis’ leaning tower of FiDi tells a story that began with an ambitious vision, but has devolved into mayhem and, perhaps, foreclosure.

Jeff Krasnoff, head of special servicer Rialto, spent decades learning how to operate in down markets, and he’s leveraged that into an $11 billion business. 

How Adam Plotch built a business around searching for distressed co-ops to buy at foreclosure auctions. 

Three StoryBuilt properties in Texas go into bankruptcy