The Distress Record: Two of California’s biggest landlords hit hard

Two of California’s most powerful landlords have found themselves in a tight spot, as interest rates continue to pummel the multifamily sector. 

Brookfield foreclosed last week on 76 Veritas apartment buildings, totaling 2,150 units, with an unopposed bid of about $464 million. The transfer represents about one-third of Veritas’ San Francisco rental portfolio.

The loans on the apartment buildings had once been valued at more than $900 million before Veritas went into default and Brookfield bought the debt for an as-yet-unknown amount last year. 

Veritas has run into serious issues of late, including an extended rent strike by tenants in 65 households in San Francisco.

In L.A. last year, the firm was not generating enough income to service the debt tied to 11 apartment complexes, after elevating 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. 

In Los Angeles, Neil Shekhter, the 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 most 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. 

Shekhter and his firm 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.

The office market is continuing to take its lumps.

In New York, Brookfield Property Partners failed to pay off a $148 million loan backed in part by One Pierrepont Plaza in Brooklyn Heights when it came due last month.

The securitized debt, which is also secured by a mixed-use building in Pittsburgh, is headed to special servicing, according to Trepp.

In Chicago, a Loop office building is headed to the auction block at a steep discount, roughly a year after former owner Marc Realty was hit with a foreclosure lawsuit.

The vintage 10-story office building at 216 West Jackson Boulevard will be up for grabs starting Feb. 20, with an opening bid of $1 million. Farbman Group brokers Bill Bubniak and Todd Szymczak are marketing the property, and Ten-X will handle the auction. 

The opening bid equates to a little more than $5 per square foot.

Marc bought the 185,000-square-foot building in 2013 for over $22 million, about $120 per square foot. The firm was sued after allegedly defaulting on a $16.5 million loan tied to the property. Marc eventually surrendered the property via deed-in-lieu of foreclosure, leading Florida-based special servicer LNR Partners to take control of the site last summer. 

Elsewhere in the news…

Foreclosure looms over iconic downtown Dallas office building

Houston’s Galleria office building headed to auction after $13 million default 

27 percent of CRE loans show risk of default, M&T reports