Distressed Assets, Major Apartment Portfolio Sales in the Bay Area

The increase in distressed borrowers walking away from their debts led the news this week, as experts at a debt conference in San Francisco said they’re seeing one in three handing over the keys.

“The borrower is actually coming to the bank and saying, ‘Look, will you accept a deed-in-lieu? We’re done. We don’t want to go through the foreclosure process. We don’t want to take on default interest rates. We just want to hand it back to you,’” said Dan Duarte, director of the special assets department at Chico-based Tri-Counties Bank, who moderated a panel on “Forced Owner Exit Strategies” at IMN’s Distressed CRE West Forum.

Like Duarte, most panelists spoke to distress conditions that were national, and not specific to the Bay Area.

At the same time, it’s “no coincidence” that the conference was held in San Francisco, according to Heather Turner, CEO and founder of Portland-based Tamarack Capital Partners, a hospitality-focused investment firm. Turner called San Francisco a “great long-term market” where her company has done over $1.5 billion in hotel deals over the years, but also one with a lot of distress, and therefore a lot of opportunity for buyers with patient money, like family offices.

Echoing comments made by those in the earlier panel, Turner said her company did a “very cooperative” deed-in-lieu on a hotel property with a lender because “we’re not going to put good capital after bad and end up with a basis that we’re never going to get that new money out of anyway.”

With borrowers walking away, panelists stressed the importance of relationships with lenders throughout the conference. For Bay Area investors, the transition from a white-glove local bank like Silicon Valley Bank or First Republic to a big national bank like JPMorgan has been “one of the most unenjoyable experiences in the history of mankind,” said Riaz Taplin, founder and CEO of Oakland-based multifamily developer Riaz Capital.

541-room San Jose hotel goes to lender after foreclosure

Bucking the deed-in-lieu trend, a group led by Sam Hirbod struggled to hold on to its distressed Signia by Hilton San Jose for years, and lost it to foreclosure in the courts after it failed to meet a May 1 deadline to refinance its $134 million loan.

“I lost 30 years of my life equity in there,” the Eagle Canyon Capital president told the San Jose Mercury News. “All $180 million that we put into the hotel that I had earned over 30 years of hard work is gone.”

Hirbod’s ownership group bought the former 805-room Fairmont San Jose in 2018 for $223.5 million, then put $75 million more into upgrades. BrightSpire Capital originated a $185 million loan tied to the property.

The New York-based real estate investment trust is now the owner of the 541-room hotel — the largest in San Jose — after a Superior Court Judge declined to stop the foreclosure. It was valued at $80 million in the foreclosure proceedings, well below the hotel’s appraised value of around $217 million in late 2024, in another sign of continued weakness in hospitality.

76-building multifamily portfolio trades for $540M

In apartment news, PCCP bought 1,770 apartments on both sides of the bay for $540.5 million, marking the largest Bay Area multifamily deal this year.

The Los Angeles-based investment firm closed its purchase of 76 apartment buildings in San Francisco and Oakland, purchased at a nearly 30 percent discount from what the buildings traded for around six years ago. German American Capital loaned PCCP $430 million for the acquisition.

The seller was San Francisco-based Veritas Investments and Canada-based Ivanhoe Cambridge. Veritas and Ivanhoe bought 66 apartment buildings in San Francisco and 10 in Oakland between 2018 and 2021 for nearly $750 million, or $423,729 per unit. They sold the properties to PCCP at $305,367 per unit.

In a silver lining for Veritas, PCCP will retain the firm to manage its former 1,770-unit portfolio. Veritas’ founder, Yat-Pang Au, told The Real Deal last year that, after losing a third of its multifamily holdings in the city in a foreclosure auction, the company would concentrate on expanding its property management business, as well as potentially buy more buildings.

6 acres for sale in prime SF neighborhood

San Francisco could see a defunct nursing home turn into a new 6-acre development in one of its most popular neighborhoods, if buyers bite on a $58.5 million offering from a France-based Roman Catholic order.

The Little Sisters of the Poor decided to sell its land on prestigious Lake Street in the Inner Richmond for the first time in more than a century after closing its St. Anne’s Home last month, and relocating its 59 residents. The property includes a 120,000-square-foot senior facility, built in 1979, plus a 4,500-square-foot carriage house.

Insiders told the San Francisco Chronicle that private developers and the city are eyeing the site, and there is a mid-May deadline for bids.

One local developer said his firm has had “discussions with groups” involved in its sale around “trying to repurpose the existing building,” potentially putting denser units toward the Lake Street frontage of the site and single-family or townhomes toward the back.

“House Apple bought” goes for $19M in SF

Not far from the Lake Street site, the wife of venture capitalist and art collector C. Richard Kramlich, an early Apple investor, has sold the couple’s long-time Presidio Heights home. It traded for just half a million less than its $19.5 million asking price, going into contract after Kramlich’s sudden death in early February and closing on May 5.

Kramlich and wife Pamela bought 3699 Washington Street in the early 1980s after Apple went public. She had fruit-shaped doorknobs attached to the front gate to mark “the house that Apple bought,” she told the Chronicle for an obituary on the New Enterprise Associates founder.

Compass agent Neal Ward represented the sellers and declined to comment. The buyer’s agents, Shane Ray and Julie Rogers, also with Compass, did not reply to a request for comment.

The buyer was HSF Property Holdings, LLC, according to the deed, which lists the address of a medical and legal office building in Oakland.

Though it didn’t quite break the $20 million mark, the sale of the five-bedroom, seven-bathroom home is among the top 10 in San Francisco so far this year. A seven-bedroom, six-bathroom home just across Spruce Street from 3699 Washington sold off-market for $26 million in January, while the majority of the other top deals were in neighboring Pacific Heights.