Veritas in default on $450M commercial loan

One of San Francisco’s largest apartment owners secured debt with 62 multifamily assets

Veritas Investments is in default on a nearly $450 million loan secured by 62 of its San Francisco rent-controlled apartment properties.

The loan went into special servicing on Nov. 3, according to CMBS reports, and was not repaid when it matured on Nov. 15. The portfolio includes more than 1,700 rent-controlled units in San Francisco.

Veritas could not immediately be reached for comment.

The apartment investment and management company went from owning fewer than 100 units to becoming one of the biggest players in the city’s multifamily market when it bought a $500 million portfolio from the Lembi family, whose CitiApartments had been the largest apartment owner in the city until they lost most of their properties in the 2008 financial crisis.

Veritas bought the more than 2,000-unit portfolio in a partnership with funding from Baupost Group in 2011. The hedge fund is also a partner in the $450 million non-performing loan, according to a report from Fitch Ratings, which said the partnership had “indicated it was not going to exercise its one-year maturity option or be able to pay off the loan at maturity.”

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The report also states that Veritas and Baupost had “not yet presented a workout proposal to the special servicer, but expressed interest in finding a partner to recapitalize the properties.”

Baupost sponsored 90 percent of the loan and Veritas 10 percent, according to a report from KBRA. The bond rating agency said that the two-year floating-rate loan was structured with a $16.6 million debt service reserve, which is equivalent to six months of payment. As of November 2022, the debt service reserve account had been “nearly depleted.” The loan also had a nearly $30 million capital reserve as Veritas planned to spend 2021 and 2022 renovating apartment units, KBRA wrote. In November, that account had a “zero balance.”

Veritas has been an active buyer in the last year, purchasing several trophy properties including a $33 million buy on Polk Street that was the city’s biggest market-rate apartment trade of 2022. Also, it is planning to build its first ground-up apartment building, an 18-story complex in the Tenderloin, next door to one of its existing properties.

The Veritas default may be a sign of things to come in a city facing both micro and macroeconomic headwinds. Last month, TRD reported that Shorenstein Properties had been unable to refinance its $400 million loan secured by the Twitter building likely due to a combination of higher interest rates impacting commercial property values nationwide and disinterest in lending on San Francisco commercial properties in particular.

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Veritas in default on $450M commercial loan

One of San Francisco’s largest apartment owners secured debt with 62 multifamily assets

Veritas Investments is in default on a nearly $450 million loan secured by 62 of its San Francisco rent-controlled apartment properties.

The loan went into special servicing on Nov. 3, according to CMBS reports, and was not repaid when it matured on Nov. 15. The portfolio includes more than 1,700 rent-controlled units in San Francisco.

Veritas could not immediately be reached for comment.

The apartment investment and management company went from owning fewer than 100 units to becoming one of the biggest players in the city’s multifamily market when it bought a $500 million portfolio from the Lembi family, whose CitiApartments had been the largest apartment owner in the city until they lost most of their properties in the 2008 financial crisis.

Veritas bought the more than 2,000-unit portfolio in a partnership with funding from Baupost Group in 2011. The hedge fund is also a partner in the $450 million non-performing loan, according to a report from Fitch Ratings, which said the partnership had “indicated it was not going to exercise its one-year maturity option or be able to pay off the loan at maturity.”

Sign Up for the undefined Newsletter

By signing up, you agree to TheRealDeal Terms of Use and acknowledge the data practices in our Privacy Policy.

The report also states that Veritas and Baupost had “not yet presented a workout proposal to the special servicer, but expressed interest in finding a partner to recapitalize the properties.”

Baupost sponsored 90 percent of the loan and Veritas 10 percent, according to a report from KBRA. The bond rating agency said that the two-year floating-rate loan was structured with a $16.6 million debt service reserve, which is equivalent to six months of payment. As of November 2022, the debt service reserve account had been “nearly depleted.” The loan also had a nearly $30 million capital reserve as Veritas planned to spend 2021 and 2022 renovating apartment units, KBRA wrote. In November, that account had a “zero balance.”

Veritas has been an active buyer in the last year, purchasing several trophy properties including a $33 million buy on Polk Street that was the city’s biggest market-rate apartment trade of 2022. Also, it is planning to build its first ground-up apartment building, an 18-story complex in the Tenderloin, next door to one of its existing properties.

The Veritas default may be a sign of things to come in a city facing both micro and macroeconomic headwinds. Last month, TRD reported that Shorenstein Properties had been unable to refinance its $400 million loan secured by the Twitter building likely due to a combination of higher interest rates impacting commercial property values nationwide and disinterest in lending on San Francisco commercial properties in particular.

Read more

Tags