Lenders seek to sell $1B in loans tied to Veritas’ SF apartments

Veritas Investments, San Francisco’s largest housing landlord, faces a firesale for $1 billion in delinquent loans.

The residential landlord stands to lose more than a third of its apartment properties as its lenders seek to sell delinquent loans tied to the properties, the San Francisco Business Times reported.

Eastdil Secured is trying to sell the unpaid mortgage loans, divided into two portfolios containing 95 apartment buildings in San Francisco. The buildings contain 2,452 units and 45 commercial storefronts.

Affiliates of Veritas owned 6,500 apartments in the city last year. The affiliates began defaulting on the loans in November.

A spokesperson for Veritas, founded in 2007 by CEO Yat-Pang Au, said in a statement that it is working with its partners and lenders “toward a resolution on a portfolio owned by institutional investors.

“While we’ve all seen the stories about office usage going down in the wake of hybrid work, multifamily operators in San Francisco have to contend with even more challenges, including increased city regulation, increased taxes, more pandemic impacts and the rising cost of doing business here,” the spokesperson added.

The lenders and special servicer had been in talks to either sell the properties or loans, according to notes sent to bondholders last month. The notes also indicated Veritas wanted to find a partner to recapitalize the properties.

The latest move suggests the lenders would prefer to sell the loans to another firm, which would likely foreclose and seize the properties.

The first loan portfolio covers 75 buildings with 2,149 units described as “trophy” multifamily properties situated in the city’s “most coveted neighborhoods,” according to a marketing brochure reviewed by the Business Times.

One loan for 61 buildings has an outstanding mortgage balance of $667.9 million. A second loan for 14 buildings has an outstanding balance of $134.2 million. Both matured in November.

The second portfolio comprises 20 buildings backed by a pool of seven loans, six of which have been in default since January. The outstanding balance is $138.8 million. The buildings contain 303 rent-controlled units and could accommodate 30 accessory dwelling units, or granny flats.

Before the pandemic, affiliates managed by Veritas owned and operated 265 buildings in San Francisco pre-pandemic valued at $3 billion. A San Francisco Chronicle investigation identified more than 293 buildings owned by companies tied to the firm.

Veritas has faced numerous lawsuits over its business model, which critics say consists of buying rent-controlled buildings and renovating them, while passing bundled costs for repairs and debt service to tenants.

After a 2019 law aimed at discouraging corporate landlords from driving up rents through legal pass-through costs, Veritas last year pledged to ramp up a hardship waiver program and waive new fees for tenants.

— Dana Bartholomew