On June 6, Eastdil Secured will collect offers on the nearly $1 billion debt attached to 95 multifamily buildings owned by Veritas, one of the city’s largest apartment owners.
“It will be the most significant transaction that has gone down in years,” according to Brad Lagomarsino, a Colliers multifamily agent who sold Veritas many of the buildings in the portfolio over the years. He added that there is a “tremendous amount of inventory” already on the market and the massive sale will put “further weight on pricing.”
The 2,452 units in two portfolios — one with 75 buildings and $800 million in loans and the other with 20 buildings and nearly $140 million in debt — represents about a third of Veritas’ apartment total in the city.
The landlord and multifamily investment firm has been a major presence in the city since 2011, when it purchased a 2,000-unit portfolio for about $500 million from CitiApartments as the Lembi family faced its own defaults in the aftermath of the 2007 banking crisis.
Eastdil and Veritas declined to comment, but a source close to the sale said that Veritas plans to bid on its own debt, most likely with a new financial partner and not the Baupost Group, which was the major sponsor of the defaulting loans. Veritas plans to be more conservative and bring in a capital partner that follows suit so that a similar default does not happen in the future, according to the source.
The lower loan-to-value ratio and monthly payments of a restructured deal based on current market value will also make long-term ownership of the properties viable, the source said.
Since there have been so few deals this year, it’s hard to know just how much multifamily values have dropped since the peak of the market, when Veritas was among several big local names buying apartments. Some, such as Mosser and Ballast, had institutional backing.
Lagomarsino estimates that prices have fallen about 20 percent as interest rates rose swiftly while rents plateaued and the city’s biggest apartment lender, First Republic, was sold to JPMorgan Chase. There may be a further discount on the Veritas debt because the foreclosure process is not as simple as buying a building outright, he said.
The properties in the portfolio represent “some really nice stuff in some desirable parts of the city,” according to Sebastian Gaetani of Marcus & Millichap, including Russian Hill, North Beach, the Marina and Pacific Heights.
“Those are the areas in San Francisco where, if properties are priced correctly with debt costs in mind, you’re still seeing transactions get across the finish line,” he said.
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The premium northside locations of many of the buildings is one reason Lagomarsino expects the offering to generate interest from institutional buyers with local management as well as those with a “national platform” looking to get a foothold in the city. He wouldn’t count out Veritas getting its apartments back either.
“Veritas obviously really knows these assets well and has put a lot of capital into them and stabilized them,” he said. “They’re probably the most qualified at this point because of their familiarity with the product.”