Ballast Investments wins auction for Veritas’ $800M in apartment loans

UPDATE AUG. 31 at 3:15 pm.:

The winner of the $800 million prize tied to 75 distressed apartment buildings across San Francisco is … Ballast Investments.

The San Francisco-based real estate firm is buying the $800 million portfolio of delinquent loans linked to 2,149 San Francisco apartments controlled by Veritas Investments, the city’s largest residential landlord, and its partners, the San Francisco Chronicle reported, citing an unidentified source.

Eastdil Secured, based in New York, conducted an auction for the debt on behalf of lenders on the Veritas properties.

The pending deal puts Ballast, owner of the Brick + Timber rental agency, among the biggest real estate players in the city. The price Ballast paid for the mortgages is unknown.

If the deal closes, Veritas will lose a quarter of its rental properties, which now number more than 8,000 apartments, up from 6,500 units last year, according to the Chronicle.

The number of units involved in the pending sale don’t include the entire portfolio for which Veritas ran into trouble with its lender.

In May, Eastdil Secured tried to sell the firm’s unpaid mortgage loans, divided into two portfolios containing 95 apartment buildings in San Francisco. The buildings contain 2,452 units and 45 commercial storefronts. In early June, Eastdil collected bids on the debt.

Based on TRD reporting, Ballast won the auction for the largest portfolio of 75 properties. A second portfolio with $140 million in debt tied to 20 San Francisco apartment properties was not part of the Ballast bid.

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 said last spring that its troubles point to the pandemic — during which remote work weakened demand for housing — and the cost of doing business in San Francisco.

“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 unidentified spokesperson said.

The pending sale appears to include a loan portfolio for 75 buildings with 2,149 units described as “trophy” multifamily properties in the city’s “most coveted neighborhoods,” according to a marketing brochure reviewed by the San Francisco Business Times.

The second portfolio with 20 buildings is backed by a pool of seven loans, six of which have been in default. 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 valued at $3 billion. A San Francisco Chronicle investigation identified more than 293 buildings owned by companies tied to the firm. 

The company, founded in 2007 by CEO Yat-Pang Au, fattened its portfolio in 2011 after it bought 2,000 apartments from the Lembi family’s CitiApartments, greatly indebted after the Great Recession, for $500 million.

This year, Veritas had tried to buy control of its own mortgages, but failed, the person with knowledge of the pending deal told the newspaper.

Median rent in Greater San Francisco fell 4.3 percent in the past year, compared with a nationwide decline of 1.2 percent, according to Apartment List. 

Clarification: Previous story did not include loan value or property count for the second Veritas portfolio.

— Dana Bartholomew

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