Veritas says it’s “still growing” despite $800M loan sale to Ballast

San Francisco’s largest apartment owner stands to lose a quarter of its units

Veritas Says It’s “Still Growing” Despite $800M Loan Sale
2242 Polk Street and 3839 Divisadero Street in San Francisco with Veritas founder and CEO Yat-Pang Au (Google Maps, LinkedIn)

Veritas Investments says it is “still growing” despite the reported sale of about $800 million in debt backed by more than 2,100 of its San Francisco apartments. 

“Veritas Investments has been one of the most active managers of small-unit-count multifamily on the West Coast, and we continue to be a leading firm with over 6,000 apartments under management in the Bay Area and Los Angeles, even after the loan-note sale,” a company representative told TRD

The spokesperson declined to give examples of recent purchases, but Veritas bought several trophy properties in the city late last year, including the biggest apartment purchase of 2022

Lenders for Veritas, the city’s largest apartment owner-operator, put up nearly $1 billion in loans on 95 Veritas apartment properties in an auction sale, with bids due in June. Veritas tried to buy back the debt on 75 of its apartment buildings but appears to have lost out to Ballast Investments, according to the San Francisco Chronicle on Wednesday, which cited “a person with direct knowledge of the pending deal who wasn’t authorized to speak publicly.” 

Ballast is another big owner of San Francisco apartments that often partners with the private equity giant Carlyle Group for its purchases. Many of its executives previously worked at Carlyle.

Veritas and capital partner Baupost lined up the debt in early 2021 through loans from Goldman Sachs. Goldman securitized about $450 million into two commercial mortgage-backed securities deals. It held onto around $150 million on the senior mortgage, while another $75-million senior loan went to Liberty Mutual affiliates. Goldman also sold $80 million in mezzanine loans to Fidelity Investments.

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The Ballast deal appears to be for all of the debt associated with this 75-building portfolio, but there has been no news yet on a second, smaller Veritas portfolio of 20 San Francisco apartment buildings, also in default, with just under $140 million in debt.

Eastdil Secured, which marketed the portfolios, declined to comment on the possible sale or the price. 

It’s “hard to ascertain” the current value for the combined $940 million in debt, especially “since the new noteholder would bear the costs of taking over the properties,” according to David Putro, Head of CRE Analytics at Morningstar Credit.

The $800 million debt sale is “a big deal especially given that it greatly reduces the time the loan will sit in special servicing,” he said via email. “They’re minimizing fees, advances, etc. And given the size of the portfolio, the cost and complexity of foreclosing on each of the individual underlying properties would have lengthened the timeline considerably.”

Putro said the fact that the 75 properties will transfer to another local owner with access to capital is a benefit. 

“Having an owner in place who knows the intricacies of the market and is experienced in getting properties there to perform would be preferential to an owner without that market knowledge,” he said.

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Veritas President CEO Yat-Pang Au, Veritas President and Chief Strategy Officer Justin Sato and Veritas COO Jeff Jerden with 2242 Polk Street in San Francisco (Loopnet, LinkedIn)
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