SF Luxe Apartment Complex NEMA Loses Nearly Half Its Value

The value of luxury apartment complex NEMA has shrunk by nearly 50 percent, according to Trepp, citing remittance data from September. The recently appraised value of $279 million, or about $370,000 per unit, is well below the loan balance of $384 million and about half of its 2018 value of nearly $544 million.

The loan was sent to special servicing and owner Crescent Heights faced “imminent default” in August, Trepp said, citing servicer comments. The loan backed by the 754-unit Mid-Market complex was originated by Natixis in 2019 but then packaged into a commercial mortgage-backed securities offering.

“Bond holders are likely looking at losses down the road,” Trepp’s Manus Clancy said via email.

The two-building complex was built in 2013 at the corner of 10th Street and Market, across the street from the headquarters for X, the company formerly known as Twitter, which has shed two-thirds of its office space since Elon Musk assumed ownership. Just down the street, Whole Foods abruptly closed a location that had been open just under a year in Trinity, another large newly built apartment complex, citing safety concerns for its employees. NEMA is two blocks from the city’s Civic Center and UN Plaza along 10th Street.

NEMA has not brought in enough money to meet its debt obligations since 2020, according to special servicer notes. In 2022, the loan posted a debt service coverage ratio of 0.71 and had an occupancy of 91 percent. Both numbers were up slightly in the first quarter of 2023.

Beyond what the new valuation means for this particular loan, Clancy said the “sheer size of the drop is noteworthy” and could have a ripple effect on the values of other properties in the city, where one of the largest landlords recently defaulted on a portfolio that had been worth $1 billion.

The 50 percent decline is much more than the assumed 15 to 25 percent drop in multifamily values nationwide, Clancy said. It could speak to “things beyond interest rates like quality of life, occupancy and rent levels” impacting San Francisco apartments in particular.

It’s hard to make comparisons between NEMA and other recent San Francisco apartment building sales because there are few of the same size, with newer construction and not under rent control. But a non-rent-controlled 28-unit apartment building near Civic Center and built in 2002 sold in September for just under $10 million, or about $360,000 per unit, in the range of NEMA’s per unit valuation.

While allowing that property values can vary greatly from block to block, Clancy said that NEMA’s low valuation “is a sign that multifamily values in the SF MSA are off considerably.”