Crescent Heights, the developer that defaulted on a $384 million loan tied to a 754-unit luxury apartment tower in San Francisco, has won a mulligan from its lender allowing it to keep the building.
The Miami-based firm cut a deal with Wells Fargo Bank, trustee for the troubled loan, allowing it to retain ownership of NEMA San Francisco at 8 Tenth Street, in SoMa, the San Francisco Chronicle reported.
The luxury complex, which has struggled for years, entered foreclosure proceedings last week after the landlord began missing payments in the fall.
But after months of negotiations, the parties agreed to modify the 2019 loan agreement, allowing Crescent Heights to retain control of NEMA. Terms of the deal were not disclosed.
A Crescent Heights’ spokesperson described a lawsuit filed by Wells Fargo last week to recoup the mortgage debt as a “servicing procedure.” The lenders planned to trigger a non-judicial foreclosure proceeding, and sought a receiver to take control of the complex, according to the complaint.
“Crescent Heights is pleased to confirm it has agreed in principle to a loan modification with its lenders, and that this filing is a servicing procedure while loan documentation is finalized,” Crescent Heights’ spokesperson said in a statement.
NEMA, which stands for “New Market,” was built by Crescent Heights in 2013 as a futuristic complex designed by Handel architects, across the street from X’s San Francisco headquarters.
It pioneered a luxury lifestyle — with fancy amenities and hospitality-style services in a market transformed by nearby tech giants such as Uber, Zendesk and Twitter, now X, according to the Chronicle.The property has 13,000 square feet of shops and restaurants.
But it struggled to pay its bills. NEMA’s $384 million mortgage was sent into special servicing in August, according to the San Francisco Business Journal. Since 2020, the loan has had a debt service coverage ratio level below 1 — denoting a negative cash flow, according to Trepp.
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In September, the loan became delinquent when Crescent Heights was “unable to pay operating expenses after the payment of debt service,” according to Morningstar Credit.
Despite 90 percent occupancy, declining rents wouldn’t cover expenses, according to the unidentified spokesperson. “Occupancy-wise we are running fine — but the prices are way off from before COVID-19,” the spokesperson said, referring to rental rates.
In 2020, Crescent Heights was approved to build a 966-unit, 55-story residential tower at the site of a defunct Honda dealership at 10 South Van Ness Avenue. It has yet to break ground, as most market-rate projects have been on hold during a worsening economy. The city approved a four-year extension of its entitlements.
— Dana Bartholomew