About $1.8 billion in loans backed by Parkmerced, one of San Francisco’s largest apartment complexes, has moved to special servicing at the request of the borrower, Maximus Real Estate Partners.
Maximus, owner of the 152-acre, 3,200-unit multifamily complex in the city’s southwestern corner, recapitalized a $1.8 billion debt in 2019 with $1.5 billion in senior financing from Barclays and Citi and a $275 million mezzanine loan from Aimco.
Maximus requested the transfer to special servicing due to the neighborhood’s high vacancy rate and the loan’s upcoming maturity date of December 2024, according to Morningstar.
A Parkmerced rep did not reply to a request for comment.
The most recent financials from September show an occupancy rate of 83 percent at the city’s largest apartment complex and a debt service ratio well below break even, according to the ratings firm. Though that is up from the 70 percent occupancy level in the second quarter of 2022, according to previous remittance notes, the “performance is pretty poor,” said Morningstar’s David Putro.
The loans include $1.5 billion spread out over multiple commercial mortgage-backed securities conduits originating in 2020, as well as $275 million in mezzanine debt that Aimco planned to sell for about $167 million about one year back.
Later Aimco quarterly reports clarified that “in our continued effort to simplify the business, and eliminate exposure to legacy investments,” it had actually sold just a 20 percent stake in the Parkmerced mezzanine loan for about $38 million, including the option to acquire the remaining 80 percent. It also separately monetized the debt’s associated interest rate swaption — basically insurance to protect against future interest rate increases, purchased at the origination of the loan, which can be very valuable in the current market. The swaption sale brought in $54 million, and Aimco invested the proceeds in “a short-term treasury instrument as an ongoing hedge of the Parkmerced mezzanine loan investment.”
The purchaser of the mezzanine debt forfeited its option to acquire the remaining 80 percent in the fourth quarter of 2023, which resulted in the subordination of its earlier investment. Aimco wrote off its remaining investment in the mezzanine loan, “given the expiration of the buyer’s purchase option, the loan’s upcoming maturity date and the financial position of the borrower.”
Parkmerced, a mid-century apartment complex next to San Francisco State University, is supposed to be transformed into a new 8,900-unit development with 230,000 square feet of shops and restaurants, 80,000 square feet of offices and a 64,000-square-foot community center.
Although plans were approved in 2011, and new renderings put out in 2022, no construction has begun. Early last year, Maximus founder Rob Rosania told SFGate the project was stalled due to “sky-high construction costs, inflation and supply chain issues.”
In its most recent update to Parkmerced residents last summer, the ownership said in the Parkmerced Pulse that it “does not have a date certain for an anticipated construction start for Subphases 1A and 1B and continues to work diligently with the city, community, and lenders towards commencing construction.”
Read more
Commercial
San Francisco
Aimco to sell $275M ParkMerced loan for $167.5M
Commercial
San Francisco
Maximus unveils plans for SF’s Parkmerced