Months after Brookfield closed a deal to buy $675 million in loans tied to 1,700 San Francisco apartments formerly owned by Veritas, the bondholders on some of that debt are finally getting paid.
Investors in some of the riskier tranches of the debt, which was packaged into commercial mortgage-backed securities deals, have been paid out in full, after $40 million was distributed, according to a new report from Academy Securities, a veteran-owned and operated investment bank. The debt backs 62 apartment buildings across the city.
Proceeds from Brookfield’s purchase were first released in January, but there was an “eye-popping” $164-million holdback in proceeds, according to the report.
That meant only A and B investors on the CMBS debt — the least risky tranches — were fully paid back in January. The report did not explain why the special servicer was not releasing more of the total $513 million in proceeds.
The report said there was a “potential litigation risk on the heels of a dispute between certain investors in the deal and the special servicer,” which could be reason for the holdback. The new release may mean there is less litigation risk than originally thought or “actual developments behind the scenes that reduce the likelihood of that risk materializing.”
It’s unclear why investors only got back an additional $40 million — about $60 million is still being held back.
“The whole situation was a bit out of the ordinary, but I think most market participants expected some of the holdback to be released over time,” said Morningstar analyst David Putro.
Now that A through D holders have been made whole, he said, any further releases would go to E, then F, then G tranches. The G tranche is the largest at $96.3 million.
In all, the gross sale proceeds on the $344-million balance of the CMBS debt, which was originated by Goldman Sachs, was $285 million. The net proceeds have come to $188.5 million, after expenses.
That’s a loss of 45 percent, which is better than the initially reported estimation of 56 percent.
There is also a separate CMBS deal tied to the properties, which had a balance of $104 million at liquidation and received $54 million of gross sale proceeds, coming to a 49 percent payback to investors. There is also $222 million in unsecuritized debt on the 62 apartment buildings, which sold at a 49 percent discount with no holdback.
Brookfield and its local operating partner Ballast also bought the debt on 14 other former Veritas apartment properties, which is secured by different debt. All in all, Brookfield and Ballast reportedly paid 60 cents on the dollar for $1 billion in debt tied to the 76 San Francisco apartment buildings.
After buying the debt, Brookfield foreclosed on that 2,165-unit portfolio, making the firm now the largest apartment owner in the city. Prado Group bought a further 20 former Veritas properties for $124 million in a separate debt deal.
Read more
Commercial
San Francisco
Brookfield forecloses on 2,150-unit Veritas portfolio with uncontested $464M bid
Commercial
San Francisco
Brookfield’s SF apartment buy leads to “massive loss” for investors