Royal Bank of Canada is poised to pounce on 82 apartment buildings in San Francisco owned by Goldman Sachs and Ballast Investments, which defaulted on $687.5 million in loans tied to 1,200 units.
RBC Real Estate Capital, a unit of the Toronto-based bank, has transferred two of three residential portfolios to special-purpose entities, a precursor for assuming ownership, the San Francisco Business Times reported.
The special-purpose entities include two loans for $162 million tied to 277 units and $316.5 million tied to 564 units. A third loan for $209 million hasn’t been transferred to a newly created entity, or LLC.
The creation of the entities by RBC in June and transfer of two of the three loans on July 3 suggest the lender is readying to take control of the three portfolios, according to the Business Times.
Goldman, the New York-based equity partner, and Ballast, the locally based operations partner, bought the roughly 1,200 apartments between 2017 and 2020 for $704.5 million, or roughly $587,000 per unit.
RBC’s pending portfolio takeover comes a year after Goldman and Ballast defaulted on the mortgage debt, two unidentified sources told the Business Times. It wasn’t clear what led to the default.
While Ballast had skirted its financial obligations to RBC, it teamed up with New York-based Brookfield Properties on one of the largest apartment acquisitions in the city.
In January, Ballast and Brookfield bought $915 million in troubled mortgages tied to 2,165 apartments owned by Veritas in San Francisco, making them one of the biggest landlords in the city. The $615 million purchase allowed them to foreclose on 76 apartment buildings.
At the same time, Goldman and Ballast had sidestepped mortgage payments for 82 apartment buildings.
Local market conditions could have prompted the value of the apartments to fall below the value of the debt originated by RBC — which would have stripped the equity in the portfolios. That, in turn, may have prompted Goldman and Ballast to decide to abandon their investment.
The pending deed-in-lieu of foreclosure hand-off between Goldman, Ballast and RBC would mark the latest pile of apartment properties in San Francisco to be turned over because of loan trouble.
In October, Prado Group snapped up debt tied to a 316-unit apartment portfolio owned by Veritas Investments, which then surrendered the portfolio to Prado.
Last summer, San Francisco’s Mosser Companies defaulted on an $88 million loan linked to 459 apartments, according to the San Francisco Chronicle. In February, Mosser’s lender was seeking to sell the troubled loan.
Goldman and Ballast now own 106 apartment properties in San Francisco, according to a Business Times analysis, including the 82 that would be surrendered to RBC. Together, they spent $1.1 billion between 2017 and 2020 buying 100 buildings, which include 2,100 units.
This year, RBC was in talks to bring on San Francisco multifamily owner Hamilton Zanze to replace Ballast, which managed the three portfolios. That RBC sought to instate a new operator for the portfolios suggests it intends to hang on to them before pursuing an exit, according to the Business Times.
— Dana Bartholomew
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