Zappettini family defaults on Mountain View portfolio, after eyeing redevelopment

The San Francisco-based Zappettini family is in default on $120 million in loans tied to a ten-building commercial portfolio near Google’s Mountain View headquarters, after the loans matured last month, according to servicer commentary reported by several ratings agencies. 

The San Francisco-based Zappettini family originally bought and developed the properties in the 1970s. The collateral is part of a larger 10-acre office and industrial park with 17 buildings along Terra Bella Ave, West Middlefield Road and North Shoreline Boulevard. 

It is “pursuing its redevelopment into a mixed-use commercial and residential park adjacent to Google’s Mountain View headquarters,” according to its website. 

The Zappettinis did not respond to a request for comment. 

Citi Real Estate Funding originated the two loans — one for $65 million and a second for $55 million — and then pooled them into commercial mortgage-backed securities deals. 

Special servicer comments for the loans show the portfolio was 87 percent occupied as of September 2023 with a debt service coverage ratio of 1.7 for the first nine months of 2023, meaning the borrowers were making more than what was needed to service the debt. 

The properties were 100 percent occupied when the Zappettinis scored the loans in 2019. 

About 40 percent of the current leases in the mostly 1960s and 1970s-built office, light-industrial and research and development buildings were due to expire within six months, which may have been a key factor in the default, said Morningstar analyst David Putro.

“My assumption is that this loan was still performing but had a lot of tenant rollover risk that made getting takeout financing difficult in the current environment,” he said.  

The Zappettinis sold multiple parcels in Mountain View to Google in 2011, which the tech giant sold a few years later to The Irvine Company, according to public records. It sold another property to Google in 2016 for its now abandoned Google Landings project, also according to public records. Before the tech giant confirmed that it was rolling back its development plans this spring, it had entitled 800,000 square feet of office development on over 40 acres near 101 at Rengstorff Avenue for the potential buildout, according to the Mountain View Voice.

The Zappettini family was originally in the wholesale flower importing business and formerly used some of the Mountain View properties for its wholesale operations, according to its website. 

They owned almost two acres in the San Francisco Flower Mart from the 1950s until they sold it to Kilroy Realty in 2016 for its massive SOMA redevelopment plan for approximately $31 million in cash and $56 million in stock. 

The family’s website says it “spearheaded the assemblage of the seven-acre San Francisco Flower Mart block to transform it into the city’s second largest mixed-use office project to span over 2.2 million square feet.” That project is currently on hold due to current market conditions. 

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