Lenders Selling $1B in Overdue CMBS on Veritas San Francisco Portfolio

The largest apartment landlord in San Francisco, Veritas Investments, is facing the loss of more than a third of its multifamily portfolio in the city as its lenders seek to offload $1B in loans that are in default.

Eastdil Secured is marketing the unpaid mortgage loans, which are backed by 95 apartment buildings in San Francisco encompassing 2,452 units and 45 ground-floor commercial storefronts, the San Francisco Business Times reported.

The properties are described in a marketing brochure as “trophy buildings in the city’s most coveted neighborhoods,” the report said.

Veritas, which owns an estimated 6,500 apartments in San Francisco, said after the loans went into default in November that it had hoped to find a partner to recapitalize the financing, but the listing by the lenders is a strong indicator of an imminent foreclosure sale.

In November, Veritas defaulted on a $688M CMBS loan secured by 61 properties in the city. A joint venture of San Francisco-based Veritas and hedge fund Baupost Group, based in Boston, failed to repay the loan—a cross-collateralized, SASB package known as the Veritas Multifamily Portfolio Pool—when it matured on Nov. 15.

The loan was transferred into special servicing and was reported in December as a non-performing matured balloon loan, according to Fitch Ratings. Veritas declined to exercise a one-year extension option on the loan, Fitch said.

The company also defaulted on a second loan covering 14 buildings with an outstanding balance of $134M and a package of loans worth $139M covering 20 buildings in San Francisco, the Business Times reported.

“The multifamily real estate sector is facing many of the same financial challenges as have been reported on for other asset classes including office, retail and hotel-hospitality right now, including the spiraling costs of debt,” Veritas said, in a statement.

“While we’ve all seen the stories about office usage going down in the wake of hybrid work, multifamily operators in San Francisco have to contend with even more challenges, including increased city regulation, increased taxes, more pandemic impacts and the rising cost of doing business here,” the company’s statement said.

Baupost sponsored 90% of the non-performing loan and Veritas the other 10%, according to a KBRA report. The two-year floating-rate loan was structured with a $16.6M debt-service reserve, the equivalent of six months of payment. According to the report, as of November, the reserve account had been depleted. A $30M capital reserve budget that had been earmarked for renovations also had zeroed out, the report said.

Veritas said it remains committed to its portfolio in San Francisco, saying it believes “in the long-term attraction of living in the city and in our character-rich properties.”

Veritas became the largest landlord in San Francisco in 2011 when it bought the Lembi family’s 2,000-unit CitiApartments in a $500M transaction in a venture funded by Baupost.

In October, Veritas made the priciest multifamily acquisition in San Francisco in 2022, a 42-unit Russian Hill property that it bought for more than $33M.