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SAN FRANCISCO-Lembi Group has listed a 12-building, 232-unit apartment portfolio here with Alain Pinel Realtors. Lembi hopes to generate $43 million in revenue from the disposition, which equates to approximately $185,000 per unit, approximately 50% of replacement cost and a significant discount to what it paid to acquire the properties.

The buildings may sell as a group or individually. Most were constructed in the first quarter of the 21st century and a few were built in the 1960s. The per-unit prices range from $320,000 to $100,000. Most of the projected cap rates on the buildings are in the 5% range and are based on scheduled income and a 3% vacancy factor. Much of the interest so far has been local buyers each looking to purchase one or two properties, according to local sources.

The sales will be watched closely by the market because only one other comparable property has sold in San Francisco this year, according to Real Capital Analytics. The property was Empire, a 40-unit, four-story property built in 1907 at 1040 Leavenworth Street. The property sold for $5.8 million or $145,000 per unit; the pro forma cap rate was 4.7%. All of the Lembi properties are said to be of higher quality.

Lembi, a major acquirer of San Francisco apartment buildings in recent years, recently deeded 51 of its 300 apartment buildings back to the lender and faces possible foreclosure on an additional 40 properties after being unable to refinance the properties amid the recession, according to published reports. Stephen Pugh, the Alan Pinel managing director with the disposition assignment, confirmed that Lembi is working in conjunction with the note holder and that the 12 buildings being offered for sale in order to satisfy the requirements for a larger loan restructure. Lembi Group managing director Walter Lembi was unavailable Tuesday for comment.

Lembi Group invested approximately $1.2 billion of debt and equity to acquire some 200 San Francisco apartment buildings between 2003 and 2007. The apartment market in San Francisco and San Mateo counties careened from 3.7% annual rent growth in the third quarter of 2008 to 1.4% annual rent cuts at year-end, and the annual rent change in 1Q09 was negative 5.2%, with San Francisco County coming in lower than that and San Mateo higher, according MPF Research.

“It may be a reaction to the huge drop in home prices,” MPF research director Greg Willett tells GlobeSt.com. “Operators may be trying to prevent tenants from going out and buying.”

Lembi’s main investment vehicles for its buying spree were CitiApartments Inc., Skyline Realty Inc. and Trophy Properties. Earlier this year, with monthly revenue running $3 million behind monthly debt service, Lembi gave 51 buildings back to lender UBS and, more recently, an affiliate of Los Angeles-based CIM Group began seeking foreclosure on an additional 23 Lembi-owned apartment assets after acquiring the underlying distressed debt at a discount.

Lembi is offering the properties at various price points, all but one being below what he paid for them. For example, the property at 2185 Bay Street, a three-story, 24-unit building built in 1926 at the corner of Bay and Divisadero streets in the Marina District, is listed at $5.975 million or $249,000 per square foot, which is a projected 5.2% cap rate. Lembi acquired the property in October 2007 for $7.9 million or $329,167 per unit, which represented a 4.1% cap rate.

Another of the properties, 2050 Powell, is a two-story, 14-unit apartment building over retail built in 1906 in the North Beach-Telegraph Hill area that is listed for $2.99 million or $213,929 per unit, which represents a projected cap rate of 6.2%. Lembi acquired the property for $3.6 million or $257,000 per unit in 2006.

A third property, 646 Corbett St., a 41 unit property built in 1967 in the Twin Peaks district is being offered for sale for $7.6 million or $185,122 per unit, which represents a projected cap rate of 5.72%. Lembi acquired the property in October 2007 for $7.3 million or approximately $178,000 per unit, according to Real Capital Analytics.

The properties are being marketed on a coordinated basis but may be sold either as a single portfolio or in pieces. Many of the properties are fully occupied.

“San Francisco remains one of the strongest rental markets in the Bay Area and it offers significant future growth potential as economic conditions improve,” said Mark Bonn, senior director of APR’s Investment Group. “The properties are located in supply constrained areas of San Francisco that will not be overly impacted by new development, contains dedicated parking stalls and offer financeable value.”

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