Dive Brief:

• A joint venture between San Francisco-based Veritas Investments and affiliates of Boston-based Baupost Group has defaulted on a $448 million loan backing 1,734 rent-controlled units in 62 multifamily properties across San Francisco, according to Fitch Ratings.
• Multifamily Dive reported last month that the Veritas multifamily loan pool was transferred into special servicing in November. When it matured on Nov. 15, 2022, it was not repaid. In December, it was reported as a non-performing matured balloon loan. 
• The Veritas multifamily pool comprised over 40% of the maturity default volume in commercial mortgage-backed securities in November. Sixty-plus day delinquencies jumped from $283 million in November to $911 million across commercial real estate in December. Thirty-day delinquencies increased to $642 million in December from $514 million in November, according to Fitch.

Dive Insight:

Fitch said that Veritas had indicated it was not going to exercise its one-year extension option or be able to pay off the loan at maturity. It is interested in finding a partner to help recapitalize the properties, according to the rating agency.

“We are in discussions with the lender on this portfolio about resolving the loan impasse to something acceptable to the parties, and are hopeful to finalize those terms soon,” a Veritas spokesperson told Multifamily Dive.

Approximately 12% of the total units were offline due to the Veritas performing renovations on vacant units at loan issuance. They were expected to be re-leased at market rental rates, according to Fitch.

Veritas isn’t alone in facing issues in an increasingly difficult market to find financing. For instance, multifamily commercial-mortgage-backed securities delinquencies jumped 36 basis points to 2.17% in December — the largest increase among all commercial real estate sectors, according to data and analytics firm Trepp.

San Francisco issues

Veritas is the largest apartment owner in San Francisco, according to the San Francisco Chronicle. The city, like New York City, saw a mass exodus of residents when the pandemic hit in 2022. Case in point: Rents in one-bedroom apartments fell 22.6% from November 2019 to November 2020.

Now, with the tech layoffs looming over the Bay Area, rent growth is still looking shaky. Although the average rent for a studio apartment in San Francisco increased by 4% from December to January to $2,153, the average rent for a one-bedroom apartment remained flat, according to Zumper. The average rent for a two-bedroom apartment actually decreased by 5% to $3,800.

“Concessions are starting to pick up a bit more in places like San Francisco and downtown Seattle,” said Haendel St. Juste, managing director of REITs for investment bank Mizuho Securities. 

Veritas has no plans to abandon the city. 

“Despite all that, Veritas remains committed to San Francisco, to our residents, to our investors and to our employees, as we believe in the long-term attraction of living in this city and in our character-rich properties,” the Veritas spokesperson said.

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