Dive Brief:

• New York City-based global banking and investment management firm Goldman Sachs and San Francisco-based multifamily owner and operator Ballast Investments are expected to hand 1,200 San Francisco apartments to Toronto-based lender RBC Real Estate Capital Corp. after defaulting on the properties’ debt last year, according to a report from the San Francisco Business Times.
• The outlet reported that RBC originated $687.5 million of loans between 2020 and 2021 for three residential portfolios, totaling 82 properties, owned by Goldman Sachs and Ballast. The owners spent $704.5 million to build the portfolios between 2017 and 2020.
• RBC is in talks with San Francisco-based owner and operator Hamilton Zanze about operating the buildings, according to the San Francisco Business Times. This suggests it plans to hold the properties and wait to sell them.

Dive Insight:

The Goldman Sachs-Ballast portfolio is just the latest high-profile multifamily loan to run into problems in San Francisco. The others include:

• Parkmerced, a 3,221-unit apartment complex, went into special servicing, according to information shared with Multifamily Dive from data firm Morningstar Credit in April. Parkmerced’s debt package includes $1.5 billion of securitized debt and $275 million of mezzanine debt. Maximus Real Estate Partners, the San Francisco-based borrower, requested the transfer into special servicing due to the property’s high vacancy rate and a looming loan maturity in December 2024.
• Last July, a $384 million loan backed by NEMA San Francisco, a 754-unit residential tower in San Francisco next to the headquarters of social media giant X (formerly known as Twitter), was sent to special servicing, according to Trepp. In January, Miami-based owner Crescent Heights reached a deal to stave off foreclosure, according to The San Francisco Business Times.
• In late 2022, San Francisco-based Veritas began defaulting on $1 billion worth of loans backed by more than 2,450 apartments across the city. Its lenders sold the loans, allowing buyers to foreclose and take ownership of the properties. New York City-based Brookfield and Ballast acquired 2,149 of those apartments.

An uptick?

San Francisco may have suffered more than any other metro area in the country after the 2020 COVID-19 shutdowns as workers left the city for more affordable areas. In 2021, occupancy fell to as low as 92.2% in the city, according to software and data provider RealPage.

But in the recent round of first quarter earnings calls, some REITs noted better-than-expected results in San Francisco. 

“San Francisco and Seattle are also running ahead, but remember, these markets have been historically volatile,” Michael Manelis, chief operating officer, said on Chicago-based Equity Residential’s call in late April. “So, we remain cautiously optimistic that we will hold on to the gains in these markets for the remainder of the year.”

But there is still work to be done from where the market was before the pandemic. “In San Francisco, we are well occupied but would like to see continued improvements in pricing power,” Manelis said.

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