Dive Brief:

• Twenty-three buildings holding 762 rent-controlled apartments owned by San Francisco-based Veritas Investments are on the market, according to the San Francisco Chronicle.
• The 23 buildings Veritas is selling in San Francisco are located in the Alamo Square, Russian Hill, Mission, Nob Hill, Tenderloin, Noe Valley and Lower Haight areas of the city. Real estate investment bank Eastdil Secured is handling the sale.
• This is the third portfolio that the company has parted with over the last year, according to the San Francisco Chronicle. 

Dive Insight:

In late 2022, Veritas began defaulting on $1 billion worth of loans that were backed by more than 2,450 apartments across the city, according to the paper. Its lenders sold the loans, giving buyers an opportunity to foreclose and take ownership of the properties.

In November, San Francisco-based Prado Group took over loans backed by 20 properties in San Francisco from Veritas, according to the San Francisco Chronicle. In February, New York City-based Brookfield Properties and San Francisco-based Ballast Investments acquired notes and then foreclosed on other Veritas buildings, encompassing 2,165 units, according to The Real Deal. 

Veritas, itself, entered the market by purchasing distressed properties. It grew by purchasing 2,000 units in San Francisco owned by the Lembi family that had gone into default in 2011. As of 2022, the firm and its affiliates had roughly 6,500 apartments in 293 buildings across San Francisco, according to the San Francisco Chronicle.

Despite the company’s issues in its San Francisco portfolio, it’s still actively pursuing acquisitions. In late February, it bought two properties from Mayfield Investment Company in Seattle for $18 million, according to The Registry, a Pacific Northwest real estate publication.

Bay Area issues

COVID-19 and the exodus from the city hit landlords in San Francisco hard. As workers no longer had to report to downtown offices in the city, quality of life issues like crime chased away some residents. Taken together, those two factors have hurt apartment occupancy and rents.

“We have asking rents today that are down roughly 10% [in Northern California] from pre-COVID peak levels,” said Ben Schall, CEO of Arlington, Virginia-based AvalonBay Communities, on the REIT’s recent fourth-quarter earnings call in February. “That's primarily driven by San Francisco being 12%, 13% below peak, which is a pretty significant number.”

However, Schall thought an increase in artificial intelligence jobs could eventually lead to a resurgence in the market. On Equity Residential’s Q4 earnings call in January, CEO Mark J. Parrell said the Chicago-based REIT still likes the city’s long-term growth outlook, but it's going to have an “elongated recovery.”

“Conditions on the ground are a lot better,” Parrell said. “The mayor put out some information about crime reductions. They have the biggest class of police cadets at the police academy in San Francisco that they've had since before the pandemic. So, there are some good things going on.”

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