Toronto-based manager Brookfield this week acquired a portfolio of 2,149 San Francisco multifamily units owned by local investor Veritas via a bid of deep discount during a foreclosure sale.
The foreclosure came after Brookfield last month acquired two portfolios of non-performing first mortgages secured by 75 San Francisco rent-controlled multifamily properties. The mortgages, totaling about $915 million, were split into two portfolios and are backed by rent-controlled housing. Brookfield won underlying assets at a foreclosure auction last week.
The firm – now the largest multifamily investor in the city – is working with San Francisco-based Ballast Investments, which will manage the assets. Ballast has significant experience managing similar assets in these markets, a spokesperson noted, adding that Brookfield is a believer in San Francisco over the long term.
“This is a unique opportunity to own one of the only multifamily portfolios of scale in San Francisco offered in the last decade,” said Ben Brown, head of real estate for the Americas at Brookfield, in a written statement. With little to no future supply coming online in the near term, the transaction is a great investment for the company and its partners in the long run, he added.
On the other side, a spokesman at Veritas said in a statement that despite the current headwinds facing the real estate industry, the company remains committed to San Francisco and their properties, and sees opportunities ahead.
“Veritas Investments remains one of the most active managers of small unit-count multifamily on the West Coast, and we continue to be a leading firm with many thousands of apartments under management in major West Coast markets, even after this portfolio’s ownership is transferred,” he added.
Brookfield and Ballast Investment plan to invest additional capital in the properties, addressing deferred capital need, life safety issues and enhancing occupancy over the next couple of years, according to the statement.
Acquiring real estate through distressed debt purchases is not a new strategy for Brookfield, which believes the transaction has an attractive basis. “[The portfolio] has been under-managed and under-invested in due to financial difficulties of the prior owners,” the firm said in a statement.
Stav Gaon, head of securitized products research and strategy at New York-based Academy Securities, believes the sale is one of a handful of examples that show the commercial real estate market starting to move ahead with some workout situations.
“The fact that we’re seeing all of that does suggest that the market is starting to work through the distress,” he said.