- Landlord Mosser Companies defaulted on a 2018 loan for $88 million that was underwritten by its 459 rental units across 12 buildings in San Francisco
- Its creditors are now selling off the multifamily home properties as vacancies fall to 82 percent
- San Francisco is experiencing a post-Covid ‘doom loop’ as occupancies have risen as families move out to escape rising crime and open air drug markets
San Francisco’s residential property market has hit troubled waters as a major investor landlord announced the sell-off of a large section of its rental empire this week.
Landlord Mosser Companies defaulted on a 2018 loan for $88 million that was underwritten by its 459 rental units across 12 buildings in San Francisco.
The company’s creditor has now hired real estate firm Cushman & Wakefield to sell the multifamily home properties, The San Francisco Chronicle reported.
Mosser Companies took on the debt pre-pandemic with low occupancy rates, but as the city by the bay grapples with a post-Covid doom loop occupancies have risen as families move out to escape rising crime.
This, coupled with historically high interest rates as the loan came due, means Mosser and other real estate investors are looking to sell off their assets.
‘San Francisco has gone through a wave of distress in real estate because of the economic upheaval resulting from the COVID years‘ a spokesperson for Mosser explained.
‘And while the market reset is in play, an enormous amount of real estate debt is coming due, creating a push to refinance loans that were originated pre-pandemic.
Adding: ‘This also comes at a time when both general vacancies and interest rates are historically high.’
The Mortgage Bankers Association estimates that $2.6 trillion of real estate loans are coming due nationally through 2028, 38 percent of which are in the multifamily sector.
San Francisco also saw the sale of more than a third of its 2,4000 rental units by the multifamily landlord Veritas Investments after it defaulted on a $1 billion of loans.
‘It’s more about the outmigration of people, increasing operating expenses, all the eviction moratoriums and rent increase moratoriums — it’s just wreaking havoc on certain multifamily projects, especially when people took on short-term or floating-rate debt,’ John Drachman, co-founder Waterford Property Company, explained.
By January occupancy for Mosser’s properties had dropped to 82 percent.
‘This is the reason why multifamily in San Francisco is suffering so badly and you have these portfolios that have gone up for sale: multifamily was hit with a triple killer, which is increased interest rates, lower occupancy rates and declining rents,’ Nathaniel Touboul, a real estate partner at law firm Allen Matkins, said.
‘In San Francisco, in 2018 and 2019, business was booming, people were paying top dollar for apartments, and vacancy rates were extremely low. No one at that time was underwriting vacancy rates and declining rents such as the ones we have experienced post-pandemic, Touboul said.
Adding: ‘What is happening right now is really an illustration of and a reminder that, ultimately, San Francisco is a boom and bust city, and real estate is cyclical in nature.’
Data from the Office of the Chief Medical Examiner showed that San Francisco has entered its deadliest year on record for drug overdoses with 752 accidental overdose deaths as of December 6.
It tops the highest year on record – 2020 – when 726 people died.
And the city stands to lose $200 million a year in lost tax revenue through its business exodus.
San Francisco’s also has a dismally high office vacancy rate, which was 35.9 percent in December.
That situation is compounded by the departure of several large companies, including accounting giant KPMG, which announced earlier this month that it will quit its $400 million namesake building in the downtown area.