Brookfield Properties and Ballast Investments paid a pretty penny — but made a great deal — with their purchase of $915 million in troubled mortgages tied to 2,165 apartments owned by Veritas in San Francisco.
The unit of the Toronto-based Brookfield and the locally based investment firm bought two Veritas loans for $615 million, allowing them to foreclose late last month on 76 apartment buildings across the city, the San Francisco Business Times reported, citing an unidentified source.
The $615 million debt purchase allowed Brookfield and Ballast to buy the portfolio through foreclosure for $284,065 per unit — a huge discount compared to the value of the portfolio before the pandemic, and what it would cost to replace it.
Some 1,743 units of the units across 62 buildings were collateral for a $674.8 million loan from Goldman Sachs, then packaged into a commercial mortgage-backed securities deal. The remaining 422 units served as collateral for an originally $130 million loan, also originated by Goldman.
Brookfield and Ballast paid $513 million for the $674.8 million loan, according to Green Street.
A source told the San Francisco Business Times the duo paid “just more than” $100 million for the $130 million loan.
The result: the two paid 67 cents on the dollar to acquire the debt that backed the 2,165 apartments.
The 62 buildings linked to the larger loan were appraised at $1.05 billion in October 2020, according to CMBS figures, or about $600,000 per unit. The appraised value of the 14 buildings linked to the smaller loan is unknown. Since then, rents in the city have fallen slightly.
The value of the portfolio is likely higher than the price Brookfield and Ballast paid, given that debt sales often ascribe “significant discounts” to real estate, an unidentified source familiar with San Francisco’s residential market told the Business Times.
In connection with the debt sale, bondholders on the CMBS loan backed by the 62 buildings are likely to see a return of less than 50 cents of the dollar, TRD previously reported.
Brookfield Properties and Ballast Investments borrowed $410 million from New York-based Apollo Global Management to help pay for their acquisition of Veritas debt.
— Dana Bartholomew