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San Francisco’s biggest landlord defaulted on a massive loan

An outside view of a San Francisco apartment building owned by Veritas Investments.
Veritas owns 601 O’Farrell St. in San Francisco, among other multifamily buildings. | Camille Cohen/The Standard

In a sign of growing distress in San Francisco real estate, the city’s largest apartment landlord, Veritas, defaulted on a $448 million loan according to a report from Fitch Ratings.

The loan was transferred to special servicing on Nov. 3, a stage meant to allow for negotiation, and was not paid off by its Nov. 15 maturity date. News of the default was initially reported by The Real Deal.

According to Fitch, the loan sponsor, a joint venture between Veritas and hedge fund Baupost Group, indicated it was not going to exercise its one-year extension option or be able to pay off the loan at its maturity date. The parties said they were hoping to find a partner to help refinance the properties. 

In a statement, a Veritas spokesperson pointed to spiraling debt costs, layoffs and other challenges and said the company remains committed to San Francisco.

“While we’ve all seen the stories about office usage going down in the wake of hybrid work, multifamily operators in San Francisco have to contend with even more challenges, including increased city regulation, increased taxes, more pandemic impacts and the rising cost of doing business here,” said the spokesperson. 

Research from financial services company Moody’s said maturity defaults like the one Veritas is experiencing and eventual delinquencies are likely to increase in line with rising interest rates and largely stalled capital markets.

Rising interest rates have made it more difficult for real estate players like Veritas to refinance their loans as lenders are seeking higher rates of return. That can be an especially difficult prospect in a market like San Francisco, which is still reeling from the impacts of the pandemic.

Veritas’ loan is backed by a portfolio of 62 multifamily properties with a total of 1,734 rent-controlled units located across San Francisco.

Fitch reported at the loan’s offering date that 12% of the total units were vacant to allow for renovations with the eventual idea they would be rented out for market rate rents.

But during the pandemic, demand for small apartments cratered and triggered an exodus from San Francisco from which the city has not yet recovered. It remains one of the only metro areas with rents that have failed to recover to pre-pandemic levels. 

Veritas’ situation mirrors that of Shorenstein Partners, which defaulted on a $400 million loan on the Twitter headquarters building at 1355 Market St.

Somewhat ironically, Veritas itself was formed from the ashes of the Lembi family, the city’s top apartment landlord prior to the Great Recession. After Lembi lost dozens of buildings to creditors during the financial crisis, Veritas swooped in and purchased a portfolio of more than 2,000 units for $500 million.

Since then, Veritas has continued to amass properties in the city, including a $33 million purchase of a 42-unit at 2242 Polk St. in November. Meanwhile, it has garnered a controversial reputation over its eviction policies.

All told, Veritas owns more than 320 buildings and 7,500 apartments across the Bay Area and Los Angeles.

Kevin Truong can be reached at