Soaring interest rates and a slide in bank lending following March's regional banking meltdown have pressured the commercial real estate sector, especially office towers nationwide. But the stress might be spreading as a new report warns one of San Francisco's largest apartment buildings has sustained a near 50% collapse in valuation in just five years, with risks of imminent default.
Local paper San Francisco Chronicle, citing new data from real estate data firm Trepp, said the 754-unit apartment tower, called "NEMA," located at 10th and Market Street in the downtown area, was valued at $543.6 million in 2018 but is now worth around $279 million. This means in just five years, the building's value crashed a whopping 48.6%.
#TreppWire Trading Alert: Value of NEMA #SanFrancisco Collateral Slashed🚨
— Trepp (@TreppWire) October 18, 2023
The 754-unit apartment complex backing the $384 million #CMBS loan was cut to $279 million. In 2018 the value was $543.6 million.
Learn about #Trepp: https://t.co/hezyw9iFbh https://t.co/FThMuFcQnA pic.twitter.com/66esH0jGiA
Crescent Heights, the building owner, is at risk of imminent default because its $384 million mortgage exceeds the current $279 million value by $105 million. In August, Trepp said the building owner warned, "The property's cash flow can no longer cover the monthly debt service."
High interest rates plus sliding property valuations will keep refinancing conditions strained for Crescent Heights. A September inspection report said the building owner would need to make significant investments to maintain "good" conditions in the building. As of 1Q23, NEMA had 92% occupancy.
San Francisco landlords, especially office tower ones in the downtown area, have been battered by high interest rates, and a crime-ridden metro area imploding under failed progressive policies, such as 'defund the police,' which has sparked a tsunami in crime. Businesses and people are moving out of the city to safer areas.
In recent quarters, several office towers, malls, and hotels in the downtown area have either defaulted or sold at a massive discount.
We first told readers in early March during the regional banking fiasco: "CRE Nuke Goes Off With Small Banks Accounting For 70% Of Commercial Real Estate Loans."
In recent weeks, Goldman interviewed real estate legend Scott Rechler, Chairman and CEO of RXR Realty, who provided the understanding the CRE crisis is only just beginning.
