Dive Brief:

• The value of the collateral behind the $384 million loan backing the NEMA San Francisco apartment complex that sits next to the headquarters of social media giant X (formerly known as Twitter) has fallen below the loan balance, according to real estate data firm Trepp.
• In 2018, the collateral behind the 754-unit apartment complex — developed, owned and operated by Miami-based real estate firm Crescent Heights — was valued at $543.6 million. It was recently lowered to $279 million. In August, the loan was sent to special servicing.
• The special servicer for NEMA San Francisco noted that the loan was facing imminent default, according to a Trepp report in August. The borrower stated in writing that it could no longer cover the monthly debt service for the asset. The comments noted that the servicer was holding more than $23 million in collateral reserves. 

Dive Insight:

The loan backing NEMA San Francisco has posted debt service ratios below 1.0x since 2020. In 2022, the DSCR was 0.71x when occupancy was 91%. In Q1 2023, both numbers increased.

Originally constructed in 2013, NEMA San Francisco stands 37 stories tall with 9,416 square feet of retail space and 30,000 square feet of indoor and outdoor amenities. Rents range from $2,538 to $6,311, according to apartments.com. It is one of a series of luxury urban apartment towers operated by Crescent Heights, with sister properties in Boston, Miami and Chicago. 

NEMA, like many properties in downtown San Francisco, has been struggling financially since around the time of COVID-19 shutdowns, when workers stopped coming to the office and crime reportedly increased. 

In April, Whole Foods closed its store at Trinity Place to “ensure the safety of our team members,” a spokesperson for the specialty grocer told Grocery Dive. Reports from The San Francisco Standard cited “deteriorating street conditions” including drug use and crime as reasons for the Whole Foods closing. 

In 2021, the city saw one of the nation’s worst domestic outmigration patterns in the nation, losing about 128,900 or so people who moved out to other U.S. cities, according to RealPage. By comparison, it gained only about 5,000 residents that year.

With that loss of residents, it’s no surprise that rents have fallen. The market posted -2.3% rent growth over the past year, according to RealPage.

Limited supply

But if the workers began to come back to downtown, there are some positives for landlords in San Francisco. Notably, it has seen relatively limited new supply with over 24,700 units, resulting in growth of 10.9%, delivered over the past decade, according to RealPage.

Some apartment companies have noted positive signs in the city this year. On Highland Ranch, Colorado-based REIT’s UDR second quarter earnings call, Mike Lacy, senior vice president of operations, saw some reasons for optimism.

“San Francisco today feels pretty good,” he said. “Over the last few weeks, I've seen a little bit more traffic return to that market.”

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