Neil Shekhter’s WS Communities is looking to sell 11 apartment buildings in Santa Monica, months after losing about half its portfolio to lenders, The Real Deal has learned.
WS Communities has tapped a JLL team led by Blake Rogers to market the 399-unit portfolio for sale, according to marketing materials obtained by TRD. No asking price has been disclosed and Rogers did not respond to a request for comment. Shekhter did not respond to a request for comment.
The portfolio represents more than a third of Shekhter’s current holdings, which now stands at about 1,100 units. In December, lenders Madison Realty Capital, Hankey Capital and Lightstone Capital took over almost 30 properties, totaling more than 870 units, through deeds-in-lieu of foreclosure, after Shekhter and his affiliated entities defaulted on hundreds of millions of dollars in debt.
Last month, Shekhter also lost control of a 16-unit apartment complex in Sawtelle — 1743 Butler Avenue — to a receiver, court records show. Shekhter defaulted on a $6.2 million business loan from Bank of Southern California tied to the property, prompting the bank to file a lawsuit asking for a receivership. Bank of SoCal also foreclosed on another 24 units owned by Shekhter in March
The Santa Monica properties up for sale, which are mostly clustered around 6th Street and 7th Street in Downtown Santa Monica, are subject to affordable housing agreements with the City of Santa Monica, limiting how much the portfolio’s owner can increase rents.
Shekhter has owned the majority of the buildings since the early 2000s, according to property records filed with Los Angeles County.
Nine of the buildings are backed by a $127.6 million senior loan from Ready Capital, which was securitized into a collateralized loan obligation for investors, records show. WS Communities also got more than $13 million in preferred equity for the portfolio, according to data from Real Estate Capital.
About 60 percent of the units are subject to California rent control laws, which limit landlords from increasing rents more than the Consumer Price Index plus 5 percent.
And about 20 percent are subject to Santa Monica’s rent control rules, which allows for a 2.8 percent increase or 75 percent of the CPI, whichever is less.
But the portfolio will be sold with a new regulatory agreement under California’s welfare exemption, which lowers property taxes for landlords that rent units to people with incomes at or below 80 percent of the area median income.
JLL said the portfolio will benefit from a minimum property tax reduction of 50 percent. No property tax exemption is guaranteed until the regulatory agreement is signed.
The portfolio’s occupancy has flip-flopped over the last five years — in 2019, occupancy was 92 percent and dropped to 86 percent in 2020. By 2022, it recovered to 97 percent, but dropped to 91 percent in 2023.
The dip in occupancy in 2023 was because of evictions, according to the marketing materials. After Los Angeles County ended the three-year eviction moratorium in March 2023, which prevented landlords from evicting tenants affected financially during the pandemic, landlords were able to evict tenants who fell behind on rent.