Encore Capital Management and Presidio Development Partners have surrendered a 160-unit apartment building in San Francisco’s Hayes Valley to a lender after defaulting on a $75 million loan.
An affiliate of the Florida- and locally based developers turned over the eight-story complex known as the Rise, to Barings, which had been trying to sell the loan secured by the rights to a ground lease at 1699 Market Street, the San Francisco Business Times reported.
Barings had loaned the affiliate, Rescore 1699 Market LLC, $75 million in September 2020 and it was set to mature in October 2022. Rescore signed a deed-in-lieu-of-foreclosure to Barings on Feb. 20.
Encore and Presidio Development secured the rights to the 99-year ground lease in 2017, and completed the Rise two years later.
The joint venture had agreed to transfer the rights to the ground lease to whomever acquired the loan when Barings listed the debt for sale last fall, according to marketing materials obtained by the Business Times.
Barings began marketing the debt as the first investors began buying apartments in San Francisco after the pandemic, drawn by the city’s rising rents.
Chicago-based Waterton bought the 410-unit L Seven Apartments for $177.5 million. Houston-based Hines snapped up the 87-unit Duboce Apartments. Los Angeles-based JRK Property Holdings paid $44.25 million for an 88-unit building at 333 Fremont Street.
The deals, which closed in September, valued each of the complexes at between $433,000 and $502,000 per unit.
It’s not known how many prospective buyers expressed interest in picking up the $75 million loan from Barings. Acquiring the loan for that amount would have valued the Rise at $468,750 per unit.
Barings, the new owner of the apartments, could be making a bet on San Francisco’s rental market, hanging on to the Rise through a market rebound, an unidentified source told the Business Times.
The Rise has 14 units available or coming available for lease, according to Zillow. Monthly rents range from $3,365 to $5,725 for a two-bed, two-bath unit.
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