Goldman Sachs and Ballast Hand SF Apartments to Lender

Goldman Sachs and Ballast Investments have handed the keys to 82 apartment buildings in San Francisco to their lenders after defaulting on loans totaling $687.5 million.

The New York- and locally based investors surrendered three portfolios containing 1,211 units to affiliates of the Royal Bank of Canada in a deed-in-lieu of foreclosure deal, the San Francisco Business Times reported.

Goldman and Ballast bought the three multifamily portfolios between 2017 and 2020 for $704.5 million. Goldman served as equity partner; Ballast served as local operations partner.

Between 2020 and 2021, RBC loaned Goldman and Ballast $687.5 million backed by the three portfolios.

The portfolio hand-off comes more than a year after Goldman and Ballast defaulted on the mortgage debt. It’s not known what prompted the default.

Local market conditions could have prompted the value of the apartments to fall below the value of the debt originated by RBC, which would have stripped the equity in the portfolios, an unidentified source had told the Business Times last spring.

This month, a San Francisco court appointed Los Angeles-based Wald Realty Advisors to serve as receiver for two of the apartment portfolios. Attorneys for Royal Bank of Canada had asked the court to place the two portfolios into receivership, claiming their property manager, Ballast affiliate Brick + Timber, wasn’t acting in a “prudent” manner, according to the Business Times.

The appointment of a receiver, they argued, would protect the condition of the 58 buildings in the two portfolios from further deterioration.

Ballast called those claims “clearly wrong” and said in a statement to the Business Times the firm had achieved 90 percent occupancy among the apartment portfolios.

“While that was an incredible achievement, it wasn’t enough to save the portfolio,” Thomas Ghaney, senior director of business development for Ballast, said, adding that the company believes its current portfolio is “stable and moving in the right direction.”

Documents of the deed-in-lieu transfers to the Royal Bank asked that tax statements be sent to Denver-based Mission Rock Residential, the property management arm of multifamily owner-operator Hamilton Zanze.

Unidentified sources had previously told the Business Times the bank planned to bring on Hamilton Zanze to manage its new building portfolios. The appointment of the San Francisco-based firm was expected to be made final this month.

It wasn’t clear whether the newly appointed receiver would work alongside Mission Rock to manage the portfolios, or otherwise hand off its responsibilities to the unit of Hamilton Zanze.

The deed-in-lieu transaction between Goldman, Ballast and the Royal Bank of Canada marks the latest pile of apartments in San Francisco to change hands because of loan trouble.

While Ballast had stopped making payments to Royal Bank, it teamed up with New York-based Brookfield Properties on one of the largest apartment acquisitions in the city.

In January, Ballast and Brookfield bought $915 million in troubled mortgages tied to 2,165 apartments owned by Veritas in San Francisco, making them the biggest landlords in town. The $615 million purchase allowed them to foreclose on 76 apartment buildings.

Last summer, locally based Mosser Companies defaulted on an $88 million loan linked to 459 apartments, according to the San Francisco Chronicle. In February, Mosser’s lender was seeking to sell the troubled loan.

Goldman and Ballast once owned 106 apartment buildings in San Francisco, according to a Business Times analysis, including the 82 surrendered to the Royal Bank. Together, they spent $1.1 billion between 2017 and 2020 acquiring the properties, which included 2,100 units.

— Dana Bartholomew