AMERICAS NEWS: False start

When CBRE Capital Partners bid on the first mortgages of a 12-building portfolio of multifamily properties in San Francisco late last year, the firm knew competition would be intense.

With so few quality assets hitting the US market, the whole loans – backed by a dozen pre-war multifamily properties and commercial units housing 203 apartments in some of the city’s best neighbourhoods – were expected to generate plenty of interest. Yet, even Frank Scavone was surprised at what transpired in the San Francisco deal, when the winning bid ultimately proved to be a false bid.

1125 Broadway,
San Francisco

Speaking to PERE for the first time about the deal, the senior managing director was told up to 40 offers were submitted for the portfolio from Tamalpais Bank, which included 11 non-performing loans and one performing loan that was unlikely to refinance at maturity. Bidding was energetic, however CBRE Capital Partners, the debt and real estate-related debt securities arm of CBRE Investors, didn’t come in first. Scavone said: “We weren’t the highest bidder.”

When the winning investor failed to come up with the required capital to seal the deal, though, Tamalpais turned to Scavone and CBRE Capital Partners to help salvage the transaction. “Some of the bids that were made on the portfolio just didn’t have the money to back them up,” Scavone added. “Others were bottom fishing.” It’s a fact of life that many private equity real estate firms are having to address in today’s property markets, not least with transactions down more than 70 percent from their peak.

In relation to the San Francisco deal, CBRE Capital Partners said it would look to exit the properties as quickly as possible through a mix of discounted payoffs with the borrower – reported to be San Francisco residential landlord the Lembi Group – short sales to third-party buyers and foreclosures.

Last June, Los Angeles-based CIM Group acquired 24 properties from Lembi in a deed-in-lieu foreclosure transaction, after acquiring the debt on the portfolio the prior year. Scavone declined to disclose financial details but said the borrower had seen a 30 percent to 35 percent fall in valuations since financing the properties in 2006 and 2007.