Lembi Loses 1,500 Apartments to the Banking Crisis

The Lembi Group, San Francisco's largest residential landlord, has returned 51 buildings comprising 1,500 apartment units to its lender. That's according to Friday's edition of the San Francisco Business Times. The units in question represented only a portion of Lembi's portfolio, but that's still a remarkable turn of events. As recently as 2007, Lembi dominated the market for apartment acquisitions in San Francisco. Now they can't even get financing to hang onto what they've bought.

The short version of the story is that some of Lembi's loans matured in September. It's lender, UBS, declined to renew them. Unable to obtain replacement financing, Lembi simply handed over the keys. Now it appears that UBS may be stuck with Lembi's apartments until the banking crisis recedes, and investors are once again able to obtain commercial real estate loans on reasonable terms.

The San Francisco rental market has been strong (at least until recently), so it's not as if Lembi's apartments were fundamentally impaired. (Does anyone think that San Francisco apartments are a bad long term investment?) Instead, Lembi and UBS can blame their problems almost entirely on the banking crisis. In any other situation, Lembi would have refinanced its loans, or UBS would have sold the apartments to another buyer.

When banks refuse to renew loans on San Francisco aparments and choose instead to become landlords, real estate financing must be scarce indeed. That's not a good sign for homeowners, especially those who aren't eligible for Fannie Mae loans.