After deeding 51 buildings back to the bank in lieu of foreclosure in January, the Lembis are at risk of losing another 23 of their remaining 250-ish apartment buildings in San Francisco. From J.K. Dineen:

[A CIM Group] affiliate bought $121 million of distressed Lembi debt from Column Financial on Dec. 19 of last year. The affiliate alleges in a complaint filed in San Francisco Superior Court March 4 that the Lembi subsidiary Trophy Properties [which owns 23 properties] has been in default on payments since Feb. 10 on two loans, one for $116.1 million and one for $5.2 million. Interest accrued and outstanding from Jan. 9 to March 2 amounted to $1.8 million, and interest on the unpaid balance is accruing at a rate of $50,600 a day, according to court documents. That amounts to about $18.4 million a year — more than double the approximate $8 million the 23 properties generate in rents, according to rent roll information on the buildings included in court documents filed with the complaint.

The 23 properties at risk: 3475 16th Street, 3000 24th Street, 360 32nd Avenue, 427 34th Avenue, 9 August Alley, 2101 Bay, 1650 California, 650 Church, 1345 Clement, 43 Cole, 347 Eddy, 1745 Franklin, 345 Green, 305 Hyde, 1456 Jones, 2235 Laguna, 1516 Larkin, 2117 Market, 2135 Market, 230 Oak, 1070 Post, 840 Van Ness, 956 Valencia.
CIM Group goes for Lembi buildings [Business Times]
Cash Flows Catch Up To The Lembi Group [SocketSite]

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Comments from “Plugged-In” Readers

  1. Posted by diemos

    The bubble giveth, the bubble taketh away.
    Blessed be the bubble.

  2. Posted by badlydrawnbear

    Not sure what will happen to the renters (I assume any new owner will have to honor the existing leases), but on a positive note at least the property tax value will reset under prop 13 with the change in ownership.

  3. Posted by LMRiM

    Easy come, easy go.
    If the Lembis were smart, they presumably took a lot of cash off the table in the credit orgy and stashed it somewhere.

  4. Posted by anon

    = I hope these borrowers were successful in committing fraud. Disgusting.

  5. Posted by Louis

    The sale and re-pricing of the lenbi portfolio might bring some rationality back to asset values for rental investors and also might have a large impact on setting trends for a large piece of the apartment unit rent market.
    It looks like the “value” of an individual apartment will drop from say $275,000 each to under $200,000 each as the lembi deals are retraded. the new owners will be more conservatively capitalized, but still retns requried to make these deals workshould be at ;east 10% less than what lembis needed.
    It is also going to rewrite the replacement cost theory behind new rental construction, which will become even more difficult as existing units decrease in value.
    Ironically, this will lead to no new rental supply just as many homeowners being pushed into renting, and long term, will lead to a re escalation of rental property values, and even a scarcity of rentals in SF. I know, it seems a long way off.
    It is unfortunate that policy makers in this town have never done anything to encourage rental construction (vs condos) and are always behind the curve on these issues.

  6. Posted by Louis

    As far as i can tell the Lenbis were not able to sell or refi major cash “off the table” and their big wave of deals, over the last couple if years at least, just didnt work out.

  7. Posted by diemos

    “Ironically, this will lead to no new rental supply just as many homeowners being pushed into renting, and long term, will lead to a re escalation of rental property values, and even a scarcity of rentals in SF. I know, it seems a long way off.”
    The total number of dwellings and the total number of people is not going to change just because some people are being foreclosed. The only thing that will change is who owns the unit.

  8. Posted by Louis

    The total number of dwellings and the total number of people is not going to change just because some people are being foreclosed. The only thing that will change is who owns the unit.
    Short term yes, but n an econopmic recovery, should it happen, there should be job creation and net new people with decent salaries in sf, most of whom – at least in theory – will not be entry level condo buyers feeding another frenzy. again.

  9. Posted by jamie

    karma at work …

  10. Posted by San FronziScheme

    Another factor to take into consideration is the nature of the renters that could be pushed out into the rental market if the properties are resold empty. Who lives in these dwellings? How much can they afford? Some will inevitably be gently pushed out of town which will mitigate Louis’ theory, I think.

  11. Posted by Eoral

    “Resold Empty”
    Not going to happen. Even if the banks foreclose, the SF Rent board will not permit them to dump the tenants onto the street. They may even issue a 30 day notice to get the hell out, but any savvy tenant can make a copy(always keep the original), wad it up and use it to wipe their ass with it, which is about what that notice would be worth in the city.
    Ownership may change, but the law does not, and landlords are still bound by the SF Rent Codes.

  12. Posted by tipster

    Apartments are rarely sold empty. If they are rent controlled, you can’t get the tenants out. If they are not rent controlled, the new owner can raise any undermarket rents to what ever the market will bear. So there is no reason to try to empty out an apartment building. This won’t affect the apartment market one way or the other.
    As for a disincentive to build new apartments, very little new apartments were built in the last ten years anyway. Why bother when you could sell for 2x or 3x the net present value. Instead, all building went to the sale market and that market is converting to rental as some individual owners who can hang on rent out their places instead of selling them. So without any new apartment construction, the supply of rentals is increasing as we speak. That plus the new developments who will throw in the towel and rent some of their unsold units that aren’t likely to sell in the next year means the supply of rentals will continue to increase for the foreseeable future.
    They key to all prices: sale and rental, is mostly jobs (once the easy money loans get worked out of the system as the option arms start to reset). Jobs are moving out of high cost areas: the handwriting for businesses is on the wall. Move jobs out of those areas or lose business to your competitors who do.

  13. Posted by Robert

    Ironically, this will lead to no new rental supply just as many homeowners being pushed into renting, and long term, will lead to a re escalation of rental property values, and even a scarcity of rentals in SF. I know, it seems a long way off.
    Why would a city whose population has been stagnant since the 1970s need more housing units? From the 2007 ACS survey, over 10% of the housing units — and 121,000 rooms — are vacant in SF, although about 18% of that stock are vacation homes.
    The vacancy rate has certainly increased since that survey was taken.

  14. Posted by San FronziScheme

    tipster and Eoral,
    I am talking about Ellis evictions. That’s always a possibility, right?

  15. Posted by LMRiM

    Speaking about jobs, and prospects for business conditions going forward, Forbes had a “fun” article in this week’s edition:
    “Santa Cruz, along with larger cities like Los Angeles, San Diego and San Francisco, helped lead the screwball state to its worst performance ever in our annual rankings of Best Places for Business and Careers. Without Flint, Mich. competing, California would have had a stranglehold on the bottom six positions on our list. High business costs, negative job-growth projections, high unemployment and high crime make this a scary place.”
    http://www.forbes.com/forbes/2009/0413/101-best-cities-careers-california-going-bust.html
    Not that Forbes is any great source of analysis or accurate prognostication, but I think it’s significant if such a negative view is gaining traction. As hard as it is for people who have their fortunes tied to an area to recognize an inflection point, people should always remember that Michigan and Detroit were places of almost unbounded optimism too about 40 years ago ;)

  16. Posted by Jimmy (No Longer Bitter)

    Satchel — nice try with the Detroit analogy, but we should remember that Silicon Valley is all about constantly inventing new industries, incubating them and then moving them offshore or to lower-cost areas once the real creative work and commercialization is underway.
    Detroit was a one-trick pony– mass produce cars, and sell them.
    As they say “don’t put all your eggs in one basket.”

  17. Posted by ex SF-er

    Interest accrued and outstanding from Jan. 9 to March 2 amounted to $1.8 million, and interest on the unpaid balance is accruing at a rate of $50,600 a day, according to court documents. That amounts to about $18.4 million a year — more than double the approximate $8 million the 23 properties generate in rents
    ROFL.
    Imagine that. The interest on the debt is TWICE as much as the properties bring in.
    I’m sure the Lembi crew still feel they’re RE moguls. But with math like that it makes you think that it was all bubblemania.

  18. Posted by Rillion

    SFS – These generally are not the type of buildings that people Ellis Act. The loans are for $121 million on 23 properties, about $5.2 million per property and looking at the locations, a lot of them are large number of unit buildings (6+) which are much less desirable as TIC’s. These are buildings that were built as rentals and are very likely to remain rentals.

  19. Posted by theo

    the screwball state
    The People’s Republic of California! LOL!
    That Forbes article is just the usual right-wing tripe, same as they say about Europe. They’re usually too embarrassed to say anything when we’re kicking their asses, but as soon as there’s any sign of weakness they trot it out again and flog it to death.
    No, I don’t think that view is gaining traction. The opposite, if anything. Which isn’t to say that the Central Valley/Inland Empire housing bust isn’t serious.

  20. Posted by tipster

    SFS,
    No for 2 unit buildings, maybe for 3-4, and after that, I think it’s probably no again.
    A 2 unit building with an Ellis automatically drops the value of that building by about 8-10%. You can’t bypass the lottery with an Ellis, so tenants are almost always bought out. The lottery is as long as 20 years, so no one Ellises a 2 unit rental building.
    3-4 unit buildings might be ellised if the tenants won’t accept buyouts. After that, I think it’s a tough sell to sell a 8-10 unit tic in a land of 10% unemployment. I would venture to guess, just on jobs statistics, that probably 5-10% of the larger tics are in, or close to being in, trouble right now.
    Once stories leak out about how the other owners had to step in and make payments for a defaulting owner, life will start to get tougher to sell a tic in something larger than 3-4 units. I’m sure the realtors are keeping a tight lid on those stories, and will vehemently deny that there are any problems, but anyone with a brain is steering clear of those things. And with only one lender doing fractional financing (I wonder why — NOT!), the costs will start creeping up.

  21. Posted by Eoral

    Lembi doesn’t do 2-4 unit buildings, his are all 10+, most 20+ buildings. Ellising one of those while technically possible, is extraordinarily difficult. You have to pay everyone off, and then you have to let the place sit vacant for 10 years. You would be better of just jumping off the roof to save yourself the hassle.

  22. Posted by San FronziScheme

    Good point,
    Some landlords will do it though, if they have a long term view. I recall there were a few new TIC buildings for sale on Woodward that went that way. It seems some are still for sale. At least one of these buildings were Ellis-ed 5 years ago.

  23. Posted by San FronziScheme

    One of these ELLIS-ed buildings still has unit(s) for sale: http://www.woodwardstreet.com/
    A 9-unit building. Last time I walked on Woodward (late last year) I noticed other empty apartment buildings next door and across the street. I suspect this is all one landlord.

  24. Posted by sunnysider

    When you are losing 50% annually what is another 50% loss on cashflow for 10 years. With this kind of math we could find a way to create another bubble, just make it up on volume…

  25. Posted by Jimmy (No Longer Bitter)

    I just wonder, ya know, how did they get financing for a purchase where they were cashflow negative to the tune of $10M+ per year?
    Wouldn’t the banker making that huge loan look at the cashflow of the building?
    Isn’t that what bankers do?
    Maybe this is why I’m not rich … I would be embarrassed to even propose such a lousy business idea, let alone pursue it.

  26. Posted by scurvy

    What’s wrong with just paying someone to leave? A friend of mine got paid $10k to move out of her place. On a 15 unit building, that’s only $150k not exactly a huge sum of money for buildings in this price range.

  27. Posted by San FronziScheme

    Jimmy,
    The rationale from the 2002-2007 years was not cashflow vs value (rent/value) but appreciation vs value. If property appreciates a “guaranteed” 10+% YoY, who cares about a low single digits negative cash flow, right? Business was good, doomsayers were proven wrong Year after Year after Year. 2002 prices were already crazy for them but kept on climbing, therefore they were wrong.
    This is the rationale behind the Option-ARMs, NINJA loans and most 100% I/O financing.

  28. Posted by Jimmy (No Longer Bitter)

    Yeah, but, but … on this scale? $120M loans? I could understand it for small-time buyers who could theoretically perhaps somehow service the interest for a few years … (after all, they need a place to live, etc.) but who would put up $50,000 PER DAY to keep this farce going?
    That’s just insane.
    I bet the did the mother of all king-kong cash back refi’s a couple of years ago and walked away with a cool $20M+, and then just let the whole mess collapse on itself.
    As they say, “it takes brass balls …”

  29. Posted by MarinaRenter

    Theo,
    Have you ever been a business owner or even just read the Wall St. Journal from time to time? It is a fact and always will be a fact that business try to reduce their cost basis and increase their sales to increase their margins and total net revenue. Some of my business colleagues, whom own their own businesses in CA, are moving to other states in the next 6 months as we speak. The best quote: “I love CA with its great weather, close proximity to so many outdoor activities, and great universities. However, my employees’ cost of living is just so high that I have to pay them so much, just to have them afford a house and having a family. This does not even take into account my office costs and absurdly high tax rate. Now that my business is shrinking a bit, I have decided to move operations to another state, where there is also a great university nearby (aka for new, innovative employees), great outdoor activites near this fabulous mountain range, and CHEAP cost of living. She is moving her business at the end of April, and she is not the only one of my friends/colleagues. There comes a point or a limit for paying for the beautiful CA weather. (Trust me, I love CA and its outdoors, but I am considering relocating my business to a few other states based on cost-of-living and their attitudes towards private enterprise. Heck, these states actually want me to operate in one of their cities, instead of punishing me like the Bay Area).

  30. Posted by FormerAptBroker

    In the last Lembi post I wrote that (based on talking to the real estate agents who actually sold the (mostly) crappy overpriced SF apartments to the Lembi family) that the younger members of the Lembi family were the ones excited about buying so much since they seemed to think that “real estate only goes up”.
    BS (who used to work for the Lembi family) wrote (on January 17th) “The third (Lembi) generation is in their 20s and out of college for only a few years. They have important operational responsibilities (i.e. operating the buildings on a day-to-day basis and marketing), but were not involved in the decision to purchase”
    I guess that the “President” of one of the largest Lembi companies does not make many decisions.
    Taylor sure sounds excited about a new property here:
    http://cache.zoominfo.com/CachedPage/?archive_id=0&page_id=2001492616&page_url=%2f%2fwww.travel.autojogja.com%2f2007%2f02%2f15%2fcity-sees-boost-in-revival-of-hotel%2f&page_last_updated=5%2f16%2f2007+1%3a05%3a42+PM&firstName=Taylor&lastName=Lembi
    And not as excited giving it back to the bank here:
    http://findarticles.com/p/articles/mi_qn4176/is_20090209/ai_n31323565

  31. Posted by FormerAptBroker

    scurvy wrote:
    > What’s wrong with just paying someone to
    > leave? A friend of mine got paid $10k to
    > move out of her place.
    A friend was renting a nice place in the marina for ~$1K a month with rent control a couple years ago when the owner put it on the market. A potential buyer contacted him and offered him $10K to move out. He pointed out that market rent for the unit was about $3K, so if he moved down the street he would be paying an extra $24K a year in rent. He offered to move for $200K, but the place never sold and he is now paying just slightly more in rent.
    http://www.sfgov.org/site/uploadedfiles/rentboard/docs/documents/571.pdf

  32. Posted by scurvy

    FormerAptBroker, right but it never hurts to throw a buyout offer out there. Some people might be thinking of moving anyway, but the buyout incentive will push them into definitely moving. Things like that. Sure, the super low rent controlled people will never move, but I’m sure there are far more who will move given a buyout offer.

  33. Posted by tipster

    The statutory buyout fees are $5K per person. Almost no one would take $10K.
    And former apt broker’s comments are dead on. Look to see how much the tenant would lose in a relocation, and ask yourself how long a tenant in that kind of apartment in that kind of location is likely to stay. Multiply the amount of rent saved each year by the number of years and add the taxes (e.g. double the rent savings), and you can see why $200K is an absurdly low buyout number for many people.
    $10K is simply ridiculous, and though I am sure that someone somewhere once took that, no one should ever count on that being any where near the number it would take to get a tenant to move.

  34. Posted by ex SF-er

    Yeah, but, but … on this scale? $120M loans? I could understand it for small-time buyers who could theoretically perhaps somehow service the interest for a few years … (after all, they need a place to live, etc.) but who would put up $50,000 PER DAY to keep this farce going?
    this is just the tip of the iceberg. Many of us are waiting for Commercial Real Estate to crash which will be yet another dagger into the taxpayer’s (*cough, I mean bank’s*) chest
    Just look at what’s happening with Donald Trump’s “empire”, or that guy out in Manhattan (I forget his name). that was HUNDREDS of millions of dollars wasted on sketchy plans.
    the bankers did these deals because they didn’t care. do the deal. collect the fees. make the bonus.
    later when the deal blows up you’re long gone and get to keep the money.

  35. Posted by viewlover

    Look to see how much the tenant would lose in a relocation.
    This concept is really what I have a problem with. The renter does not lose anything, they don’t own the property, they are renting it. Only in SF does a renter literally own the property. Where is the $200,000 that the owner loses when they go into foreclosure or sell below what they paid, and have to go pay market rates for rent or a new home; that is a real loss and not just an “entitlement” loss.

  36. Posted by lolcat_94123

    What a pansy city we are. Now people feel entitled to a quarter million dollar buyout just to switch apartments. Are you kidding me?

  37. Posted by San FronziScheme

    quarter million dollar buyout
    That’s “asking”. It doesn’t cost anything to ask.

  38. Posted by Dream away

    Fact: $200,000 is a fantasy made up dream number that renters here pulled out of their dungholes.
    A prudent owner with any sense would simply have a family member do an OMI. It’s perfectly legal, written in the rental code: $3,500 per person max. Done deal!
    Made up numbers are stoopid.
    [Editor’s Note: Try using facts rather than insults to make your point: “…the Lembi Group has paid below-market-rate tenants an average of $15,000 each since starting an aggressive relocation program in 2000….Payouts ranged up to $45,000 in at least one instance.” Or from our very own archives:

    Citi [offered] “incentives” to buyers to move out [of 1890 Clay], which ranged from $7K-$75K+. They offered us [around $50K] late last year but we stupidly didn’t take it (mostly due to the taxes, because it would be taxed like income). Admittedly, I was holding out for [around $100K] because we have a large floor plan and I thought we could get more.

    Of course those facts could work against you as well.]

  39. Posted by FormerAptBroker

    Jimmy (No Longer Bitter) wrote:
    > Yeah, but, but … on this scale? $120M loans?
    > I could understand it for small-time buyers who
    > could theoretically perhaps somehow service the
    > interest for a few years … (after all, they need a
    > place to live, etc.) but who would put up $50,000
    > PER DAY to keep this farce going?
    > That’s just insane.
    Then ex-SR-er wrote:
    > this is just the tip of the iceberg. Many of us are
    > waiting for Commercial Real Estate to crash which
    > will be yet another dagger into the taxpayer’s
    > (*cough, I mean bank’s*) chest
    The Lembi kids in SF can not even come close to the major f-up of the Speyer kid in NY. Losing $50K a DAY is chump change compared to the ~$500K a DAY negative cash flow at the the Stuytown property in NY. Some people looking at Manhattan layoffs think that this property could be running at $1mm PER DAY of negative cash flow by the end of 2009…
    http://nymag.com/realestate/features/53797/
    With the recent bad news the property may be $1mm/day negative by summer:
    http://curbed.com/archives/2009/03/06/rent_wars_stuy_town_owners_200_million_mistake.php

  40. Posted by Trip

    I suspect the bankers “justified” the loans to the Lembis for the same reasons they “justified” the Stuy Town loans. First, the value of the building itself only goes up, so one can always turn around and sell for more. Second, we’ll pay relative chump change to long-term tenants to move them out and ratchet up the rent (which also only goes up forever). So we can’t lose!
    I also suspect the bankers really didn’t buy it for a second, but closed the deal anyway for the reasons ex SF-er states and they are all long gone with their bonuses.

  41. Posted by Robert

    What a pansy city we are. Now people feel entitled to a quarter million dollar buyout just to switch apartments. Are you kidding me?
    With regards to buyouts, generally, if two parties do not agree on a price, then no transaction occurs. Therefore, the fault here must lie with the renter. Obviously those renters that assign a high value to a 1995 rental cost-basis are pansies. (As a technical note, this is completely different from the 1995 owner whose property tax increases are controlled. Conscientious landlords would never use a DCF analysis to asses the value of that subsidy.)
    On the other hand, the John Galts that choose to become landlords in a rent controlled city are pure victims of their customers’ greed — almost as innocent as the I/O loan owners that are now being terrorized by stingy house buyers.
    I wont even mention the banks, or many fine businesses going under.
    It is almost as if the fundamental right to cash-flow positivity is being undermined by our lower class’ sense of entitlement.

  42. Posted by LongTimeRenter

    My friend lives in one of these Lembi owned (and since returned) buildings in the Marina. The first thing they did when taking over the building was offer her ~$30k to move out of her $1,400/month very large 1 bedroom (@Octavia x Lombard). After 10 yrs of rent control, she didn’t bite because market rents were so absurdly high at the time. They would call her up every 6 months and offer her $5k more.

  43. Posted by tipster

    “the Lembi Group has paid below-market-rate tenants an average of $15,000 each since starting an aggressive relocation program in 2000….Payouts ranged up to $45,000 in at least one instance.”
    If those numbers had motivated very many people to move, the Lembis wouldn’t be in the situation they are in. So clearly, that was what they were banking on but it didn’t do the job for very many people.
    [Editor's Note: One such miss and additonal buyout background: Putting A Price On Tenant Buyouts (And On The Market): 1890 Clay.]

  44. Posted by Eoral

    It is not unheard of for a Tenant to Sue a Landlord for offering to buy them out. Here is a case against…the lembi’s
    http://www.sfaa.org/0707fried.html

  45. Posted by Eoral

    And for giggles, let’s not forget Prop M that passed late last year, that had the following stayed by court order:
    “Landlords shall not”
    (5) Influence or attempt to influence a tenant to vacate a rental housing unit through fraud, intimidation or coercion;
    SECTION 6 SUSPENDED BY COURTS (6) Attempt to coerce the tenant to vacate with offer(s) of payments to vacate which are accompanied with threats or intimidation;
    SECTION 7 SUSPENDED BY COURTS (7) Continue to offer payments to vacate after tenant has notified the landlord in writing that they no longer wish to receive further offers of payments to vacate;
    SECTION 8 SUSPENDED BY COURTS (8) Threaten the tenant, by word or gesture, with physical harm;
    The devil being in the details…what for example does “threaten” mean? Does it mean “If you do not move I am going to come and get you…” or does it mean “I will pay you 5k to move or I will Ellis the building”?
    http://www.sftu.org/Prop%20M%20Summary.html

  46. Posted by Anon

    These are several issues that make up the complexity of this transaction. The residents are safe. The rent control law will protect them.
    Everyone’s missing the fact that the refinance market, which no longer exists, was the genesis of leveraged buying used by almost every household in America to generate income. So don’t act like these guys are “evil people.” Everyone was doing it. The fact is that if the market had not crashed everyone would have said the Lembis’ are geniuses. They methodically and legally created a method that drive value by increasing the cash flow.
    Prices were forced up with the transition of gross rent multiplier into the capitalization rate as used by every broker in the City. When the refinancing market was utilized the use GRM becomes an inefficient way to generate fees for the Brokers and investors from New York. Thus, they initiated the use of a hybrid CAP rate that included the stabilized value of the property in estimating its worth. This drove the prices up in or about 2004 and thus, over-valued the market. Such patterns and practices have been ubiquitous in all major cities, especially those using rent control such as Manhattan.
    In San Francisco, with the exception of a few properties like FOX Plaza or Park Merced, you cannot cash flow buildings without a substantial down payment. The return for the investment at that ratio of LTV would not manifest in returns greater than that of a 10 year fixed CD if at all. This is why institutional lenders like CIM did not enter this market in the past. Now the paper is attractive because the market is highly undervalued because it is distressed. In the end, unfortunately for the real estate investor and resident alike, the market in San Francisco is just going to go away as it did in 2002. These mom and pop owners, that are vast majority of the owners in the City, are not going to sell their cash flow buildings take a hit in the capital gains because they have nothing to trade into. The will just put little effort into the system and the buildings will suffer with a lack of improve and poor security. The criminals will move in and crime will get much…much worse. I hope everyone recognizes this risk…

  47. Posted by Eoral

    Dude, in a word, no.
    We are not going to see New Jack City Revisited because moron’s “estimated” value based on “anticipated” rents…though the days of 2% cap rates are over and they never should have existed in the first place.
    Over leveraged buildings are toast…and vultures are going to buy some of them. I am a vulture, and I am excited. And when I do pick up another 20 or so units, I will take good care of them, like the 85 or so I have now. And I am not alone.

  48. Posted by FSBO

    Eoral – I tend to agree with you. I think Anon at 4:30 was suggesting that transactions may dry up since new buyers will want real positive cash flow, but long-time owners won’t sell at such prices (and wouldn’t be able to roll into another cash flow positive property). As you point out, over-leveraged buildings should be toast – but maybe Lembi is the only owner who is really over-levered since he was practically the only buyer in recent years.
    Pulled these sales counts from MLS for buildings with 16+ units:
    2009: 1 sale
    2008: 13
    2007: 15
    2006: 22
    2005: 27
    2004: 26
    2003: 31
    2002: 14
    2001: 18
    2000: 27
    Do foresee properties becoming available in SF with real CAP rates of 8-10% or so?
    FAB – funny stuff about the Lembi and Speyer kids. Macklowe’s kids and D Trump Jr aren’t doing so well either.

  49. Posted by LMRiM

    On Macklowe and negative debt service/high LTV, here’s a funny post from way back in December 2007 (anyone who didn’t see the CRE bust coming really has no excuse):
    http://www.calculatedriskblog.com/2007/12/report-macklowe-failed-to-repay-500.html
    (I laughed back then at the second comment on that CR thread, and FSBO’s post just reminded me of it: “holy mackerelowe.”)

  50. Posted by Mr. Manager

    Hi Folks,
    Great posts! I’ll probably get slammed for this but here goes.
    First, ownership of the Lembi apartment buildings or hotels or business suits doesn’t matter all that much, the banks are retaining the Lembi group as the management company. So don’t look for any major changes.
    Second, the refinancing that the lembi group did during the real estate boom went to buy more property and in many cases greatly improve it, look at 825 Post a 3 million dollar remodel of a 130 unit crack house, it’s really a great improvement to the neighborhood and an extra 35k per month in rents.
    Sure a lot of their tactics were not fair, but they did employ thousands of local workers. now a lot of people, workers and managers are losing their jobs and homes.
    I think that their needs to be a lot of improvements in the way apartment buildings are managed and in the way residents take care of the places they live. The big corporations are made up of individual people like you and me so let’s try to see it in perspective.

  51. Posted by FSBO

    Mr Manager – no slamming here, thanks for the input. In addition to enriching many sellers, I’m sure the Lembis have paid a lot to local contractors – but, according to the Biz Times article, there is at least one that is not too happy. On-Site Contracting filed a $550K lien on 12 buildings last month.

  52. Posted by ex SF-er

    The fact is that if the market had not crashed everyone would have said the Lembis’ are geniuses.
    A big if. If I kept growing until I was 11 feet tall and ran a 3.8 100 yrd dash and had a 40 inch vertical leap and sweet shooting skills then you would have said I was the best basketball player of all time.
    there is a reason many of us started calling “bubble” in the mid 2000’s. For exactly this kind of reason.
    the only way this Lembis deal makes any sense is basically if you subscribe to the idea that RE valuations only go up.
    Since that is and always has been preposterous, it is and was clear that this sort of deal would never work out.
    Thus, those who really understand economics/finance always thought that firms like the Lembis group were overleveraged into a bubble.
    which is why we shorted them like crazy and made a ton of money.
    Yes, LMRiM, it was Macklowe. His financing was very similar to this Lembis deal. Not only did the banks finance the properties, but they financed the payments on the loan as well.
    The CRE bust will be quite the “surprise” to our fearless financial leaders. Nobody could possibly foresee it unless you actually open up the books on these CRE deals. Good thing we have a country full of taxpayers who won’t mind mopping it all up.

  53. Posted by BS

    In the last Lembi post I wrote that (based on talking to the real estate agents who actually sold the (mostly) crappy overpriced SF apartments to the Lembi family) that the younger members of the Lembi family were the ones excited about buying so much since they seemed to think that “real estate only goes up”.
    BS (who used to work for the Lembi family) wrote (on January 17th) “The third (Lembi) generation is in their 20s and out of college for only a few years. They have important operational responsibilities (i.e. operating the buildings on a day-to-day basis and marketing), but were not involved in the decision to purchase”
    I guess that the “President” of one of the largest Lembi companies does not make many decisions.
    Taylor sure sounds excited about a new property here:
    http://cache.zoominfo.com/CachedPage/?archive_id=0&page_id=2001492616&page_url=%2f%2fwww.travel.autojogja.com%2f2007%2f02%2f15%2fcity-sees-boost-in-revival-of-hotel%2f&page_last_updated=5%2f16%2f2007+1%3a05%3a42+PM&firstName=Taylor&lastName=Lembi
    And not as excited giving it back to the bank here:
    http://findarticles.com/p/articles/mi_qn4176/is_20090209/ai_n31323565
    Posted by: FormerAptBroker at March 27, 2009 12:24 PM
    FormerAptBroker, your original post stated that the younger Lembis made the decision to *buy* the buildings. My response was that, although they had important managerial responsibilities, they weren’t involved in the decisions to *buy* the buildings. The quote of me used in your post above confirms this.
    So, in order to show that you were “right”, you state “Aha, I told you that the younger Lembis *made important decisions*” and provide links in which Taylor Lembi talks about remodeling hotels, etc. *However, there is nothing in those articles stating that he made the decision to buy any of the properties.* The whole point of my post is that you attacked them for *buying the buildings”. You were wrong then and you are wrong now, and your attempt to subtlely distort the issue won’t fly.
    BTW, having been on “ground zero” there during the years when the Lembis purchased the most buildings and understanding how the financing worked, the mentalities of the lenders, etc., Anon at 4:30 p.m.’s post is right on.

  54. Posted by jon jameson

    If the present rents did not cover the monthly payments…..prices have quite a way to fall in order to attract new buyers.
    Unless, the lender doing the foreclosure intends to stay in the rental “bidness”.

  55. Posted by diemos

    fu bu guo san dai
    “Wealth does not pass three generations”

  56. Posted by FormerAptBroker

    Anon wrote:
    > The fact is that if the market had not crashed everyone
    > would have said the Lembis’ are geniuses.
    If everyone in America started shopping on line for 50 pound bags of dog food people would have said that the guys who started Pets.com were geniuses…
    The problem is that the San Francisco apartment market has not “crashed”. Rents are still strong and vacancy is low yet the Lembis can’t hang on to their recent purchases.
    As a long time Bay Area apartment owner and manager it was easier for me to imagine people paying $100 for a bag of dog food that they bought on line than for people to pay the rents needed to cover the debt service on many of the Lembi apartment purchases.
    I’m happy that BS is posting to the site and sharing his inside information on who made the decisions to “buy” the apartments at record high prices.
    I have not sold apartments for many years but I am still friends with quite a few active apartment brokers who are the ones that told me that it was members of the third generation (who as BS has pointed out are all young and have not experienced multiple real estate cycles) telling them that “they” were making the decisions.
    With BS on “ground zero” as he says he probably has a lot better information than I do. I just want him to know that the information I passed on came from good sources and it was not hard for me to imagine that they younger generation were not making the decisions especially since some had titles that typically have decision making power.

  57. Posted by tohellwiththelembis

    To hell with the Lembis. Their shady, dishonest business practices have reached their end and they are a cascade of failure now. Hope they go bankrupt and lose everything. They are terrible landlords and terrible neighbors to responsible building owners. I laugh at their misfortune and hope they end up on the street and get their teeth kicked in by homeless people!

  58. Posted by tipster

    How many fortunes will be lost by people who think they can outsmart the rent control laws and toss the tenants out and raise rents?
    It’s usually a recipe for disaster. The Lembi kids would have had way more fun taking all of dad’s cash and blowing it on an around the world coke party or something. The way they lost the family money is hilarious if only because it made SO MANY other people in SF absolutely rich!! I’m sure all of THEM had a lot more fun with Lembi’s dad’s money than the kids ever will!
    But I’m sure it won’t stop the next genius who thinks he can ignore the rent control laws and “make a fortune”.

  59. Posted by anonn

    shameless, and improperly moderated

  60. Posted by Oh Please

    Flujmeister, you of ALL people should not be claiming someone’s comment is “improperly moderated”.
    [Editor’s Note: We have a feeling “anonn” is referring to a comment he left (and we removed) claiming “pitiful douchery” on the part of Tipster for “intimating [the Lembi’s] use cocaine.”]

  61. Posted by jonj

    It’s “shirtsleeves to shirtsleeves in 3 generations”. Same end result.

  62. Posted by El Payo

    Oh great. I live at 345 Green.

  63. Posted by jessep

    Who is this fluj person? Is it an actual realtor?
    If so, what is their real name?
    Don’t worry I’m not a stalker, just curious.

  64. Posted by anonn

    Why is that important to you, Jessep? There is no “fluj” on socketsite. Certain people couldn’t handle losing every argument so they got personal. Leave it alone, OK? The anonymity is what allows for candidness.

  65. Posted by jessep

    Anonn,
    I’m not attacking you I’m just curious.
    This is nothing personal at all.
    The anonymity may allow for candidness, but it also allows for lying, hyperbole, and bs.

  66. Posted by anonn

    Exactly right. It can allow for that. Witness everything most of the more vocal bears on here say, for example. One house = “market trend” (unless of course it sells for top dollar.) “Fluj” never told a single fib, and outed himself as a realtor, and had more information about the current market than any 10 of his bashers combined. There was an accountability there, and a presence in the marketplace, that none of the others will ever touch. These guys all argue from the platform of an unrealized potential future anyway. So who is hyerbolic? In fact, go find an example of “fluj” being hyerbolic. I doubt you will be able to find one.

  67. Posted by Telegraph Hell

    345 Green is actually two connected buildings: 345 and 347 Green Street. Each building has six units, for a total of 12 units, a couple of which are vacant. Apparently tenant buyouts were offered almost immediately after the property was purchased from the former owners (who had held it for almost 60 years). Buyout offers continued through 2008, and increased each time.
    There is another property next door which was sold in conjunction with 345/347 Green Street, a duplex which is apparently unaffected…

  68. Posted by 45yo hipster

    To “BS”- there are claims here (some by the principal renting party, no less) that the lembis made buyout offers upwards of $40000 to vacate 1 unit. I also know someone who works there who told me they usually did not go above $15k on buyouts.
    Amy input on the matter?

  69. Posted by NoeValleyJim

    Why would a city whose population has been stagnant since the 1970s need more housing units?
    Speaking of BS….
    “San Francisco has attained the highest population on record with a population of 824,525 on January 1, 2008. This continues the significant upward trend in growth that began in 2006. The city grew by 1.5 percent this year.”

  70. Posted by NoeValleyJi

    Ironically enough, the very same Forbes Magazine calls San Francisco “the seventh best place in America to earn a living.”
    http://www.forbes.com/2008/08/18/cities-10-living-forbeslife-cx_mw_0818realestate.html

  71. Posted by Tipster

    Ironically, NVJ didn’t finish the rest of the first article regarding SF population, in which it states:
    Accuracy. Data and models used to produce population estimates are subject to measurement and non-measurement errors…city estimates [have a margin of error] by an average of 5.6 percent.
    The cheerleaders are really scraping the bottom of the barrel when their so called population “gains” don’t even exceed the margin of error in the population estimates! HA ha!
    http://www.dof.ca.gov/research/demographic/reports/estimates/e-1_2006-07/

  72. Posted by jessep

    Is it hard to Ellis Act big apartment complexes?
    I’m always surprised that no one has Ellised the Golden Gateway area because the location and views are so fantastic…the TICs would sell easily.
    How are rent controlled owners able to pass on significant cost increases to renters?
    Just curious, I know nothing at all about this.

  73. Posted by BS

    “I have not sold apartments for many years but I am still friends with quite a few active apartment brokers who are the ones that told me that it was members of the third generation (who as BS has pointed out are all young and have not experienced multiple real estate cycles) telling them that “they” were making the decisions.
    With BS on “ground zero” as he says he probably has a lot better information than I do. I just want him to know that the information I passed on came from good sources and it was not hard for me to imagine that they younger generation were not making the decisions especially since some had titles that typically have decision making power.”
    FormerAptBroker:
    I know your *secondhand* information is inaccurate because I worked there for years and worked directly with the owners and the “third generation”.
    Two things about your posts disturb me: (1) Someone getting blamed for decisions he did not make and (2) your apparent malice in resurrecting a two month old thread to do so (and distorting what was said in that thread).
    As I said from my original post in January, the “third generation” (it’s actually not multiple people; only two people of the “third generation” even work there and only one of them is titled and has any say in anything; nonetheless, I will refer to “them” ) does have significant power, but did not make the decisions to purchase the properties. As your broker sources should be able to attest, the purchasing spree began in 2000 when the third generation was in college out of state and didn’t work there (except summers), and didn’t let up until new financing went dry.
    To the extent the third generation has decision making power, it involves *operating* the properties. In essence, their elders purchased the properties and then had the third generation (and other people) run them.
    There is only so many below market tenants who will move, only so much rents can be raised, and only so much expenses can be cut, etc. With the monthly negatives running into the millions, the third generation can’t be blamed for what was and is happening. The problems are not the result of the properties being poorly operated, but the overall financial structure.
    While I am not losing sleep over the third generation’s financial predicament, I have posted here because they are decent people, the titled one works very hard, I liked working with them, and they shouldn’t be blamed for something they didn’t do (no matter how happy it makes FormerAptBroker to spread falsehoods and act as if he has inside information).

  74. Posted by anonn

    “The cheerleaders are really scraping the bottom of the barrel when their so called population “gains” don’t even exceed the margin of error in the population estimates! HA ha!”
    LOL at your pathetic self. Over and over again with “San Francisco is losing population, actually.” Then the truth comes out. And look at you. Very ugly. I do not get it with some of you guys. This distortion hobby thing? Very ugly and weird. LMRiM, you, Trip. Weird as hell.

  75. Posted by Robert

    NVJ,
    I’m using census data, which is suitable for measuring trends over several decades. Here is the census data for San Francisco, rounded to nearest 1000:
    1900: 343K
    1910: 416K
    1920: 507K
    1930: 634K
    1940: 634K (note, WW2)
    1950: 775K
    1960: 740K
    1970: 716K
    1980: 679K
    1990: 724K
    2000: 777K (note, .dot-com boom)
    2007: 765K (ACS data)
    sources: http://www.census.gov/population/www/documentation/twps0027/twps0027.html
    http://factfinder.census.gov/servlet/DTTable?_bm=y&-context=dt&-ds_name=ACS_2007_1YR_G00_&-mt_name=ACS_2007_1YR_G2000_B01003&-CONTEXT=dt&-tree_id=307&-geo_id=05000US06075&-search_results=01000US&-format=&-_lang=en
    If you think the trend is different, I’d like to see your version of this table, rather than a single poll using different methodologies.
    Moreover, I will venture a prediction that the next 30 years will look a lot more like 1950-1980, then 1980-present.

  76. Posted by anon

    Robert,
    Why are you not using the new ACS prediction of 808k?
    http://www.kcbs.com/San-Francisco-Wins-Census-Challenge/3486758
    The number that they used before correcting it fits your theory better? ;)

  77. Posted by anon

    Also – more housing would be needed regardless for a static population given shrinking household sizes across the entire country from what was the norm in the 50’s.

  78. Posted by diemos

    “San Francisco Wins Census Challenge”
    Why did SF challenge the census? Because they get more bucks if they have a higher number.

  79. Posted by anon

    diemos – Why does it matter that they challenged? Are you claiming that the census got the number right and then fraudulently changed the number because of pressure? Do you have any evidence to support this claim? Cities all across the US challenge census numbers every year – some results are changed, some are not.
    Would you not challenge an appraisal on a property if you thought it was too low or too high? Does challenging something automatically discredit the results of the challenge?

  80. Posted by anonanon

    anon, are you saying that the original 2007 number undercounted the population, but the 2000 figure did not?

  81. Posted by diemos

    “Does challenging something automatically discredit the results of the challenge?”
    Nope. But it’s something to keep in mind.
    “Are you claiming that the census got the number right and then fraudulently changed the number because of pressure?”
    I’m claiming that SF doesn’t give a flying f!!k whether the census number was right or wrong. If they can get it to go up they get more money.
    “Also – more housing would be needed regardless for a static population given shrinking household sizes across the entire country from what was the norm in the 50’s.”
    In a recession people double up, take on roommates, head home to mom’s basement. Look for increasing household size and a surge of vacancies.

  82. Posted by anon

    anonanon – the 2000 number is an actual census. The 2007 ACS number is an estimate. I am saying that the census bureau published an estimate in 2007, was challenged on the estimate, took another look at the estimate, determined that their estimate for 2007 was incorrect, and published a correction to that estimate. We won’t know how close that estimate is until the next actual census in 2010.
    My only point was that using on the actual census numbers does not help Robert’s point (since it shows increases for three cycles in a row) and using the actual census data plus the latest ACS estimate also does not help Robert’s point, because it would show four data points in a row of increases. So…I was curious as to why Robert would use a number that has now been determined to be wrong by the ACS to prove his point. Seemed a little fishy and a case of potentially picking data to prove one’s point, rather than looking at all data.

  83. Posted by anon

    “In a recession people double up, take on roommates, head home to mom’s basement. Look for increasing household size and a surge of vacancies.”
    True enough. I was more talking about the trends of the last several decades. Right now you’re right of course. (and for the forseeable future)

  84. Posted by anonanon

    “the 2000 number is an actual census. The 2007 ACS number is an estimate.”
    Sure, but of you google
    census undercounting san francisco
    there is no shortage of claims that any actual census will undercount San Francisco as well.

  85. Posted by anon

    anonanon – what’s your point? I didn’t make that claim.

  86. Posted by anonanon

    anon, I guess the point is that people are challenging census numbers all the time through various mechanisms, including the media, the political system, and the court system. Very likely, the likelihood of getting a census number changed will depend on a number of factors that have little to do with whether the census number is in fact accurate or off by four percent, which no human being knows for sure anyway.

  87. Posted by FormerAptBroker

    BS wrote:
    > Two things about your posts disturb me: (1) Someone getting
    > blamed for decisions he did not make
    I was in Junior High and High School when most of the “third generation” were born. It is a small world and I’ve met many of the family over the years (most recently a member of the third generation whose name starts with a D that went to BHS with a cousin). I’ve never actually heard a member of the family (who’s name starts with a T) say he made buying decisions he sure was talking big when I last ran in to him (a couple years ago) and didn’t seem to think I knew much (despite the fact that I was helping to manage apartments since before he was born). As I said in the last post you obviously know more than I do and I’ll give it to you that the “older generation” made the decisions to lever up and buy so much. ..
    > (2) your apparent malice in resurrecting a two month old
    > thread to do so (and distorting what was said in that thread).
    It was not malice, the reason I brought that up is that it was just a couple weeks ago when I was at a party in Baywood that the topic of the Ben Franklin Hotel came up and yet another person (who does not have any ax to grind) mentioned that people involved with the hotel were told by (someone who’s name starts with a T) that it was “his deal”. It was then that I mentioned a Socket Site post by someone named BS and the response was “T is the f’ing “President” of the Company”…

  88. Posted by anon

    anonanon – sure, that’s a valid point, but it has nothing to do with what we were talking about. If we’re using numbers provided by the US Census, then we should either trust them all or or trust none of them, not trust only the ones that help whatever point we’re trying to get across. If you want to say that the census is not a reliable place to get numbers, perhaps you may have a point.

  89. Posted by anonanon

    anon, I think the official US Census numbers have significant margins for error even in the best of circumstances. As for getting the 2007 numbers “corrected”, I think it’s a pretty safe bet that there was a significant amount of political activity taking place given the federal dollars at stake.

  90. Posted by Robert

    Wow, a lot of tortured logic (and arithmetic) in this thread.
    Mea culpa, I didn’t catch the informal challenge, which resulted in an adjustment to 799K of the 2007 ACS data. That information does not appear in the census database, which is why I didn’t catch it. It is on the census website, though.
    http://www.census.gov/popest/archives/2000s/vintage_2007/07s_challenges.html
    Ironically, the issue boiled down to claims of undercounting those in various stages of homelessness.
    Anyways, it’s not important. The original claim was that the population was basically stagnant, and not in need of additional housing, and this claim holds.
    To see this more, you can take a look at ACS data for vacant housing units. The following table shows all housing units, #vacant units, #vacant units which are for “seasonal, vacation, or occasional use”. Note that vacation units are considered vacant by the census, but are separated in the table since demand for vacation homes should, to some degree, be considered true demand — although some of these homes are occasionally used less by choice than by circumstance.
    Year #Units #Vacant #Occasional
    ———————————
    1990: 328K 23K 1.5K
    2000: 346K 21K 4.0K
    2007: 357K 36K 5.4K
    So, we see that between 1990 and 2000, 18K units were added to the housing stock, but the number of vacant units decreased by 2K, which is consistent with a low single-digit population increase and a greater demand for housing during the dot-com boom.
    However, from 2000 to 2007, 11K units were added, but the number of vacant units increased by about 15K. In other words, none of the increase in housing units was necessary to actually house people, and in fact, we could have subtracted 4K units from the market and filled the need for a slight increase in vacation homes while keeping occupancy rates at the 2000 level of 96%. This is consistent with a declining population, or at least a declining non-homeless population.
    As an aside, the tenth of vacant housing units corresponds to about 127K rooms, which should be more than enough to house San Francisco’s homeless, and still have near-double digit vacancy rates for the overall housing stock.

  91. Posted by anon

    Or it’s consistent with declining household sizes.
    Just saying.

  92. Posted by Geo

    And now Lembi loses the property management on the UBS properties to Laramar…

  93. Posted by Josh

    UBS has said that once they took over the buildings, they were cash flow positive. The problem was paying the loans.
    The CitiApartments business model could only work if they could get a majority of the long term tenants to leave and they tried to make this
    happen by hook or by crook.
    Because so many of the buildings were actually split ownerships, the Lembi’s will only take a partial hit on each LLC. Whether Laramar is actually a subset of the CitiApartments family of businesses is still not clear.
    Because CitApartments is being sued by the City of San Francisco perhaps being free of many of the buildings will reduce their over all long term liability.
    The managers were not compensated correctly for their units, nor paid for all the hours they worked, many of them working on multiple buildings and are now being fired in the foreclosure turnover, so there are more lawsuits to be filed.
    The tenants cannot be summarily kicked out, all the buildings are rent controlled.
    The only question is whether UBS will do better about upkeep, or will they have to be sued as well.

  94. Posted by Robert

    UBS has said that once they took over the buildings, they were cash flow positive. The problem was paying the loans.
    What does this mean? I.e. if you assume zero cost of capital, then pretty much every asset will be cash flow positive.

  95. Posted by NoeValleyJim

    Moreover, I will venture a prediction that the next 30 years will look a lot more like 1950-1980, then 1980-present.
    Not a chance. If anything, population in SF (and other urban cores) will grow faster than they have during the Great Suburbanization.

  96. Posted by dalowdown

    “I’m sure the realtors are keeping a tight lid on those stories, and will vehemently deny that there are any problems, but anyone with a brain is steering clear of those things.”
    LOL Tipster, you continue to amaze me with your postings. How exactly would the devilish realtors “keep the lid” on stories like that? Sounds a little to cloak and dagger. We’re to busy selling snake oil out the trunks of our Bimmers and Audi’s.
    Isnt Socketsite the perfect public forum for that type of story, of which I’m sure there are a handful.

  97. Posted by dalowdown

    Laramar has nothing to do with the Lembi’s Family. Laramar Urban has grown out of Laramar Property Mgt. Co. which is responsible for managing the Fillmore Center, for some time. Their reputation as a detail and service oriented property managment company exceeds this industry standard by a few strokes. I’ve talked to people at FC who love this company and their property mgr for their great service.

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