Not too long ago, a reader asked us, what’s up with the Lembis? If you had seen our response, you’d pretty much know that our “source” nailed it. For those that aren’t familiar with the Lembis and the impact they had/have on our multi-unit residential market, we invite you to read the article below. In a nutshell, the “Lembis have invested more than $1 billion in apartment buildings since 2005 and own 7,500 units across the city,” and this little sale is sending quite a shock to the multi-unit market.
For our purposes, we’re going to point out a few quotes from the article that would often get over-looked by our bubble blogging brethren.
David Gruber, who owns 14 apartment buildings and is active in the landlord community, said he doesn’t expect any of the Lembi buildings to sell at current prices.
“They might have to adjust to a different type of market, but in the long term the message is still very bullish: low vacancies, healthy job growth, and rent increases,” he said. “People who buy in San Francisco are not buying for cash flow — they are buying for long-term appreciation.”
“A building I bought in 1979 for $1 million is now appraised at $14 million; a building I bought in 1982 for $1.6 million is worth $16 million,” [David Raynal COO of CitiApartments] said.
Talk all you want about year over year, month to month, but don’t forget the bigger picture. San Francisco is a solid long term investment.
–Lembis end apartment buying spree [San Francisco Business Times]
why doesn’t he sell them all to the academy of art?
The ‘buy for appreciation’ thing does not totally make sense. At some point there is going to be no buyer who is going to fork over 16 million (appraised) bucks for an apartment building where people have rent control and the total rent is like 20% or the mortgage, as a pie in the sky example. But eventually the numbers will not make sense for any investor. And if real estate ‘always goes up’ why sell so much at once?!? Even if its a ‘small percentage’ its still a sale, similar to a ceo selling their shares..
it doesn’t say that they are getting out of the apartment owning business entirely, just here in the city. can you blame them? i don’t know how anyone can stomach being a landlord in this town. it’s just not worth it.
i do not blame them. but obviously they knew what they were getting into if they own like 1 billion dollars worth of RE. its not like they are a first time landlord and were like ‘oh crap, this sucks’. they obviously have thoughts things will go down else they would not sell. when big players make moves people do get worried. it will be interesting to see if they fetch the $$ they want.
maybe they just think that this is a good time to sell or maybe they are over leveraged in other markets and had to chose where to focus
who knows
i don’t think it says much about our market
rents are going up, not down
a nice heart warming story about them here:
http://www.sfbg.com/40/23/news_skyline.html
something else just came to mind oliver. maybe they are saying, if ever there was a time to level the tenderloin and start over, this is it, buy my portfolio and do it!
thanks james for the article. quite something to read.
Perhaps people are investing in rent controlled properties with the hope that rent controls will be relaxed or perhaps eliminated in the future. It is certainly a speculative risk but the payoff could be huge.
That article was quite heart warming. I love to hear the stories of sick people kicked out on the streets, not. Owners who treat their tennents like that should be jailed. I think their needs to be a balance between renters rights and owners rights. For example if you are renting out your house to a family and they squat you should have more rights as an owner then say the owner of a mega building since the mega buildings are mainly rentals. But the stuff in the article make a person cringe. But with deep pockets a lot of people can get away with murder.
hoegaarden, I honestly think that rent control will never go away as there is too much a fight for it. rent control in itself is not a bad thing, else the city would get over-run with white yuppies, oh wait that is the home market… but anyways I think one of the main problems is that the rent control increase rate was so artificially low that the huge gap happened where people living in places for 20 years paid 1/5th their counter parts. hell i knew people during the ‘dot com’ boom who paid 800 bucks for a prime 2 bedroom and were making like 200k. that is not exactly fair.
maybe rent control should be tiered. the younger you are the more your rent can go up and as you get older the less it could rise. that would motivate ‘entitled’ younger people to actually move and then older people would have at least some piece of mind. call me crazy but when I see some of my friends who have lived in the haight for the last 15 years, pay 600 bucks for their apt and making 6 figures its a bit irritating. these are not the peopel rent control is for…
rent control is as broken as prop 13. los angeles is about to test the populace to see if they want to get rid of rent control. we should watch what happens down there. i think the market should dictate rents just like property prices. anything else will always be dysfunctional.
does anyone have access to the full lenght article in the sf biz times? i cannot access it and would like to read it.
fyi- i know someone who until recently worked w/the lembis. they are definitely not getting out of SF RE, they are probably over leveraged right now and selling off a few buildings. as long as they don’t ‘dump’ too many bldgs at once, this should not effect the aparment bldg market in SF.
I just got a small taste of how the Lembis do business. After agreeing to a move out offer that THEY approached me with, I committed to a new place only to find their offer meant they’d pay $1000 up front and the balance a month and a half later. When I asked for 50% as good faith as I WAS MOVING, they completely reneged. Totally. The response from their office, especially Dave Molieri, was nothing short of thuggish. These people are vicoius and smarmy, reagardless of how much money they suppposedly have. If they can’t afford my paltry move-out amount–as they professed– they are in financial hot water.
From Fitch Ratings press release regarding a CDO debt instruments which includes Lembi mortgages, March 14, 2008:
“The higher weighted average expected loss of the CREL is attributed to the three Fitch loans of concern. The pool consists of two multifamily portfolios (6.22% of the portfolio) totaling 11 properties sponsored by affiliates of the Lembi Group, which owns an estimated 8,200 units in over 300 properties in the San Francisco, California market. Recent reports have indicated that the Lembi Group is seeking to reduce short term debt by offering for sale 18 of its properties. Based on recent portfolio performance information, Fitch reduced stabilized cash flow expectations on several properties. Fitch further increased the expected losses on these loans in its model to account for the uncertainty in the overall marketplace.”
http://biz.yahoo.com/bw/080314/20080314005809.html?.v=1
frank lembi won money gambling in WW2 and returned to SF and entered the
property business. He is not short on money when he cheats people. That
is how Skyline always has done business.Please note; his aquisition spree
was financed by Wall Street money. Their meltdown may now be his.