Maximus Real Estate Partners is navigating severe financial headwinds as it defaults on approximately $1.8 billion in loans tied to Parkmerced, San Francisco’s largest apartment complex. This development, initially reported by Morningstar, underscores the escalating challenges in San Francisco’s real estate market and the pressures on major property owners like Maximus Real Estate Partners. The default is linked to the sprawling 152-acre, 3,200-unit Parkmerced multifamily complex, which a recent appraisal valued at $1.4 billion. This valuation is a significant drop from the outstanding debt and a staggering $700 million less than its valuation in 2019, painting a stark picture of the property’s depreciating value under the management of Maximus Real Estate Partners.
The Financial Breakdown of Parkmerced’s Debt
In 2019, Maximus Real Estate Partners undertook a substantial refinancing of Parkmerced. This involved securing $1.5 billion in senior financing from prominent financial institutions Barclays and Citi. These loans were subsequently packaged into commercial mortgage-backed securities (CMBS) deals, a common practice in large real estate transactions. Additionally, Maximus Real Estate Partners obtained a $275 million mezzanine loan from Aimco to complete the refinancing. However, Aimco later sold this mezzanine loan at a loss, indicating early signs of financial strain associated with the Parkmerced investment.
Earlier this year, reports surfaced that the $1.8 billion debt associated with Parkmerced had been placed under special servicing with Green Loan Services, a division of SL Green. This move, initiated at the request of Maximus Real Estate Partners, was attributed to a high vacancy rate of nearly 20 percent at Parkmerced and the impending maturity of the loans by the end of the year. Special servicing is often a precursor to potential loan default or restructuring, signaling financial distress.
Default and “Extensive Open AP” Concerns
Recent servicer commentary has confirmed that the loans are now officially in default. Adding to the complexity, the servicer noted the “discovery of extensive open AP” and has begun making “property protective advances.” While the loan technically remains current, according to Morningstar, meaning Maximus Real Estate Partners is still making payments, these “property protective advances” and the mention of “extensive open AP” raise red flags.
David Putro, a Morningstar analyst, suggests that “AP” likely refers to accounts payable. Given the context of advances to protect the collateral and recent reports of deteriorating maintenance conditions at Parkmerced, this interpretation seems plausible. “We have no background on why the servicer had to make such advances, but it is cause for alarm,” Putro stated, highlighting the uncertainty surrounding the financial health of the property and Maximus Real Estate Partners’ handling of it. The lack of transparency in discussions between Maximus Real Estate Partners and the servicer further complicates predictions about the loan’s future.
Lawsuit and Maintenance Issues Surface
Adding to the woes of Maximus Real Estate Partners and Parkmerced, a lawsuit was filed in April by Planned Building Services (PBS), a maintenance firm. PBS claimed to be owed $2.9 million by Parkmerced’s owners for services rendered. The contract, dating back to 2016, involved monthly payments of over $185,000 for cleaning and maintaining common areas across Parkmerced’s 11 towers, including lobbies, fitness centers, and other amenities. The lawsuit explicitly stated that “Parkmerced repeatedly promised to pay the sums due only to fail to perform on those promises,” indicating potential cash flow issues for Maximus Real Estate Partners.
However, recent updates indicate a resolution to this particular issue. According to PBS executive Vice President John Fahmy, Parkmerced has since become current on all past due invoices. “They were honorable and paid everything fully owed,” Fahmy acknowledged. “We are grateful and moving forward.” This update suggests that while significant financial challenges persist for Maximus Real Estate Partners, efforts are being made to address outstanding debts and maintain operational stability at Parkmerced.
Looking Ahead for Maximus Real Estate Partners and Parkmerced
The default on the $1.8 billion loan for Parkmerced represents a major challenge for Maximus Real Estate Partners. The substantial decrease in property valuation, coupled with high vacancy rates and mounting financial obligations, paints a concerning picture. While the resolution of the lawsuit with Planned Building Services offers a small positive note, the larger issues surrounding the loan default and property maintenance remain. The situation underscores the volatility of the San Francisco real estate market and the significant financial pressures facing large property owners like Maximus Real Estate Partners in the current economic climate. The coming months will be critical in determining the long-term outcome for Parkmerced and the financial standing of Maximus Real Estate Partners.
