Another Top S.F. Landlord Parts With Housing Portfolio. Why the City’s Rental Market is in Trouble

Allen Matkins partner, Nathaniel Touboul was recently quoted in the San Francisco Chronicle on the multifamily market in San Francisco. The economic impact of the pandemic on San Francisco's real estate market is evident as office and retail spaces face increasing vacancies, and multifamily properties experience a decline in occupancy and rental income. Mosser Companies defaulted on an $88 million loan backed by 459 rental units, leading the lender to actively sell the non-performing loan. The broader trend in the multifamily sector is attributed to high interest rates, reduced occupancy, and declining rents, creating challenges for property owners and investors in the city.

“This is the reason why multifamily in San Francisco is suffering so badly and you have these portfolios that have gone up for sale: multifamily was hit with a triple killer, which is increased interest rates, lower occupancy rates and declining rents,” said Nate Touboul.

In valuing multifamily properties, investors and lenders analyze current occupancy rates and future rent growth, he said. 

“In San Francisco, in 2018 and 2019, business was booming, people were paying top dollar for apartments, and vacancy rates were extremely low. No one at that time was underwriting vacancy rates and declining rents such as the ones we have experienced post-pandemic, Touboul said. 

Touboul said that the present situation in San Francisco, in some ways, represents a “changing of the guard,” in which new groups are buying into the market at significant discounts. 

“What is happening right now is really an illustration of and a reminder that, ultimately, San Francisco is a boom and bust city, and real estate is cyclical in nature,” Touboul said. 

“In this case, San Francisco’s real estate market was frothy pre-pandemic and got hit particularly hard by a COVID and work-from-home exodus, which it is still recovering from,” he said.

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