San Francisco’s Citiapartments is a group of related Lembi-family partnerships that own and manage over 260 apartment buildings, and a few deluxe short-term residences (CitiSuites) and boutique hotels in the City. Their business plan is to increase rents by making lower-class apartments more marketable to higher-paying renters.
They have rapidly purchased over 200 older (ie, rent-controlled) SF buildings in the last ten years, recently using 5-yr interest-only mortgages packaged (along with unrelated commerical properties) by investment banks into securities for private “collateralized debt obligation” (CDO) bonds divided into sections (“tranches”) with various risk levels and interest rates. These are the same securities which investors had trouble pricing during the recent (and current) liquidity crisis in the financial markets. In addition to such first mortgage financing, second mortgage “mezzanine” loans are obtained to pay for the rennovations and tenant buyouts which bring on higher rents. A lot of the improvements are quick fixups. The SF rental market is tight and the ability to push up pricing and push out low-paying tenants is a real plus for lenders- the real owners.
The huge amount of debt sometimes causes operational difficulties, and vendors such as maintenance firms and construction crews have had to deal with long delays in payments. This is a bit ironic, since Citiapartments is very aggressive in managing removal and/or buyouts of late-paying or low rent tenants. In fact, they’ve been sued by the City Attorney, who asked that they be barred from property management in the City. In the meantime, the partners have engaged in frequent refinancings, regularly cashing out their capital gains, squirreling some money away, but also fronting payments in new buildings and out-bidding other buyers. As a hard-working family-run business they also pull out salaries, commissions, and fees that make everybody prosperous.
They are rumored to use the characters in the movie Eraserhead as models when choosing their tenant relations operatives. These commissioned employees, allegedly led by a bullying ex-cop, are involved in various behaviors which assist low-paying tenants decide to accept “relocation” buyouts. In-house attorneys also stay very active.
Citiapartments (aka Skyline Realty, or The Lembi Group) is an enormously successful but highly leveraged outfit which has monoplized purchase of rent-controlled apartment buildings in San Francisco. Look at the rent heat map of the City (craigstats) and you can see what’s going on! And remember, they can’t help any bad behavior- they have to pay all that interest on the loans!
Here’s details of a recent financing package, which includes Lembi Group apartments & Chicago’s Sears Tower . 5 yrs, interest-only, recourse, no separate entity opinion.
David Raynal, CEO
“To be honest about it, if you don’t mind, frankly, we’re really amateurs!”
