First Republic Largest Lender to San Francisco Multifamily Sector

Uncertainty surrounding First Republic Bank—the most active lender in San Francisco’s multifamily market—is causing investors and buyers to turn to other options for financing.

“Uncertainty surrounding First Republic Bank, the most active lender in the market, is likely to cause investors and buyers to turn to alternative financing options,” Colliers said, in a Q1 2023 market report.

“These could include cash purchases, private lenders, seller carry, and other nontraditional sources of funding. As a result, the market may see a shift towards smaller deals and more creative financing structures as investors look to make the most of available resources and opportunities,” the report said.

According to Colliers, the San Francisco multifamily real estate market is experiencing historically low sales volume, with investors facing significant challenges in acquiring debt for these properties.

The difficulty in obtaining financing has been driven by rising interest rates, stricter lending standards, and a general sense of economic uncertainty, the report said.

The failure of regional banks SVB and Signature—and the wobbly status of San Francisco-based First Republic—are speeding the plunge in property values. An emergency infusion of $30B in capital from a group of large banks led by JPMorgan’s Jamie Dimon have failed to stop the bleeding at First Republic.

Share prices of First Republic have fallen by more than 95% since the beginning of the year, according to S&P.

The current market conditions in the San Francisco metric are confronting local planning commissions with the quandary of approving entitlements for projects that might not get built.

Southern California-based Overton Moore Properties received an entitlement last week for a seven-story, 262-unit multifamily campus at 1477 Huntington Avenue.

The development site, about a half a mile north of the San Bruno BART station and a mile from the Bruno Caltrain stations, currently is occupied by a 9K SF office building. Overton Moore acquired the site in an 11-property portfolio deal with AT&T in 2019.

Planning Commission members in South San Francisco said the decision on the entitlement was not easy under current market conditions.

“These are tough economic times, and what we’re confronted with is we can approve plans but we don’t know if they’re going to be implemented, so it’s challenging for us at times, and that’s why we have to ask the hard questions,” Commissioner Sam Shihadeh said at the meeting. “I think a lot of developers are facing the same issues now.”

Earlier this year, Overton Moore sold the Morton Commerce Center for $186M in the largest East Bay industrial deal of 2023 thus far.