REAL DEALS ■ INSIDE
Presenting real estate’s
top deals, dealmakers.
LIVERMORE SHOWTIME ■ 8
$70M East Bay theater
moves into the spotlight.
STEM CELL LESSON ■ 12
Research advocates rethink
state school curriculum.
Vol. 23, No. 35 March 27 – April 2, 2009 $2.00
CIM goes Sutter to
23 rental properties hospitals
at risk of foreclosure Bad economy stalls
BY J.K. DINEEN
San Francisco Business Times Bay Area projects
An affiliate of Los Angeles-based CIM
Group, HAL SF Portfolio LP, is seeking to BY CHRIS RAUBER
foreclose on 23 San Francisco apartment “We may have the last construction loan in America,” says developer Irmer. San Francisco Business Times
properties owned by the troubled Lembi
Loan fuels project,
family real estate empire, according to Sutter Health is putting billions of dol-
court documents. lars of hospital construction and informa-
This is the first big push into San tion-technology projects on hold, due to
Francisco for CIM Group, which made concerns about the economy and pricey
a $412 million bet in Oakland last year bond markets.
when it bought five office buildings.
The CIM affilate bought $121 million
of distressed Lembi debt from Column
Financial on Dec. 19 of last year. The affil-
iate alleges in a complaint filed in San
600 jobs moving in Sutter CEO Pat Fry told top offi-
cials March 20 that the 26-hospital,
Sacramento-based system is “reevaluat-
ing and reprioritizing all capital projects
and requests,” from
Francisco Superior Court March 4 that large to small, and, “We
the Lembi subsidiary Trophy Properties
has been in default on payments since
Innisfree expanding When completed, the
are not going to be able
to complete all of the
Feb. 10 on two loans, one for $116.1 mil-
lion and one for $5.2 million. Interest
San Leandro complex new building will make
up about 13% of the
capital projects that
have been requested
accrued and outstanding from Jan. 9 to office space in the city: (internally) according to
March 2 amounted to $1.8 million, and BY BLANCA TORRES 83,000 the desired timelines.”
interest on the unpaid balance is accru- San Francisco Business Times
square 580 Construction proj-
ing at a rate of $50,600 a day, according Fry ects that haven’t yet
to court documents. That amounts to inding a tenant for his proposed office started are on hold, Fry
about $18.4 million a year — more than building in San Leandro turned out to Office Park told the San Francisco Business Times on
double the approximate $8 million the 23 be the easy part for developer David Tuesday, except for design, planning and
properties generate in rents, according Irmer. Getting financing was another entitlement work. He blamed the shaky
to rent roll information on the buildings story.
SAN economy and expensive bond markets,
is St LEANDRO
included in court documents filed with Irmer’s Innisfree Cos. already had a Dav saying “the cost of capital is probably
the complaint. signed lease in hand for 67,500 square feet, E. three times what it was a year ago.”
San Leandro 14
The CIM affiliate bought the Lembi debt a lengthy track record and two fully leased BART th Locally, that means prep work on huge
at a discount, according to real estate bro- buildings next door to the site when it went . Sutter projects like California Pacific
kers familiar with the transaction. shopping for a lender last fall. Medical Center’s proposed $1.7 bil-
The foreclosure proceedings come at a He quickly discovered that in the current lion Cathedral Hill campus, Alta Bates
time when the Lembi family’s vast apart- climate, none of that was enough. Summit’s 11-story, $350 million new inpa-
ment holdings — at its height 307 build- “Time and again we were told, ‘The proj- 1 mile tient tower in Oakland and Eden Medical
SEE LEMBI, 40 SEE LOAN, 40 SEE SUTTER, 41
sanfranciscobusinesstimes.com PROFILE ■ 16 SMALL BUSINESS ■ 21
Breaking business news daily Red Bricks Media cements fast growth.
The other Bill
FOOD & WINE ■ 25
Gates, CEO Sobering economy can’t cork wine sales.
of Top Grade
THE LISTS ■ 30, 31
Construction. East Bay wineries, Bay Area food makers.
40 THE NEWS sanfranciscobusinesstimes.com SF BUSINESS TIMES | MARCH 27 – APRIL 2, 2009
LEMBI: CIM afﬁliate
seeks to foreclose on
CONTINUED FROM PAGE 1
ings with 8,000 apartments — has been deterio-
rating. In January, the Business Times reported
that the Lembis had given 51 buildings back
to the Swiss Bank UBS in lieu of foreclosure, a
1,500-unit portfolio that Lembi Group Managing
Director Walter Lembi said was losing $3 mil-
lion a month. Since then there are signs that the
Lembi Group has fallen behind on payments to
at least one of the subcontractors that main-
tain its 250 buildings. On-Site Contracting filed
mechanics liens on Feb. 26 totaling more than
$550,000 on 12 apartment buildings, according
to public records.
From 2003 to 2007, the Lembi Group was by
far the most voracious buyer of San Francisco
apartment buildings, shelling out $1.2 billion
for more than 200 properties. In 2007, the
Lembis snapped up 75 percent of all buildings
that changed hands in San Francisco — 147
buildings that traded for
IN CIM’S SIGHTS $680 million. If CIM fore-
closes on the 23 build-
360 32nd Ave.
ings, the Lembi’s hold-
1745 Franklin St. ings would be reduced
3000 24th St. to about 6,500 units in
3475 16th St. 233 buildings. The Lembi
Group’s main units are
2117 Market St. Citi Apa r tments Inc.,
2135 Market St. Skyline Realty Inc. and
1516 Larkin St. Trophy Properties.
A spokeswoman for
1650 California St.
CIM said the company
427 34th Ave. would not comment on
1456 Jones St. the Lembi portfolio until
650 Church St. “the process is conclud-
ed.” Walter Lembi did
956 Valencia St. not return a call seeking
1345 Clement St. comment. In January,
9 August Alley Lembi said that with the
credit crunch crippling
2235 Laguna St.
investment sales and the
345 Green St. economy in recession,
230 Oak St. he was not able to sell or
305 Hyde St. refinance the buildings.
Lembi called the UBS
840 Van Ness Ave. deal “a friendly transac-
1070 Post St. tion” and said his com-
“I’m not a waiting guy,” says Irmer, at Creekside Plaza Office Park, where new construction is about to begin. 43 Cole St. pany would continue to
2101 Bay St. operate the properties.
The increasingly dis-
LOAN: 12th time’s the charm for East Bay developer 347 Eddy St. tre ssed Lembi por t-
folio has not helped
the anemic San Francisco apartment sales
CONTINUED FROM PAGE 1 Innisfree put down about $8.5 mil- station and close to interstates 880 and market. Only three buildings with 10 units or
lion, or 28 percent of the total cost, 580. more have sold this year, according to apart-
ect looks great,’ … But, the response and agreed to move its bank accounts Innisfree bought the 7.5-acre site ment broker James Devincenti of Marcus &
was always, ‘Can you wait?’ or ‘We’d to Borel. Unlike other banks, Borel did from the San Leandro Redevelopment Millichap.
love to do it, but we don’t have the not suffer major losses from the mort- Agency in 2000 and then built UBS has told brokers that they would hold
money,’” Irmer said. “I have been gage meltdown and is still lending, but 100,000-square-foot and 52,000-square- onto their 51 former Lembi buildings for the
doing this for years and I have a stellar is “selective.” foot buildings on it. foreseeable future.
development record. I’m not a waiting “To get those funds to any borrower “This project has been a huge suc- “They are not in a hurry. They are not under
guy. I told them ‘We’re going to do it is extremely hard to do,” said Arlie cess,” said Cynthia Battenberg, San the gun,” he said. “They have indicated that
now.’” Ferguson, executive vice president of Leandro’s business development man- they are patient owners and will take their
Doing it later really wasn’t an option. Borel. “The only way to get your foot ager. “It provides an opportunity for time. There is no sense of desperation on their
His tenant, the Regional Center of the in the door is to put yourself in a full people to take public transit to work, part. That is a good thing.”
East Bay, a government agency, want- banking relationship.” and it’s near downtown, where they HAL SF Portfolio, the limited partnership
ed to move 600 employees in by April Construction on the four-story, have access to shops and restaurants.” established to buy the Lembi debt, is directed
1, 2010. 83,000-square-foot building will start Proximity to transportation was a by CIM founder Avraham Shemesh, according
Irmer’s experience shows just how in the next few weeks in the Creekside major factor for the Regional Center, to California Secretary of State records.
tough it is right now to arrange a con- Plaza Office Park. It is the only Class A Irmer said. The government agency, Brokers and city officials say CIM has been
struction loan. Eleven banks turned office construction in the city and one which serves people with disabilities, seeking to acquire debt on other distressed
him down before Irmer used a per- of few projects in the East Bay that has is currently near the Oakland Airport. San Francisco properties, as well as exploring
sonal connection to make contact with managed to secure both financing and Irmer agreed to give the Regional development opportunities.
Borel Private Bank and Trust in San an anchor tenant. Center an option to buy the building. CIM closed its acquisition of the Brandywine
Mateo. Borel eventually agreed to pro- Now, Irmer is busy making sure his “They eventually want to fill the Realty Trust buildings in October, a portfolio
vide a $22 million loan. contractor, Lusardi Construction of whole building and it was an incentive that includes 1.7 million square feet of office
“We may have the last construction Pleasanton, can finish construction to make them move,” he said. “I don’t space in downtown Oakland. In June 2007, CIM
loan in America,” Irmer said. “It’s very, within a year. want to sell it. I hope they never exer- acquired Oakland City Center Marriott and the
very frustrating. When we met Borel, The building is the third in the cise the option.” Courtyard Oakland Downtown.
they were great. It was like ‘Where Creekside complex, which is across
have you been?’” the street from the San Leandro BART email@example.com / (415) 288-4960 ■ firstname.lastname@example.org / (415) 288-4971 ■