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Where Else Besides New York Did “Smart” Money Chase After Overpriced Apartment Buildings?
The Lembi family of San Francisco tried to do with San Francisco apartment buildings what the Hunt Brothers tried to do with silver: corner the market.
In the last nine months of 1979, the brothers earned an estimated $2 billion to $4 billion in silver speculation, with estimated silver holdings of 100 million ounces. During the Hunt brothers’ accumulation of the precious metal, prices of silver futures contracts and silver bullion during 1979 and 1980 silver prices rose from $11 an ounce in September 1979 to $50 an ounce in January 1980. Silver prices ultimately collapsed to below $11 an ounce two months later. The largest single day drop in the price of silver occurred on Silver Thursday. Nelson Hunt filed for bankruptcy under Chapter 11 of the Federal Bankruptcy Code in September 1988, largely due to lawsuits incurred as a result of his silver speculation.
Hat tip: Wikipedia
In the end, the Lembis and the Hunts had the same measure of success: none.
The Lembis focused on pre-1979 multifamily properties: their units were rent-controlled. They focused on gobbling up buildings in the Tenderloin section, often paying more than the asking price. “Every time the Lembis paid top price for a building, they provided a precedent for the next sale, driving up the paper value of all their holdings. When it came time to refinance or take cash out of a building, they could use these higher values to get bigger loans.”
By 2007, at the height of the business’s growth, the Lembis had more than tripled the annual sales volume of San Francisco apartment buildings of 10 or more units, from $190 million a year in 2003 to $678 million.
When the Lembis’ expansion was at its peak, Andrew Hawkins led several teams totaling at least 14 full-time employees in relocating tenants. In 2006, they relocated 400 tenants. In 2007, they more than doubled that number, getting 899 people to move. In all, Hawkins relocated more than 2,500 tenants. After the rent-control tenants were replaced with market-rate tenants, Credit Suisse projected that many of Lembi’s apartment buildings would increase by about 50% in value.
Disputes arose between ownership and tenants aboutthis process: ownership claimed it was cleaning up the buildings and the neighborhood; tenants claimed ownership was harrassing and intimidating them.
A lawsuit by the San Francisco City Attorney’s office alleging predatory tactics did not sound the death knell. Rather, global credit dried up, and the Lembis were unable to refinance, in order to continue their expansion. As a result, the Lembis stopped paying suppliers, and stopped returning security deposits.
The Lembi empire imploded, and the bank foreclosed on most of the buildings. Some buildings sold for about what they were purchased for, and others at a steep discount, depending on how successful the Lembis were at relocating tenants.
Hat tip: San Francisco Magazine
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Check out what others are saying about this post...[...] January 9, 2010 by Neil · Leave a Comment Rob Speyer, 40, son of Tishman Speyer co-CEO Jerry Speyer, is rumored to have pushed hard for the now infamous Stuyvesant Town deal. This week’s BusinessWeek profiles the son of the legendary dealmaker. It is worth noting how fortunes can go astray, from Cornelius Vanderbilt’s kin to the Lembis of San Francisco. [...]