Pandemic Loans Were Meant for Small Businesses. Why Did These Giant Property Firms Get Millions?

Government records show Mosser Companies received a loan of between $2 million and $5 million under the Paycheck Protection Program, passed by Congress in March to help small businesses avoid layoffs during the pandemic. The data, posted last month by the federal Small Business Administration, shows loan amounts in broad ranges, not specific amounts.

The company’s property management arm, Mosser Living, offers rental units in 55 properties across San Francisco, 20 properties in Oakland and eight properties in Los Angeles, promising a “blend” of “vintage with modern upgrades in all the right places, striking the perfect balance between authentic and awesome.”

“We call this Mosser Living. You’ll call it ‘home,’ ” the company’s website says.

Furtkamp says the thought that federal assistance has been unable to help him and his wife meet their rent while Mosser got millions in federal support makes him furious.

“For them to take advantage of a program like this that’s intended for small business — that doesn’t have access to capital in the way that they do — it’s just kind of insulting that they would abuse the program in that way,” Furtkamp said.

Mosser Companies did not respond to repeated requests for comment on its loan and its response to tenants in Furtkamp’s building.

Mosser is just one of several large Bay Area property and development firms that scored PPP loans.

Among companies identified for KQED by tenant advocates and industry sources are some of the region’s biggest landlords. They include:

• • Emerald Fund, developer of 37 projects with more than 5,000 housing units, received a loan of between $1 and $3.5 million
  • Maximus Real Estate Partners, which manages San Francisco’s Parkmerced, got a loan of $2 million to $5 million
  • Reliant Group Management, which manages 23 properties in the Bay Area and more than 70 in the United States, received between $1 million and $3.5 million
  • Grosvenor Properties, which manages four properties in San Francisco, got between $1 million and $3.5 million
  • Woodmont Real Estate Services, which owns roughly 80 multifamily properties across California, received between $5 million and $10 million

Deep Pockets — and Big Loans

The news comes on the heels of public outcry over a $3.6 million PPP loan granted to Veritas Investments. San Francisco’s biggest landlord, the company owns and operates more than 250 apartment buildings in the city and has $3 billion in assets.

The loans have received negative attention in part because of some companies’ poor reputations with tenants and community groups.

Some firms on the list, such as Veritas, have been criticized in the past for allegedly trying to push tenants out of rent-controlled buildings. Others, such as Maximus, have been the target of community anger for proposing projects that could gentrify neighborhoods and displace longtime residents.

Politicians, pundits, housing rights activists and those renting from these corporate landlords also argue that the loan recipients are too big and too wealthy to need government help.

Mosser Companies, for instance, includes Mosser Capital, which offers real estate investment opportunities and boasts $1.3 billion in assets.

Other local firms that got PPP loans illustrate the massive amounts of capital that property firms are dealing in as they buy, sell and invest in Bay Area real estate.

Starcity Properties, which received a loan of between $1 and $2 million, owns seven buildings in San Francisco and two in Oakland. It has offered properties on the market for as much as $30 million and sold properties for $11 million and $16 million, according to filings with the federal Securities and Exchange Commission.

Ballast Investments, which received a PPP loan between $1 and $2 million, manages $97 million in assets, according to its SEC filings, with custody of $38 million across 78 clients.

A Tough Borrowing Environment for Property Managers?

But those working in the real estate industry say some of these wealthy-looking firms may need the short-term help the PPP loans can provide.

Alexander Quinn, director of research for Northern California at real estate services firm JLL, says big property owners typically have access to what’s often called “dry powder” — buildings in their portfolio that can be refinanced to raise cash reserves.

“Now, some of them pulled some of that out, put it into cash, but a lot of them didn’t,” Quinn said. But if they didn’t, borrowing has become more complicated.

“If you were, say, saying, ‘Oh, I need to pull out cash to shore up my cash flow for the next six months,’ it’d be a very difficult thing to do right now,” he said. That’s because it is “really hard to refinance in this market,” Quinn said.

One reason banks would be reluctant to refinance is that borrowers might not have a reliable flow of rent payments because so many tenants have lost income.

But Quinn said that the vast majority of tenants have kept up with rent payments so far.

“Rent payments, rent collections have been pretty good until July,” Quinn said. “We saw roughly over 95% of all renters paying their rent” nationally.

And, Quinn added, who is vulnerable depends on when you bought your properties. Those with older properties are less likely to be cash-strapped, whereas those with new developments may face a harder road.

Starcity Properties CEO Jon Dishotsky said that the availability of capital, including cash to meet payroll, has changed dramatically since the pandemic began.

“Out of a hundred people I normally talk to for capital … 30 write a term sheet in a normal environment, and I get down to three or five (funders) at the end of the day,” he said. “Now, out of a hundred people, five pick up the phone. And one writes a term sheet.”

The company, which builds “co-living” apartment units meant to appeal to younger tenants, took out a $1.2 million PPP loan.

That amount pales in comparison to the hundreds of millions it needs to build its projects, but Dishotsky says it’s helped the company get through the past few months.

“Our corporate entity certainly could have run into a lot of trouble” without the PPP loan, which he said was used to hire back about six furloughed staffers out of a total of roughly 50. According to Small Business Administration data, Starcity said it retained 42 jobs with its loan.

While his company may be able to raise some capital, Dishotsky said, PPP loans had another favorable feature: speed. Investments may take time to raise, but the PPP loan let them pay employees right away.

Todd David, director of the San Francisco Housing Action Coalition, said “it makes sense to me” why property management firms and housing developers would need PPP loans.

“There’s a huge dislocation in the lending market,” David said. “Projects they were counting on to bring in revenue got delayed and may have been delayed indefinitely, and they still have expenses to pay with employees.”

And to complaints that firms like Veritas with its massive property portfolio don’t need government help, David said “just because they manage assets of $3 billion doesn’t mean those assets are on their balance sheet.”

Who Deserves a PPP Loan?

Should big Bay Area property owners and developers have benefited from PPP loans? Debbie Nunez, a San Francisco native and Lowell High School graduate doesn’t think so.

For the last three decades she’s lived in a Sutter Street apartment building that Veritas bought about five years ago. She hasn’t had a particularly happy relationship with her new landlord, which launched what she’s certain was unnecessary construction inside her building. She filed an administrative appeal with the city to stop the construction, which Veritas critics say the company has used as a tactic to oust tenants from rent-controlled units.

With more than a dozen Veritas tenant activists, Nunez trooped to the Russian Hill home of Veritas CEO Yat-Pang Au one Sunday last month to read a letter demanding that the company distribute at least some of its $3.6 million PPP loan to small businesses that are struggling through the pandemic.

“Veritas does not qualify as a small business in need,” Nunez said. One sign of that, his tenants say: Au’s own personal wealth, estimated by Bloomberg at more than $100 million.

The Paycheck Protection Program was initially aimed at companies with 500 employees or fewer and later adjusted to include companies with more workers who met the federal definition of a “small business.” PPP loans can be forgiven if the recipients can prove the funds were used to keep employees on payrolls or for a limited set of other business needs.

Because many property management firms operate under “a very unique circumstance” — they have outsize assets and revenues but relatively few employees — they could easily meet that basic PPP requirement, despite the program being touted publicly as being aimed at small businesses.

JLL’s Alexander Quinn notes that the program’s primary goal was to get a lot of cash into the economy quickly.

“I think the PPP was mostly a shotgun approach. It wasn’t really about, you know, who is deserving, or who isn’t,” Quinn said. “Setting the rules was not as important as just the urgency of delivering the funds to private companies.”

“There really is no referee,” Quinn added. “So as a result, a lot of people were opportunistic.”

A Limited Offer of Help, Then ‘Total Silence’

As to how property firms that got PPP loans are behaving toward tenants, Quinn says some California companies have provided rental relief to tenants during the pandemic. Notably, on Thursday, San Francisco’s largest landlord – Veritas – offered 50% rent forgiveness for tenants between April and July, if they enter a repayment plan for the remaining rent.

But, Quinn noted, “others have not” offered rent relief, and what little has been offered has been extremely limited.