The San Francisco-based Zappettini family defaulted on a $120 million loan linked to 10 commercial buildings near Google's Mountain View headquarters when it matured last month, according to servicer comments cited by multiple ratings agencies.
The San Francisco-based Zappettini family purchased and developed the property in the 1970s. The property is part of a larger 10-acre office and industrial park consisting of 17 buildings along Terra Bella Street, West Middlefield Road and North Shoreline Boulevard.
According to its website, the company is “in the process of redeveloping the property into a mixed-use commercial and residential park adjacent to Google's Mountain View headquarters.”
The Zappettinis did not respond to requests for comment.
City Real Estate Funding originated two loans, $65 million and $55 million, which it pooled into a commercial mortgage-backed securities transaction.
The portfolio was 87% occupied as of September 2023, and the debt service ratio for the first nine months of 2023 was 1.7, meaning borrowers were earning more than they needed to service their debt, according to special servicer comments on the loans.
When the Zappettinis got the loan in 2019, the property was 100% occupied.
Morningstar analyst David Putro said about 40% of current leases for office, light industrial and research and development buildings, mostly built in the 1960s and 1970s, are set to expire within the next six months, which could be a key driver of the defaults.
“The loan is still functional, but my guess is that there is a lot of tenant rollover risk and takeout financing would have been difficult to obtain in the current environment,” he said.
The Zappettini family sold several Mountain View parcels to Google in 2011, and the tech giant sold them to the Irvine Company a few years later, according to public records. The company also sold another property to Google for its now-canceled Google Landings project in 2016, according to public records. The tech giant granted 800,000 square feet of office development rights to more than 40 acres near 101 Rengstorff Avenue for future construction before agreeing to scale back its development plans this spring, according to the Mountain View Voice.
The Zappettini family originally ran a wholesale flower import business and previously used part of their Mountain View property for their wholesale operations, according to the company's website.
They owned the roughly 2-acre site where the San Francisco Flower Mart used to be since the 1950s, but sold it to Kilroy Realty in 2016 for about $31 million in cash and $56 million in stock for the massive SOMA redevelopment project.
The family's website states that they “spearheaded the collection and transformation of seven acres of the San Francisco Flower Mart District into the city's second largest mixed-use office project at over 2.2 million square feet. The project is currently on hold due to current market conditions.”
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