Danelle Morton

From SF Business Times:

Klingbeil Capital latest to feast on Lembi holdings
Klingbeil Capital Management has joined the growing cadre of private real estate investment firms taking advantage of the dramatic implosion of the Lembi family’s apartment empire. The Washington D.C.-based owner paid $10 million for three San Francisco buildings previously owned by the Lembi Group, which has lost thousands of units to foreclosure over the past 18 months.
Klingbeil Capital Management purchased the 41-unit 646 Corbett St. in Twin Peaks for $6 million, and the 35-unit 620 Eddy St. in the Tenderloin for $2.6 million. The third building, the 19-unit 1082 Post St., was not disclosed, although it had been marketed just under $2 million.
The buildings at 646 Corbett St. and 620 Eddy St. were still owned by the Lembis, but sold in cooperation with the lender, Resource RE. The building at 1082 Post St. was among the 50-plus buildings the Lembis gave back to the Swiss Bank UBS in lieu of foreclosure.
Stephen Pugh and Mark Bonn of Alain Pinel Investment Group represented the sellers.

When I was growing up in San Francisco, the part of Third Street near where I now live was the city’s industrial zone with steel foundries, ship dry docks and shipyards and the massive complex that contained American Can. That is all in the past now, with just the hulks of the buildings remaining.

Illinois and 20th Streets

I walked around this forlorn area a few days back and was struck by the blunt integrity of these old buildings.

The only active place was a metal recycling facility on the old shipping pier. Every few minutes, another small pick up truck filled over the top with busted appliances and discarded bed springs would come roaring past me headed for the dump some place in this wreck of a building.

Today I sent off the SF magazine story to the Investigative Reporters and Editors contest. This was a large effort. Answering the 12 questions took several hours and yielded five single-spaced pages.

Then I took the article down to the local copy store where the whole staff helped me copy the article, all 15 pages of it. We had to cut the spine off the magazine to get the pages to lay flat on the copier. The IRE requires that the pages be 11 X 17 inches, so huge copies in thick stacks.

Then I had to burn a CD that contained a PDF of the article and the other elements of the application.

That’s $115 to enter the contest, $106 to copy the article three times meet the other clerical requirements, and $18.77 to send it three-day delivery via FedEx. Total $239.77.

These are the cheerful people who helped me assemble the application.

I’m feeling lucky today. I hope I’m right!

Right about now, all over San Francisco, my magazine piece about the Lembi family is being taken off the shelves and the next issue of San Francisco Magazine is filling that slot. As a writer, it’s always sad when that happens, when the reading public moves on. After working on the story for a year and a half, it is interesting how briefly it is in the public eye and on the minds of the few who read it.

I’ve been attacked for writing a “hit piece” against the Lembi family, as if I set out to slander them. Certainly this was never the case. I got this assignment a year and a half ago when the editors of the magazine wanted me to explore how hard it was to be a landlord in San Francisco, and the Lembis were only a piece of a much larger focus on the world of landlords.

The first family we focused on was a couple called the Macys, who had bought a building on Clementina and, according to the SF Chronicle, used a number of aggressive tactics to get their renters to leave, including pondering how to cut out the support beams under the floor of one tenant’s apartment so that it would fall with him in it. When the world economy began to collapse, and the Lembis with it, my story shifted to cover the financing behind their unprecedented expansion.

I noticed how they repeatedly closed escrow on a dozen or more buildings on the same day and worked to find out why this was so. This was the thread of investigation that led me to the complicated world of their international financing and, because of that, forced me to look more closely at the incidents alleged by the suit that the SF City Attorney’s office filed against them.

The work of unpacking this opaque world was a strain at times, but it also gave me a chance to do the things I enjoy. I spent hours pouring over financial documents, court records and title transfers in courts and public buildings. I also was allowed into the homes of many regular citizens with stories to tell.

I am grateful to the editors of San Francisco magazine for allowing me to write this story at a length that allowed me to tell it fully, something that is very rare these days in journalism. They stuck with me and this story until I had it nailed down tight with public records to back everything I said. While I got frustrated when they kept asking for more and fact checking me to the point of exhaustion, I am not sorry they did.

More importantly for me, the story gave me a chance to walk the streets of the city I love and see it, feel it, in a way that I haven’t been able to do since I was in my twenties. For all my moaning about the vanishing city of my youth, the story allowed me to see that much of what I love about this town still exists, but in the hands of people I’ve yet to meet. In all ways, a good experience for me, and one I want to perpetuate

A British company, The New York Times reports, had the same idea as the Lembi’s did, and met a similar fate. Dawnay Day bought up 47 rent controlled apartment buildings in East Harlem hoping to “ease out” the lower paying tenants and rehabilitate the apartments for a more affluent crowd of urban pioneers. The bottom fell out from underneath them and the firm had to sell its yachts and museum quality art collection. As you can imagine, the apartments were not high on their “to do” list. Dawnay Day started charging tenants for basic repairs. As the Times’ article says, “anger, uncertainty and a degree of misery have set in” as the buildings move toward foreclosure.

http://www.nytimes.com/2009/12/22/nyregion/22dawnay.html?hp

Joaquin Rufiles and Josefina Toiralua with their daughter, Stephanie Rufiles, 18 months, in their East Harlem building.

When I was working on my SF magazine piece “War of Values” my editors asked me to write how I truly felt about what I described in the article. In the end, they decided that this writing didn’t have a place in the final version of the story. I was attached to this as it is a genuine description of my final reactions. I saved it and now am publishing it here. Those who object, or even those who agree, can respond!

On the internet, in websites about local real estate, those who post comments are gleeful as they watch the Lembi’s fortunes fall. I don’t share that joy. After all my time working on this story, I’m angry. I’m angry for the same reasons that I’m angry about the banks that screwed over millions of homeowners and got bailed out by taxpayer money and are now working their way back into profitability and bonuses while the rest of us continue to feel the consequences of this outrageous excess, this jobless recovery. What the Lembis did affected a huge segment of the city, all the way from a day laborer who didn’t get paid for his work to the swells on Nob Hill. None of the Lembis will every spend a day in jail for the thousands of San Franciscans they frightened, fleeced and drove from their homes in the pursuit of dominating the local real estate market with other people’s money. Yet people comfort themselves that the Lembis are paying a price. This crisis may have brought about something that no one thought was possible: The Fall of the House of Lembi.
I’m not so sure. Walter lives in the Park Lane, for chrissakes, with a closet filled with Wilkes-Bashford suits some of which his pals in real estate bought for him. And he drives to work in his Bentley, appearing as if none of this ever really happened. That’s because in most ways it didn’t happen to them; it happened to San Francisco, a place that to them was not filled with individuals and families struggling to hold on in one of the most expensive cities in the world. To them we were just pieces on the Baccarat table, numbers on the roulette wheel. Walter merely placed a bad bet, but he’ll live to play again.

The rain had been coming down steadily all day here at the bay shore, suddenly breaking around 4 p.m. I’d just finished my work for the day when down my forlorn street came a troupe of colorfully dressed people in odd hats carrying big objects and headed as fast as they could for the bay.

I stood on the deck and called out to them as they wandered over the rough 200 feet between the back of my house and the shore placing Tiki torches to mark the route. They said they were having a funeral for Hans, who had died two weeks ago at the age of 35.

I raced into my room to pull on some hiking boots and join them. I looked out my window to see a cascade of revelers making for the bay.

At the water’s edge, was a 12-foot long Viking ship with a serpentine neck and tail.

Hans Viking funeral ship

The deceased, Hans, had been a true Viking, they said. They’d decorated the sides of the boat with pictures of naked women. No Bottecelli’s here. Tits and ass shots from pornographic magazines with a big picture of Hans right in the center grinning like a madman.

Hans in an atmosphere he enjoyed!

The idea was to set the boat on the platform someone had prefabricated and placed in a stand of water. As the boat bearers strategized how to maneuver the boat, a pyrotechnic crew loaded zip lock bags with assortments of flammable chemicals to position in the hull, which had been soaked with kerosene.

The boat made a rocky journey into the water with all the boat bears getting wet up past their knees. Then a group of people behind the boat tossed in lit sparklers and the boat burst into flames.

The crowed cheered long and hard, except Hans’ “widow” a woman who had been his girlfriend for a few months. She kept yelling. “Let’s burn this fucking thing!” “This sucks.” When the boat was ablaze, she yelled, “Fuck you Hans!”

Yesterday ProPublica, the independently funded investigative reporting organization featured my SF magazine story on its front page as the editor’s pick of the day.

Check out my newest piece of investigative journalism, the cover story for the December issue of San Francisco Magazine.

Eighteen months in the making, War of Values reveals how the city’s dominant landlords, the Lembi family of CitiApartments fame, bought up every building they could get their hands on, from the Tenderloin’s rattiest dumps to Nob Hill’s ritziest penthouses, with an audacious plan to drive up everyone’s rent. And their money came from the same financial geniuses who brought the world economy to its knees.

The buzz is growing. See the comments at local real estate blog Socket Site to see some of the commentary. For more discussion, take a look at Curbed SF.