Legislative changes, high supply and rising costs put the state among the leaders in securitized multifamily loan issues.<\/p>\n\n\n\n
When apartment loans began going bad a few years ago, Houston was one epicenter<\/a> as Applesway Investment Group defaulted on nearly $230 million in loans for 3,200 units in the city in April 2023.<\/p>\n\n\n\n More than three years later, Houston and, more broadly, Texas rank among the leaders in securitized multifamily loan issues, according to research that Trepp shared with Multifamily Dive. <\/p>\n\n\n\n \u201cTexas is not the highest-stress state for securitized multifamily loans, but it does rank meaningfully elevated nationally,\u201d Stephen Buschbom, Trepp\u2019s head of applied research and analytics, told Multifamily Dive in emailed comments. \u201cHouston also stands out more clearly at the MSA [metropolitan statistical area] level.\u201d<\/p>\n\n\n\n While Texas is tied for fifth among states and Houston is fourth among metro areas, some apartment owners in the Lone Star State and its largest cities face rising costs and unique tax circumstances that are placing additional pressure on their properties. In addition, they\u2019re still dealing with supply constraints and higher borrowing costs, which are affecting other landlords across the country.<\/p>\n\n\n\n But the state has always presented special challenges, according to Patrick Carroll, founder of Carroll Holdings.<\/p>\n\n\n\n \u201cTexas seems to always be a bloodbath,\u201d Carroll previously told Multifamily Dive<\/a>. \u201cWe bought stuff in Houston, but somebody once told me, \u2018Houston is a place where equity goes to die.\u2019 You can look at stuff, and you\u2019re like, \u2018Well, it\u2019s cheap on a price per unit,\u2019 but you just have a lot of delinquency and things like that.\u201d<\/p>\n\n\n\n Over the past decade, some apartment owners and developers in Texas relied on Public Facility Corporations and, later, Housing Finance Corporations to get property tax exemptions.<\/p>\n\n\n\n After making the PFC process more onerous in 2023, Texas enacted House Bill 21<\/a>, an affordable housing law that significantly changed how the state\u2019s affordable housing projects can access property tax exemptions. The law changes created uncertainty around tax exemptions and triggered the transfer of at least five properties into special servicing, according to Morningstar.<\/p>\n\n\n\n For owners, the sudden change in the law meant they had to fill an unexpected financing gap. \u201cYou need to put that $2 million property tax back, so that means that you cannot even cover your loan,\u201d said Carlos Vaz, founder and CEO of apartment owner CONTI Capital.<\/p>\n\n\n\n For instance, The Riley in Richardson, Texas, transferred into special servicing<\/a> earlier this year. Participating in the Garland Housing Finance Corporation program allowed the property to be exempt from real estate taxes if it met certain conditions and required mandatory prepayments if it failed to qualify or lost that exemption, according to Morningstar.<\/p>\n\n\n\n In April, Morningstar Credit reported that the Domain at Waco and NTX Denton entered special servicing<\/a> after Nitya Capital CEO Swapnil Agarwal was unable to secure a property tax exemption due to a change in Texas law that closed the PFC loophole. That forced him to pay down the loan to meet a 10.33% debt yield hurdle.<\/p>\n\n\n\nChanges in Housing Finance Corporations<\/strong><\/h3>\n\n\n\n