The Steeples Apartments in Houston entered special servicing after the borrower failed to implement the servicer-required cash management, according to a June 29 Morningstar report.

While the $28.3 million loan for the property was initially sourced by Nitya Capital, Swapnil Agarwal told Multifamily Dive that he sold the property in 2022. 

In its commentary, Morningstar said it was unclear what the debt service coverage ratio was to trigger cash management, but DSCR has fallen from 1.85x at origination to 1.31x by the end of 2025.

“Servicer commentary notes that the borrower points to work being done by the city on the road and sidewalk outside the property, as well as a fire at the leasing office, as causes for the drop in cash flow,” Morningstar wrote.

A problem portfolio

Steeples Apartments wasn’t the only multifamily loan issue that Morningstar flagged in the last few weeks.

A four-property portfolio, consisting of two buildings in Hoover, Alabama, and two in Greenville, South Carolina, entered special servicing after falling delinquent and into default, according to a June 26 Morningstar report. Late payments began in December 2025, and the loan was designated as delinquent in March 2026.

“There's no reason for the delinquency noted and there has been no financial reporting since issuance,” according to Morningstar. “Servicer commentary also notes delinquent insurance for the past several months.”

In that same June 26 report, Morningstar noted that The Park At Saronno, a 316-unit property in Houston, was transferred to special servicing for payment default after falling delinquent. The property suffered from cash flow that consistently fell below the amount originally underwritten.

In addition, occupancy dropped from 97% at loan issuance to 85% as of March 2026. “There were also some code violations identified by the city that are in the process of being addressed,” according to Morningstar.

Bankruptcy issues

While other properties are going back to their servicers, the Independence Lofts in Center City, Philadelphia, could see a potential reinstatement of its $26.2 million loan following a new $25 million appraisal in June, according to Morningstar.

The property, which moved to servicing in August 2024 after the guarantor filed for bankruptcy, was appraised at $47.5 million when the loan was originated. “New commentary this month notes that the courts have ruled in favor of the lender on liability but has yet to rule on damages,” according to Morningstar. “

In a higher-profile failure, short-term stay provider Sonder declared bankruptcy in November 2025, Hotel Dive reported. The firm’s 2 Washington property in New York City recently went into servicing due to Sonder’s bankruptcy, “effectively cutting off the majority of the cash flow at the property,” according to Morningstar.  

The property is listed as multifamily, with units master leased to Sonder. However, Morningstar notes that 286 of the units are designated as “R-1,” which caps rental periods at 30 days and makes conversion to apartments unlikely.

The ongoing flow of loans back to banks and servicers is providing some investors with a window to buy, according to Stephen Squatrito, acquisitions managing director – west at Alliance Residential. But in some cases, lenders aren’t putting these assets on the sales block yet.

“We have seen some properties go back to lenders,” Squatrito said. “That said, we have seen the lenders show a willingness to take them back and operate them.”

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