Dive Brief:
- Houston and New York City have been two of the epicenters for multifamily distress over the last couple of years. The tally of troubled apartments has grown in both metros in March, with more properties entering special servicing, according to two reports that Morningstar Credit shared with Multifamily Dive.
- In Houston, the Waterford Grove Apartments, with a 2025 vintage loan of $62.5 million, moved to special servicing for imminent monetary default, according to Morningstar. The property reported a 2025 net cash flow down 31% from underwriting, largely due to higher-than-anticipated expenses, resulting in a debt service coverage ratio of 1.06x.
- The Frontier, a 91-unit apartment complex in the Murray Hill neighborhood of New York City, moved to special servicing after missing its March 2026 maturity date on its $44.1 million loan, according to Morningstar. The property’s owner is CBSK Ironstate, which didn’t reply to a request for comment from Multifamily Dive as of publication time.
Dive Insight:
Over the past couple of years, The Frontier has maintained occupancy above 90%. However, net cash flow in 2024 was 16.3% below the underwritten level, driven by declining revenues and rising expenses. The loan's DSCR has remained around breakeven since 2021.
“The cash flow has been suppressed since the pandemic,” David Putro, head of analytics at Morningstar Credit, told Multifamily Dive in emailed comments.
He said the owners kept the loan current, but the cash flow issues made refinancing difficult. “Most of the cash flow drop is expense-driven,” Putro said. “Revenue is actually higher than the original underwriting, but expenses have spiked a good bit.”
At Waterford Grove Apartments, the borrower was unable to secure the tax exemption required under the loan agreement. Now it must make a principal paydown to meet the required 1.25x DSCR and 8.5% debt yield thresholds, which it is refusing to do, according to a March 20 Morningstar report.
“We’re starting to track these Texas loans — this is the third loan to transfer to special servicing because of this tax exemption issue,” Putro said.
In Richardson, Texas, The Riley was also transferred to special servicing, according to a March 2 Morningstar report. The 262-unit property was completed in 2016, according to S&P Global. Though the servicer provided no details, prior commentary noted that a cash trap has been sprung for several reasons, including a tax exemption, according to Morningstar.
The Riley participated in the Garland Housing Finance Corporation program, which 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.
“It is unclear whether that is what has occurred here, so we are simply highlighting this as a possible cause for the transfer,” Morningstar wrote.
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