S2 Capital sees multiple properties move to servicing

Beleaguered S2 Capital has lost three properties backed by Freddie Mac floating-rate commercial mortgage-backed securities loans to special servicing, according to a May 28 report that Morningstar Credit shared with Multifamily Dive. The firm didn’t reply to a request for comment.

In Grand Prairie, Texas, The Kace moved to special servicing this month at the borrower's request, according to Morningstar. The loan is secured by a 720-unit garden-style property, with 619 of those apartments designated as low-income.

Despite revenue remaining at or above its underwritten level at The Kace, the loan has never met underwritten net cash flow, with taxes and utilities increasing significantly over the past few years, according to Morningstar.

In Houston, S2’s The Weston Medical Center Apartments, a 793-unit property near the Texas Medical Center, moved to special servicing after years of poor performance. While revenue has stayed “fairly constant,” expenses have risen sharply, according to Morningstar. Net cash flow has fallen from $5.4 million to $4 million by the end of 2025.

Texas hasn’t been the only issue for S2 Capital this month. In Glendale, Arizona, 408-unit The Jerome transferred to special servicing after several years of declining cash flow. The loan was underwritten to $5.1 million in net cash flow, but has not approached that level during its term, with last year’s being reported at $2.9 million.

Morningstar said vacancy loss pushed down the loan’s total, while expenses crept up across nearly all expense items. At the end of 2025, occupancy sat at 83%.

Widespread troubles

The issues with The Jerome, The Weston Medical Center Apartments and The Kace are only some of the problems facing Scott Everett’s S2 Capital, according to The Real Deal. The firm also recently defaulted on a $78.6 million loan tied to the Republic Apartments in Garland, Texas.

In addition, its real estate investment trust, established to shield S2 Capital’s properties from floating-rate loans, has also faced challenges, according to The Real Deal. Feeder fund Trinity Investors isn’t expecting to get anything from the REIT and has warned equity investors of a loss.

As S2 Capital faces issues with its properties, it is also eyeing expansion. On May 18, it announced the launch of a development platform focused on multifamily and industrial projects across the Sun Belt. The firm hired Carl Starry as president of development to lead the new business vertical, which sees a “rare window for disciplined ground-up development,” due to declining supply, sustained population growth and long-term demand, according to a press release.

Some of the issues S2 Capital faces are plaguing other Texas owners. For three years now, rising costs in Texas have hit apartment owners hard, especially since interest rates began to rise. Across the country, expenses have risen 30% over the past five years, according to Yardi Matrix.

In Texas, where there is no state income tax, commercial property owners carry a larger share of the revenue burden, Venkat Avasarala, founder of Dallas-based Stryker Properties, told Multifamily Dive in 2023.

Add expenses to what one observer sees as continuing issues in Houston, and you have a recipe for problems.

“Texas seems to always be a bloodbath,” said Patrick Carroll, founder of Carroll Holdings. “We bought stuff in Houston, but somebody once told me, ‘Houston is a place where equity goes to die.’ You can look at stuff, and you're like, ‘Well, it's cheap on a price per unit,’ but you just have a lot of delinquency and things like that.”

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