CMBS Loan Tied to Houston Property Goes to Special Servicing

A commercial mortgage-backed securities loan tied to apartments in Houston was transferred to special servicing in the wake of the passage of Texas House Bill 21.

The $62.5 million loan backed by Waterford Grove Apartments was flagged for imminent monetary default, according to Morningstar Credit. The borrower, Legacy Wealth Holdings, refused to make the required principal paydown to maintain a debt service coverage ratio of 1.25 after losing its property tax exemption, the Morningstar report shows. Legacy Wealth Holdings used the loan to refinance the property in February 2025.

The 550-unit property, at 3125 Crestdale Drive, was valued at $48 million in 2025, appraisal district records show. It was built in 1973 and renovated in 2024. The loan was underwritten with a property value of $93.5 million, according to Morningstar Credit.

Cleveland, Ohio-based Legacy lost its exemption after the passage of HB 21, which outlawed “traveling” housing finance corporations. Multifamily operators used the loophole to secure tax exemptions by partnering with far-flung affordable housing organizations, thus removing properties in major Texas metros off the tax rolls without the approval of local municipalities.

That’s what Legacy Wealth Holdings did last year. The firm, which was founded by Timothy Bratz, purchased the property in 2021. Four years later, it completed a sale-leaseback of the property with Edcouch Housing Finance Corporation, an affordable housing organization more than 300 miles from Houston, near the Mexican border.

Legislators took notice when the affordable housing program became a popular cost-cutting tool for struggling syndicators. House Bill 21, authored by Houston multifamily operator Rep. Gary Gates, reformed the program by requiring that apartment owners partner with organizations in the same jurisdiction. It also created additional affordability requirements.

The law gives prior deals, including those that used the loophole, until 2027 to come into compliance with new requirements, but appraisal districts have been using the law to deny exemptions for loophole users since it was passed.

The practice spurred lawsuits against the new legislation, including one filed by Texas Workforce Housing Coalition and Post Investment Group that challenges the constitutionality of HB 21.

The closure of the loophole has triggered multifamily distress across Texas. For example, in Austin, the $60 million loan backed by Langdon at Walnut Park was flagged after borrower Langdon Street Capital didn’t make the required principal paydown. Langdon Street Capital, which partnered with Pleasanton Housing Finance Corporation (100 miles from Austin), also lost its exemption in the wake of HB 21’s passage.

Bratz, whose firm claims to own more than $350 million in real estate, falls into the category of real estate influencer gurus. His website offers real estate investment bootcamps, coaching and a podcast.