CMBS Loan Tied to Houston Property Goes to Special Servicing

UPDATED 3/25/26 2pm

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 property owner, an entity tied to Legacy Wealth Holdings CEO Timothy Bratz, refused to make the required principal paydown to maintain a debt service coverage ratio of 1.25 after failing to secure its property tax exemption before Feb. 15, the Morningstar report shows. The loan was used 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.

The property has likely struggled to maintain 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 the the owner of Waterford Grove Apartments did last year. It purchased the property in 2021, and 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 four years later.

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.

This story was corrected to reflect that Waterford Grove Apartments has not yet lost its tax exemption, but rather has so far failed to secure it. The story also now reflects that the owner is an entity tied to Bratz, rather than Bratz’s firm, Legacy Wealth Holdings.