S2 Capital Faces Foreclosure on Three DFW Properties

The fallout from S2 Capital’s equity wipeout has swept multiple properties owned by the syndicator to the foreclosure auction block.

Scott Everett’s Dallas-based multifamily investment firm is facing another $140 million in foreclosures after getting hit with a $78 million foreclosure notice last month, according to Roddy’s Foreclosure Listing Service.

Lenders are moving to regain control of S2’s properties after feeder fund Trinity Investors warned equity investors in S2’s multifamily real estate investment trust, which was created in 2024 to buy time for interest rates to fall, “should expect a full loss of capital.”

Three S2-owned properties were flagged for July’s foreclosure auctions: The Hathaway at Willow Bend, at 2525 Preston Road in Plano; Hyde Park at Valley Ranch, at 10201 North Macarthur Boulevard in Dallas; and The Loren Apartments, at 3136 Hudnall Street in Dallas.

The properties, which have a total of 1,125 units, are tied to loans from Benefit Street Partners, Citibank and U.S. Bank Trust. The debt works out to $125,000 per unit.

In addition, The Republic Apartments, which was initially flagged for foreclosure in May, is headed back to the auction block. The 1,033-unit property at 241 East I-30 in Garland is backed by a $78.6 million loan from Benefit Street Partners. On May 27, Everett said the property was under contract to sell in under 30 days. Deed records show S2 still owns the property.

S2 Capital was one of the multifamily investors that swept through Texas when interest rates were low, buying up old apartment complexes with floating-rate debt and plans to renovate, raise rents and sell at a profit. But, ballooning interest rates and a deluge of new apartment supply turned the value-add plan on its head. Everett’s 2024 move to roll his multifamily properties into a REIT served to buy time for interest rates to fall, but two years later, rates are still stubbornly high, allowing distress to creep into the portfolio.

The firm issued a capital call earlier this year, asking for $70 million in preferred equity. Without the funds, the firm said it would have to sell off properties at an estimated 5.5 percent cap rate, meaning investors would lose between 60 percent and 75 percent of their equity, The Promote wrote in January.

S2 ended up raising $30 million, which will provide a “short runway to complete an orderly wind down of the REIT,” according to Trinity Investors. The REIT owns over 9,000 units in North Texas, Houston and Phoenix.

In addition to the foreclosures, more than $250 million in commercial mortgage-backed securities loans tied to three other S2-owned properties were transferred to special servicing in May. Each property failed to maintain net cashflow at the level for which the loans were underwritten.

The underperforming CMBS debt includes the $92.2 million loan tied to The Kace, a 720-unit complex at 2301 Avenue H East in the Dallas suburb of Grand Prairie; the $84 million loan tied to The Weston Medical Center Apartments, a 793-unit property at 7510 Brompton Road in Houston; and the $74.9 million loan tied to The Jerome, a 408-unit complex at 6451 West Bell Road in Glendale, Arizona.

The Dallas Morning News found that nine smaller loans totalling $300 million were transferred to special servicing between April and May.