Keller Capital’s Austin Apartments Take 50% Value Drop

An Austin apartment portfolio took a major hit to its appraisal value four months after its CMBS loan was flagged for special servicing, as Texas braces for a wave of multifamily distress.

An updated appraisal put the two-property portfolio at $98.9 million, a 47 percent haircut from its value of $187.9 million in 2023, according to Morningstar Credit. The appraisal drop put the portfolio’s value below the balance on the $110 million CMBS loan tied to the properties.

The loan tied to far northeast Austin complexes Orbit Apartments and Starburst Apartments has been delinquent since April and was transferred to special servicing for default, according to Trepp. The loan was issued in 2023 and is set to mature in May 2028.

Deed records show the borrower is Orem, Utah-based investor Keller Capital. The firm bought the properties in 2019 from Tampa-based investor Laurel Ridge.

There are 840 units between the two properties, at 8800 and 8900 North Interstate Highway 35. The loan works out to about $131,000 per unit. The apartments were built in the early eighties and renovated in 2022. Orbit Apartments were valued at $43.7 million this year, appraisal district records show. Starburst Apartments were valued at $58.1 million.

Between the historic glut of apartment supply coming online and the rise in interest rates, Texas multifamily has become a hot potato, especially the properties built decades ago that need work.

Austin saw 25,000 units delivered last year, according to data from Yardi Matrix. As a result, rents continued to freefall and occupancy slumped. MRI ApartmentData put the city’s occupancy at 84.5 percent in April. That same month, rent had dropped 7.6 percent from a year earlier.

Just before the delivery deluge, investors swept through Texas metros when interest rates were low, picking up vintage apartments at high valuations with plans to renovate them, raise rents and sell for a profit. Instead, interest rates rose, as did construction costs, and valuations dropped, spelling trouble for many of these investors.

Experts have been warning of a wave of distress as $19 billion in CMBS loans tied to Texas multifamily is set to mature in the next five years.