Scott Everett’s S2 Capital Issues Capital Call

Scott Everett’s S2 Capital avoided the pitfalls of its multifamily syndicator peers by shifting its apartment holdings to a private real estate investment trust, but that new vehicle might be running out of gas.

The Dallas-based firm, which launched the biggest private REIT in 2024 to shield its 10,000-unit apartment portfolio from floating-rate debt, issued a capital call this month, The Promote reported. Without the funds, the firm will 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, according to The Promote.

When S2 secured a lifeline via the REIT, some industry voices found it innovative, like LinkedIn account CRE Analyst, who wrote, “If this is what happened, S2 just showed other syndicators how to survive until ’25.”

S2 did, indeed, survive until ‘25. The firm came to the rescue of floundering GVA Property Management by coming in as a general partner in a $60 million recapitalization of 1,700 units in Nashville, Knoxville and Dallas. S2 raised $343 million for its second value-add fund over the summer and acquired industrial operator Fort Capital’s 11 million-square-foot portfolio in August. Before the end of the year, S2 planted a flag in Chicago with its first purchase, 344-unit Ovaltine Court, for $93.7 million.

But, interest rates haven’t fallen as those who pushed the “survive til ‘25” maxim had hoped, and Everett’s maneuver wasn’t perfect.

Some limited partners said they felt coerced into the conversion, and the portfolio still took a hit with the REIT launch, coming out to 93 cents on the dollar. Plus, the firm was still left to execute its value-add promise.

The same month that S2 closed its second value-add fund, the firm lost a property to foreclosure. It allegedly defaulted on a $36 million mortgage from CBRE for the 290-unit Preslee Apartments, at 2504 Ivy Brook Court in Arlington.

Everett launched S2 Capital in 2012. It has a portfolio of about 130 properties throughout the Sun Belt. The firm ranked 44th on the National Multifamily Housing Council’s largest apartment landlords with a 28,000-unit portfolio.