Arbor forecloses on $229M portfolio

Distress rears its head in Houston’s multifamily market

Arbor Realty Trust's Ivan Kaufman and Applesway Investment Group's Jay R. Gajavelli with Heights at Post Oak, Redford Apartments, Reserve at Westwood and Timber Ridge Apartments
Arbor Realty Trust's Ivan Kaufman and Applesway Investment Group's Jay R. Gajavelli with Heights at Post Oak, Redford Apartments, Reserve at Westwood and Timber Ridge Apartments (Arbor Realty Trust, Applesway Investment Group, Getty)

Arbor Realty Trust has foreclosed on a quartet of low-income multifamily properties in Houston valued at $229 million. 

The portfolio includes Heights at Post Oak, Redford Apartments, Reserve at Westwood and Timber Ridge Apartments, all of which were purchased by Jay Gajavelli’s Applesway Investment between August 2021 and April 2022. 

Located within the city’s Outer Loop, the properties house a combined 3,200 apartment units. Arbor lent Applesway an estimated $69 million for the Redford, $66 million for Reserve at Westwood, $48 million for Heights at Post Oak and $47 million for Timber Ridge, according to the Harris County Clerk’s Office.  

Arbor initiated the foreclosure on March 13 after Applesway defaulted on its mortgage payments. The properties went to auction on April 4, but no bids were made, according to sources familiar with the foreclosure. Arbor initiated a credit bid, in which the lender can use the outstanding debt owed on a property as collateral for their bid at a foreclosure auction, for each property. That allows the lender to bid without bringing cash to the table.

The credit bid placed by Arbor was $25 million cheaper than the principal amounts, totaling about $204 million for the four properties, according to ForecloseHouston.com. The lender won the bid and took over all four properties, with Heights at Post Oak being the most expensive at a final bid of $60 million.

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It remains unclear what the future holds for residents of the properties, many of whom are low-income tenants. The most likely scenario is that the properties will change owners but remain operational through the process. Applesway and Arbor did not immediately respond to requests for comment.

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Foreclosures extend beyond Houston as distress continues to hit the real estate market. In Los Angeles, real estate development firm Relevant Group lost the Tommie and Thompson hotels to mezzanine lenders through foreclosures last year. 

Distress hit beyond foreclosures with sales of multifamily properties falling at their fastest rate since the 2008 mortgage crisis, following a period of massive transactions that peaked in 2021. Particularly, in the Sunbelt regions. Investors decreased their purchase of apartment buildings by about $40 billion in the first quarter of 2023, representing a 74 percent decline in sales from the first quarter of 2022, according to CoStar Group data published by Forbes, making it the biggest drop for any quarter since the first quarter of 2009.

Arbor’s foreclosure is indicative of the current state of the market, where higher interest rates, regional banking turmoil and slowing rent growth continue to negatively impact multifamily operators.