Multifamily distress: MF1 to foreclose on Rockstar Capital complex 

MF1 Capital has filed to foreclose on a Houston property, after the owner, apartment syndicator Rockstar Capital, defaulted on a $51 million loan. 

Rockstar is in default on a loan tied to 8900 Lakes at 610 Drive in Houston, a complex called Aspire at 610, according to a notice of trustee’s sale. The foreclosure is scheduled for Sept. 5.

MF1 Capital provided the $51 million loan in March 2022, according to the notice and data from Morningstar, a commercial real estate analytics firm.

MF1 then packaged the loan into a collateralized loan obligation, allowing investors to buy an interest in the debt.

Rockstar is the latest multifamily owner to suffer the consequences of buying an apartment complex with a floating-rate loan and then having to pay it off at a high interest rate. Other syndicators, which pool together investor money to buy into deals, like Tides Equities and Rise48, are also feeling the pain of rising rates. 

“The only way to not default would be to continue to write personal checks that would total millions a year or to call capital from investors into a deal that has a loan situation that is unworkable,” said Rockstar founder Robert Martinez, who calls himself “The Apartment Rockstar.” 

To capitalize on the demand for apartment investments in 2021, MF1 greatly expanded its business. The debt fund, led by Scott Waynebern, originated at least $7.4 billion in debt between 2020 and 2021, giving high-leverage loans to multifamily syndicators looking to execute aggressive fix-and-flip plans.

The foreclosure is one of a few for MF1 — with previous defaults, the lender has assisted in selling off associated debt. 

Others have already pursued the foreclosure route in the event of distress. Arbor Realty Trust, for example, foreclosed on a $229 million Houston portfolio in April.

The loan servicer watchlisted Rockstar’s deal in January for having a low debt service coverage ratio — a metric used to determine whether a property is making enough income to meet its monthly debt payments — and an occupancy rate below 80 percent, according to Morningstar. 

At the end of September last year, the debt service coverage ratio dropped to 0.96, meaning Rockstar was not making enough from the property to meet its debt payments. At the same time, the 282-unit property was 78 percent occupied.

Rockstar had purchased a rate cap, which limits how much an interest rate on a loan can rise, of 5.65 percent. However, given how much interest rates have risen over the last year, Rockstar has been paying 5.65 percent in interest since last September. 

“We unfortunately were not able to come to an agreement with our lender,” Martinez said, stressing it was Rockstar’s “first ever lender issue.” Rockstar Capital currently owns about 4,800 units across Texas.

“We made multiple proposals to the lender, but they were not willing to make short-term accommodations to the interest payments for a deal to work,” he said.

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