MF1 Capital, one of the largest multifamily lenders to emerge over the last few years, has foreclosed on a complex in Houston, after placing a $50 million winning bid for the property.
MF1, a joint venture of Berkshire Residential Investments and Limekiln Real Estate, bid $49.9 million for the 282-unit complex, coming out to about $177,000 per unit, according to property records filed with Harris County. The property was valued for tax purposes this year at $58.9 million, county appraisal data shows.
The foreclosure came after the previous owner, syndicator Rockstar Capital, defaulted on a $51 million loan tied to the property, located at 8900 Lakes at 610 Drive in South Main.
MF1 provided the $51 million loan in March 2022, according to records and data from Morningstar, a commercial real estate analytics firm, and then packaged it into a collateralized loan obligation.
Rockstar was one of many investors that took advantage of cheap debt and booming rents. But, for those that used floating-rate loans for purchases, problems started to rise as rates did.
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, which soared alongside the Fed’s rate increases.
Rockstar was also struggling with occupancy at the property — in November, it was 75 percent occupied due to “evictions and skips of delinquent tenants,” according to servicer commentary from March, cited by Morningstar. The firm had tried to increase concessions, including offering $250 for each move-in, to help gain tenants.
It’s unclear whether MF1 will hold onto the property or try to sell it off.
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MF1 is also now paying off the $51 million loan itself, according to loan documents filed with the county. Given the deal is packaged into a CLO, MF1 also has the option to buy out the loan at par and pay off investors.
This is at least the second time MF1 has filed to foreclose in the last nine months. In March, MF1 foreclosed on a 128-unit apartment complex in Fort Lee, New Jersey, after the owners fell behind on payments, court records show.