Applesway Facing More Distress on Arbor Multifamily Loan

An Applesway Investment Group-linked LLC and a separate joint venture are delinquent on a collateralized loan obligation tied to a four-property multifamily portfolio in Houston.

The owners are 30 days delinquent on a $60 million floating-rate securitized loan, according to data from Trepp.

The lender is Arbor Realty Trust, which has been criticized for its reliance on “high-risk” multifamily bridge loans of short-term floating rate debt.

Known as the Westchase Portfolio, it is composed of Class C complexes east of George Bush Park, near the Sam Houston Tollway: the Preserve at Westchase, at 10615 Meadowglen Lane; the Estates at Westchase, at 2305 Hayes Road; the Grand at Westchase, at 10881 Richmond Avenue; and the Vista at Westchase, at 3435 Walnut Bend Lane.

An LLC with a business address linked to Applesway founder Jay Gajavelli acquired the Preserve, the Estates and the Grand in 2021.

Westchase Houston MGR, a joint venture linked to a group of real estate investors — Matt Picheny founder of Picheny; Justin Martinez of Sky Castle Properties; and Brent Ritchie of EnRitch Investment Group, among others — bought the Vista the same year, according to Trepp.

A collateralized loan obligation is a single security backed by a pool of debt and can have multiple general partners. Attempts to reach Gajavelli, Picheny, Martinez and Ritchie were unsuccessful.

All four complexes were renovated in 2021. Combined, they house 1,330 units, spanning nearly one million square feet, with a total appraised value of $120 million.

Trepp labels the portfolio as paid through November, with a looming June maturity date, but borrowers still have extension options available.

The Westchase Portfolio is 88 percent occupied, which is in line with Westchase’s 89 percent multifamily occupancy rate, according to Transwestern. However, the properties have a depressed net cash flow debt service coverage ratio of 0.69, according to Trepp, indicating that incoming rents are not enough to cover loan payments.

New York-based Arbor previously foreclosed on a $229 million Applesway multifamily portfolio in April 2023, which consisted of four Houston apartment complexes. Last month, Arbor filed to foreclose on a $38 million loan tied to the Selena, a 446-unit apartment building at 250 Uvalde Road in Houston. The landlord in that case is Jorge Abreu’s Elevate.

Arbor has been a major player in multifamily lending since it flooded the market with high-risk multifamily bridge loans in 2021. The lender now finds itself in a precarious position. Mounting distress is gripping the multifamily market amid increasing interest rates that have left many borrowers unable to repay, as rent growth slows and renovation costs rise.

Arbor reported a 1,500 percent increase in non-performing loans in June, with $124 million of its $13 billion bridge loan portfolio underperforming, according to Securities and Exchange Commission filings. Distress also surged in its agency portfolio, where delinquencies jumped 788 percent to about $344 million by midyear 2023, a slight increase to over 1 percent of its $30 billion in agency loans.

Viceroy Research’s analysis underscores the vulnerability of Arbor’s loan book, with additional potential defaults on the horizon. According to the research firm, about 30 percent of Arbor’s loan book could be overdue in the coming year.

Applesway-linked properties have been rocked by distress since last year.

Five Applesway properties in Houston hit the auction block in 2023 due to loan defaults. The Dallas-based firm attempted to serve 120 eviction notices to tenants of the Cabo San Lucas at 9220 Nathaniel Street after its foreclosure sale in August. Those eviction cases were ultimately dismissed on technical grounds.

A group of 123 investors sued Applesway last year, alleging the investment firm defrauded them out of $12.4 million.