Arbor Realty pursues foreclosure of Applesway-linked apartments

Arbor Realty is set to foreclose on a piece of a Westchase multifamily portfolio linked to Applesway Investment Group after the group became delinquent on a $60 million loan. 

Arbor was expected to foreclose on Estates at Westchase, at 2305 Hayes Roads, on April 2, according to Roddy’s Foreclosure Listing Service. The 307-unit Class C apartment complex spans roughly 237,000 square feet and has a taxable value of $24 million, a little over $78,000 per unit. 

An LLC linked to Jay Gajavelli’s Applesway and a group of investors bought the complex from ValCap Group, a Dallas-based multifamily investment firm, in 2021. Applesway’s partners on the deal, operating under the name Westchase Houston MGR, include Matt Picheny, founder of Picheny; Justin Martinez of Sky Castle Properties; and Brent Ritchie of EnRitch Investment Group. 

The buyers borrowed more than $100 million from Arbor Realty, in two transactions, to acquire Estates at Westchase and three other properties, totaling 1 million square feet, east of George Bush Park. 

The portfolio is set to mature in June. It has an unpaid balance of $25 million, according to Roddy’s. 

The borrowers were 30 days delinquent on a $60 million loan linked to the portfolio in February, according to Trepp.

The properties have a low debt service coverage ratio of 0.69, suggesting that the rental income falls short of covering loan obligations. Attempts to reach Arbor were unsuccessful. Applesway hasn’t returned a call seeking comment.

Arbor funded billions of dollars in bridge loans in the multifamily deal craze of 2021. Since then, it has become increasingly exposed to borrowers who are struggling to pay off loans. In Houston, the New York-based lender is confronting the challenges of a changing multifamily market rocked by increasing interest rates, decline in rent growth and escalating renovation costs. 

Earlier this year, the lender moved to foreclose on a $38 million loan linked to the Selena, a 446-unit apartment complex situated at 250 Uvalde Road. Last April, Arbor foreclosed on a $229 million Applesway multifamily portfolio encompassing four Houston apartment complexes. 

Applesway also faces a lawsuit from 123 Texas investors, who sued the firm last year, accusing it of defrauding them out of $12.4 million to acquire a Greater Houston apartment complex. 

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