Posted on 12/10/2023 4:57:14 AM PST by davikkm
n a sign that a default cycle may have initiated, a Texas-based apartment syndicator is facing the loss of two multi-family properties in Austin after defaulting on a substantial $125 million loan. This comes on the heels of the same firm defaulting on $288 million in loans tied to properties in Houston. The Real Deal attributes the surge in apartment foreclosures across Texas and the Sun Belt to a combination of factors, notably the Federal Reserve’s decision to raise rates, resulting in skyrocketing debt payments for property owners who relied on floating-rate debt amid slowing rent growth.
(Excerpt) Read more at citizenwatchreport.com ...
The apartments are still there. Presumably renters are still paying rent. Someone will pick up the property at a substantial discount from the banks that own the loans. Likely, maintenance on the property will suffer. The apartments will get shabby, some people will leave and some will come in. It will take years but the properties will degrade. City tax abates might help but I’d bet 15 to 20 years and those apartments will be dumps.
> The apartments will get shabby, some people will leave and some will come in. <
There’s a huge apartment complex about five miles from me. It was really nice. But my area has economic challenges. People are leaving. So the owner of the complex had trouble renting out all the apartments.
Then he hit upon a solution. Accept Section 8 renters. Well, the whole place went to hell pretty quickly. Fights, shootings, drug dealings. It’s now so bad that the local police force has a substation there. Most of the good tenants are gone.
Better had the owner left a few apartments vacant.
Problems are mounting for multifamily syndicator GVA.
The Austin-based firm is set to lose two properties to foreclosure after defaulting on nearly $125 million in loans. The apartment complexes, Falls on Bull Creek and Park at Walnut Creek, are the latest to go sideways for GVA. Founded by former golf marketer Alan Stalcup in 2015, the firm recently defaulted on $288 million in loans for Houston properties as well.
https://therealdeal.com/texas/austin/2023/12/06/gva-defaults-on-125m-in-austin-multifamily-loans/
“Then he hit upon a solution. Accept Section 8 renters. Well, the whole place went to hell pretty quickly.”
Do the opposite, sell the units as condos, home-ownership produces a different attitude and care.
Sounds like a good candidate for conversion to “Illegal Aliens Pretending To Be Refugees Heights” style housing. Of course, since this one is in Texas, maybe the state could put the entire apartment complex on a bus and send it to NYC. Or Martha’s Vineyard.
Why not post the whole thing right here?
“sell the units as condos”
That can work if the developer maintains the units and does not wait until the last minute to make the move.
Otherwise they will be so broke that they will not be able to keep up with maintenance and repairs.
In a year or so banks will have lots of developers running to them begging for loans for just this purpose—and in most cases the banks will show the developers the door.
The higher interest rates have raised the cost of capital almost 5%—enough to break the back of the majority of developers and scare away most banks from any new activity in this space.
2024 and 2025 bankruptcies and defaults are going to be epic.
Sorry to hear that but I’ve seen it since I was in Apartment management in Atlanta in the 70’s.
It is called a BUSINESS CYCLE.
It’s also getting confusing. All the other sky-is-falling doom pr0n FReepers tell me that Blackrock is cornering the rental market, and if I don’t subscribe to their dorm newsletter (and they ALWAYS accept payment in fiat currency…), then I’ll eat bugz. But now, apartments are a “disaster.” So many fears being peddled, so many snake oil salesmen…btw, Citizens Watch Report sucks as bigly as Confounded Interest.
Business cycles happen. Strong growth leads to easy money which begets tightening which begets a contraction and elevated defaults. We bottom out, green shoots form, and growth commences. Rinse and repeat for millennia. By the way, aside from CRE, commercial defaults aren’t scary high.
The only difference this time is Blackrock is the Bad Guy vs Halliburton et al. I wonder how many FR doomsayers today were posting on DU in 2008.
So, what’ll it be: Conservatives continue their transition into milquetoast economic losers afraid of the WEF, Blackrock and other bogeymen, or man-up and see that people are messin’ with minds?
It is called a BUSINESS CYCLE
True, and with each cycle comes opportunity.
I pretty much agree with your post. But I must add one thing.
Unlike in times past, today there is relentless government interference. And it’s at all levels - local, county, state, and federal.
Off the top of my head I can think of three quality businesses within a mile of me that are no more. All three were torpedoed by government red tape. “You must do this. You mustn’t do that.”
All three locales are now empty. And they’ll probably stay that way.
I'm glad the author made sure to point out that a $125 million loan is substantial.
I don't know about Texas, but in Maryland if you want to convert an apartment building to condos you need to get consent from all the existing tenants, an impossible feat in a large apartment complex.
This is what happens when the government imposes a rent moratorium. Now Black Rock can swoop in and buy the debt for pennies on the dollar. All part of “Build Back Better”.
Dude! If an apartment company cannot survive in booming Austin and booming Houston, either they are crooked or Run the sky is falling!
The real problem no one is talking about....is the Federal Reserve.
They are doing exactly what it takes to destroy businesses with those who borrowed money going first. Others will follow whether borrowers or not because of the chain effect.
“commercial defaults aren’t scary high”
This is correct—so far.
However if you are familiar with financial statements and the tricks behind them it quickly becomes clear that many of these firms are hiding a disaster in the making.
The higher interest rates have raised the cost of capital. This means that the value of all income producing estate assets is substantially lower.
This is math—since the value of these assets is the capitalized net present value of future returns.
Falls on Bull Creek was built in 1983. It appears to be in disrepair and reviews are really bad.
I don’t know what the expected life of wood frame 3 story apartment building is, but 50 years is getting towards needing either a lot of maintenance or a teardown rebuild. Or possibly continued slumlord operation as Section 8 housing.
Slow rent growth, my aunt fanny. Floating-rate debt can easily be passed on to renters. What a pile of lies. Someone is monkeying with the books. Houston is the 2nd fasting growing city in the nation and Austin is 6th.
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