An apartment portfolio in Austin owned by Keller Capital has seen its appraised value fall by nearly half, following the transfer of its commercial mortgage-backed securities (CMBS) loan to special servicing. The updated appraisal values the two-property portfolio at $98.9 million, a 47 percent decrease from $187.9 million in 2023, according to Morningstar Credit. This drop places the portfolio’s value below the outstanding balance of the $110 million CMBS loan.
The loan is tied to Orbit Apartments and Starburst Apartments, both located in far northeast Austin. The properties have been delinquent on their loan since April and were moved to special servicing for default, Trepp reported. Issued in 2023, the loan is scheduled to mature in May 2028.
Deed records identify Orem, Utah-based Keller Capital as the borrower. The company acquired the properties in 2019 from Laurel Ridge, an investor based in Tampa.
The two complexes together comprise 840 units at addresses 8800 and 8900 North Interstate Highway 35. The loan equates to approximately $131,000 per unit. Built in the early 1980s and renovated in 2022, Orbit Apartments are valued at $43.7 million this year while Starburst Apartments are valued at $58.1 million according to appraisal district records.
A significant increase in apartment supply and rising interest rates have contributed to instability in Texas’ multifamily market, particularly affecting older properties that require maintenance or upgrades. Last year alone, Austin saw delivery of about 25,000 new apartment units based on Yardi Matrix data (https://www.yardimatrix.com/). This influx has led to falling rents and lower occupancy rates; MRI ApartmentData recorded citywide occupancy at 84.5 percent in April with rents down by 7.6 percent compared to a year earlier (https://www.apartmentdata.com/).
In recent years, investors purchased many older Texas apartments with plans for renovation and resale amid low interest rates but now face challenges due to increased borrowing costs and construction expenses combined with declining property valuations.
Industry experts warn that further distress may be ahead as approximately $19 billion worth of CMBS loans tied to Texas multifamily assets are set to mature over the next five years.
“Just before the delivery deluge, investors swept through Texas metros when interest rates were low, picking up vintage apartments at high valuations with plans to renovate them, raise rents and sell for a profit. Instead, interest rates rose, as did construction costs, and valuations dropped, spelling trouble for many of these investors.”
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