Foreclosures in Texas’ multifamily real estate sector have increased sharply, according to panelists at the recent Connect CRE Texas Multifamily conference. While the state’s strong demographics have allowed major metropolitan areas to absorb a large supply of new multifamily units, experts say signs of distress are mounting and could worsen.
Data presented at the conference showed that foreclosures on commercial real estate loans in Texas rose from $400 million in July to more than $700 million projected for September. At an August auction in Harris County, operator Fercan Kalkan faced foreclosure on 3,000 units tied to at least $140 million worth of loans.
“We’re in the early stages of this,” said Rob Walton of Trimont during a panel discussion titled “How Distress is Rewriting the Texas Playbook.”
Conference speakers described a market increasingly favorable to renters. Kimberly Byrum of Zonda Advisory noted that concessions remain widespread, with many owners offering between six and eight weeks of free rent. JLL’s Kai Pan added that Class A operators are competing by adding amenities such as golf simulators and pickleball courts to encourage tenant retention: “making the renter feel like they don’t have a reason to move,” Pan said.
Marketing budgets among operators have seen the largest year-over-year increase as landlords try to convince tenants to renew leases, Byrum said.
In Austin, rents have dropped so much that the city now leads nationally in rental affordability. According to Pan, Austin renters spend just 16.8 percent of their income on rent on average. Over the past decade, Austin has experienced significant growth: its population grew by 30 percent and jobs by 48 percent—higher than average rates among Sun Belt cities.
“Everyone’s watching for Fed cuts,” said Matt Hiller of George Smith Partners, echoing concerns about interest rates expressed last year.
Experts agreed that high interest rates remain a key issue. “That’s where the problem exists,” said Steve Pumper of Transwestern.
James Shevlin from CWCapital pointed out that over the next five years, $19 billion in CMBS loans tied to Texas multifamily properties will mature: “It’s trouble,” he said.
Multifamily investors without substantial capital reserves are particularly vulnerable; many focused on value-add properties but now lack funds for needed updates after interest rate hikes made financing more expensive. Walton observed that many distressed or foreclosed properties are also in poor condition.
“A drop in interest rates and cap rates will help,” Walton concluded.
